Brazil's Biofuel Strategy Pays Off as Gas Prices Soar

By Dan Morgan
Washington Post Staff Writer
Saturday, June 18, 2005

PRADOPOLIS, Brazil -- Outside the cavernous Sao Martinho refinery, the air smells of molasses as a quarter-mile-long caravan of trucks piled high with sugar cane waits to unload cargo, signs that the world's largest sugar harvest is moving into high gear.

Such bumper sugar crops have often meant worldwide gluts, low prices and headaches for politicians in the more than 100 countries where sugar cane is grown, but not this year in Brazil. About half the cane brought here will be made into ethanol as part of a 30-year gamble to substitute fuels made from crops for imported oil.

As international oil prices soar, that bet has put Brazil at the forefront of a "biofuels" movement in which many countries view sugar cane, corn, soybeans, beets, cornstalks and native grasses as cleaner, money-saving substitutes for oil produced in politically unstable countries. Ethanol is higher in power-producing octane than most gasoline and can reduce tailpipe emissions of carbon monoxide and harmful particulates.

The trend in Brazil has far-reaching implications for environmental policy, trade and economic development in poor countries that may have a bright future producing crops that can be easily turned into fuels. Biofuels also could be alternatives for U.S. farmers facing cuts in large federal farm subsidies on traditional crops, according to some agricultural economists.

Congress, the Bush administration and U.S. industry are aware of ethanol's potential. During Senate floor debate Thursday on major energy legislation, Sen. Maria Cantwell (D-Wash.) said Brazil's example showed that biofuels were one way to break the "addiction" to imported oil.

Efforts to gain wide acceptance in the United States have faced political, economic, and technical obstacles not present in Brazil.

President Luiz Inácio Lula da Silva has vowed that his country will become the world's leader in renewable energy. It is already the largest producer and exporter of ethanol, sending half a billion gallons a year to a dozen countries, including the United States.

"We don't want to sell liters of ethanol, we want to sell rivers," Agriculture Minister Roberto Rodrigues told Japanese Prime Minister Junichiro Koizumi last year.

About a third of the fuel Brazilians use in their vehicles is ethanol, known in Brazil as "alcohol." That compares with 3 percent in the United States. All gasoline sold in Brazil contains at least 26 percent ethanol, but motorists driving flexible-fuel cars have the option of filling up with pure ethanol, or E100, which currently is selling for about half the price of the blend.

Use of pure ethanol will rise sharply as carmakers in Brazil such as General Motors and Volkswagen make more flexible-fuel cars. Half the new vehicles sold this year will be able to use either pure ethanol or the blend, according to the Sao Paulo Sugar Cane Industry Union.

In the United States, the sugar-cane industry has had little incentive to diversify into ethanol production because import quotas support U.S. sugar prices far above world levels. Expansion of sugar cane acreage beyond Hawaii, Florida and the Gulf Coast is limited by the need for a long, frost-free growing season. The House-passed energy bill would authorize a three-year demonstration program for producing ethanol from sugar cane.

Most U.S.-produced ethanol is now made from ground corn in a process that has been faulted as inefficient. Corn yields less sugar per acre than sugar cane, and the refining uses substantial amounts of energy. To keep ethanol competitive with gasoline, major refiners such as Archer Daniels Midland Co. have relied since the 1970s on a tax subsidy, now 51 cents a gallon.

U.S. refiners sell a gasoline blend containing 10 percent ethanol in many parts of the Midwest, but they have been in no hurry to use more. Only a few hundred gasoline stations, mostly in the Midwest, offer a near-pure blend known as E85. Adapting cars to pure ethanol can be done relatively inexpensively by adding a fuel sensor and corrosion-resistant hoses, but there are only about 4 million flexible-fuel cars on U.S. roads out of more than 200 million.

Now the spike in gasoline prices has given ethanol a sudden edge.

Ethanol was selling for 30 cents less a gallon than gasoline this month in the Chicago wholesale market, even before refiners deducted the federal tax subsidy. Drivers in parts of Minnesota were paying $1.59 for a gallon of E85, compared with $1.99 for regular gasoline.

