How Brazil Turned Ethanol Into A Unique Success

Source: BY Ryan Villarreal, International Business Times • Posted: Monday, February 11, 2013

How Brazil Turned Ethanol Into A Unique Success

(Photo: REUTERS/Sergio Moraes) 
A gas station worker fills a car’s tank with ethanol in Rio de Janeiro, Brazil

As the U.S. debates the pros and cons of producing more ethanol as fuel for vehicles, those looking for an ethanol success story have a prime example: Brazil, which rose in a few decades to sixth place among the world’s biggest economies thanks in part to the vegetable-derived fuel.

Brazil is an anomaly in a global economy fueled by petroleum, having effectively weaned itself off of foreign oil imports by 2006, in part due to the development of its ethanol industry, beginning in the 1970s.

While much attention has been paid to Brazil’s energy model, no other country has yet been able to replicate it.

“Brazil is unique,” said Terry McInturff, director of the Energy Commerce Program at Texas Tech University. “Ethanol is very much a niche there because of the geography and climate. It’s a huge country with ideal growing conditions for sugarcane,” the main crop from which most Brazilian ethanol is derived.

Nevertheless, Brazil’s ethanol industry continues to be an important driver of economic growth and represents an innovative solution to mitigate the problem of increasingly scarce fossil fuels.

The impetus for developing ethanol in Brazil began with the 1973 oil crisis, when the price of crude oil quadrupled within a year.

Brazil, which imported 80 percent of its oil at the time, realized it had a plentiful domestic source of energy in sugarcane, a staple of its economy for centuries.

The Brazilian government began to invest heavily in ethanol production, as well as developing the infrastructure to make it economically viable.

This involved government mandates on production levels, expansion of sugarcane cultivation and ethanol distilleries, and encouraging the sale of vehicles that could run on ethanol.

Combined with a significant increase in domestic oil production and renewable energy sources such as hydroelectric power, Brazil’s ethanol industry helped to free the country from the vicissitudes of global oil markets.

“Ethanol … highlights a technologically innovative aspect of Brazil,” said Gail Triner, Brazil Institute fellow at the Wilson Center in Washington, D.C.

“It’s been quite beneficial,” she added. “Energy supply has been a major bottleneck for economic growth there.”

At the same time, the ethanol industry has not been without its drawbacks.

For one, it competes directly with sugar production, a major export commodity.

When global prices for sugar rise, sugarcane farmers prefer to sell their crops for processing as a sugar export rather than for ethanol, forcing the government to increase subsidies to the industry to maintain production levels.

In 1988, sugar prices rose to the point that the Brazilian government could no longer maintain subsidies to the industry, and it had to import ethanol until 1996.

The industry eventually recovered when oil prices spiked in the late 1990s and demand for domestic ethanol in Brazil was renewed.

The Brazilians have since aimed to strike an equilibrium between the sugar and ethanol industries, producing more ethanol in times of low sugar demand and vice versa.

Still, Triner said there are additional tradeoffs that have yet to be fully quantified.

“Under no circumstances can anyone say that sugarcane production is environmentally friendly, and the working conditions at these plantations have been a contentious issue as well,” she said.

As energy demands increase with economic growth, Brazil has also expanded sugar cane cultivation into ecologically sensitive areas, such as the Amazon rainforest, often displacing indigenous peoples at the same time.

Ethanol may not be sustainable option for energy independence in the long run, but it has certainly has gotten Brazil a lot farther than importing oil did, and may get it far along to the next step.