"If this doesn't scream that we need something more to make the oil companies buy this product, I don't know what does," said Monte Shaw, spokesman for the Renewable Fuels Association.

A provision in the Senate energy bill requires U.S. refiners and importers to double use of ethanol and other agriculture-derived fuels by 2012. It is supported by farm-state senators, consumer groups, several labor unions and environmental organizations. But the American Petroleum Institute, representing major oil companies, is fighting to keep it out of the final bill.

The United States imposes a stiff tariff on imported ethanol. But over the past 12 months, 160 million gallons of the Brazilian product still entered the country. The U.S. agribusiness giant Cargill Inc., the third-largest U.S. ethanol refiner, announced plans last year to refine Brazilian ethanol in El Salvador and export it to the United States duty-free under provisions of the Caribbean Basin Initiative.

The tariff is a sore point with Rodrigues, Brazil's agriculture minister. In 1948, his father acquired a bankrupt coffee plantation not far from the Sao Martinho sugar refinery, about a three-hour drive from Sao Paulo. Now he grows sugar cane on 7 square miles of rolling countryside.

"If the U.S. and Brazil would open their markets, they will contribute to democracy and peace," he told a group of visitors to his farm last month.

Brazil launched a "pro-alcohol" program in the 1970s with incentives for distilleries and auto companies that made ethanol-only cars. But motorists turned away from those cars in 1989 when they were squeezed by high prices and shortages.

In the 1990s, some distillers went bankrupt and many refiners and sugar-cane farmers fell on hard times. But the government stuck by its commitment to alternative fuels, purchasing unsold stocks of ethanol and showering tax breaks on cabdrivers who used ethanol.

Brazil has added 2.4 million acres of sugar cane since 1996, according to a report from the officer of the U.S. agricultural attaché in Brazil. This trend could be accelerated by a recent World Trade Organization decision that could end the dumping of sugar on world markets by the European Union.

About 70,000 farmers produced 385 million tons of sugar cane last year, and refiners made 4 billion gallons of alcohol fuel -- enough to replace 460 million barrels of oil.

Mills such as Sao Martinho are highly efficient. The pressed sugar-cane juice can either go to huge fermentation vats to make alcohol or be spun in centrifuges to produce sugar and molasses, depending on which product is priced more favorably on any given day. The plant supplies its own electrical power by burning the crushed outer stalk of the cane, known as bagasse .

Exact comparisons are hard to come by, but mill manager Mario Ortiz Gandini said the mill can produce sugar for less than half the price of U.S. ethanol from corn. "No country can beat us," he said.

Sugar's role in producing a "green" fuel is part of a broader rehabilitation of the crop's reputation. Colonial-era sugar planters, mainly Portuguese and Spanish, used slaves to hack and burn their way into northeast Brazil's wild interior, opening up the country but giving the crop a lasting reputation for appalling working conditions and environmental desecration.

"Sugar comes from a disreputable past, and there are still labor issues, but from what I have seen in Brazil, the energy balance and its environmental impacts make it an extremely promising source of energy," said Kenneth A. Cook, president of the Washington-based Environmental Working Group.

Paulo Rodrigues, who manages the family sugar plantation for his father, acknowledges that "sugar has had a bad reputation." But, he said, sugar cane requires fewer chemicals than any crop except pasture. His farm uses wasps to fight insects, reducing the need for chemical pesticides. The crop's dense leaves absorb large amounts of carbon dioxide, making it a good recycler of the greenhouse gas implicated in global warming.

Traditionally, some of the carbon is released back into the atmosphere when the leaves are burned off before the cane is cut. But according to William L. Burnquist of the Sugar Cane Technology Center, Brazilian environmental laws require the practice to be phased out.

Burning is being replaced by "green cane harvesting," in which machines cut unburned cane and separate the leaves mechanically. Mechanical harvesting eliminates the need for some temporary field jobs, but Burnquist noted: "These aren't jobs that you would wish for anybody."

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