Brazil's Road to Energy Independence

Sugar cane-based ethanol is one reason why the government predicts that for the first time in its history, Brazil will export as much oil as it imports.
Sugar cane-based ethanol is one reason why the government predicts that for the first time in its history, Brazil will export as much oil as it imports. (By Alexandre Meneghini -- Associated Press)
By Monte Reel
Washington Post Foreign Service
Sunday, August 20, 2006

SAO PAULO, Brazil -- Record oil prices have made the world's energy landscape a darkly foreboding place this year, inhospitable to optimism and celebration. Except in Brazil.

It has been something of a banner year here, full of milestones. The government predicts that for the first time in its history, Brazil will achieve energy equilibrium, exporting as much oil as it imports. The production of sugar cane-based ethanol is expected to reach an all-time high. And just three years after the introduction here of flex-fuel vehicles -- cars that run on either ethanol or gasoline -- several major automakers predict that such vehicles will represent 100 percent of their production by the end of the year, eliminating gas-only models.

Pull up to most service stations in this country of 185 million people and you will find fuel pumps offering three choices: ethanol, gasoline or premium gasoline. The labels are slightly misleading: The gasoline varieties are blends that contain at least 20 percent ethanol. The pure ethanol is usually significantly cheaper -- 53 cents per liter (about $2 per gallon), compared with about 99 cents per liter for gasoline ($3.74 per gallon) in Sao Paulo this past week.

"I buy gasoline only if I can't get anything else," said Alexandre Rigueirra, 28, a Sao Paulo taxi driver who modified his flex-fuel Chevrolet to also use natural gas, which is sold at many locations throughout the country. "Gasoline is always the last option."

Since President Bush this year emphasized ethanol as one possible solution to U.S. oil dependence, Brazil has become a destination of choice for curious U.S. lawmakers and venture capitalists searching for a crystal ball in which to glimpse America's future. Ethanol is not solely responsible for Brazil's newfound energy independence -- domestic oil exploration has exploded in recent years -- but it has replaced about 40 percent of the country's gasoline consumption, according to Caio Carvalhal, an analyst with Cambridge Energy Research Associates in Rio de Janeiro.

"It's amazing how sharply the level of interest in our experience here has jumped in recent months," said Eduardo Pereira de Carvalho, president of Sao Paulo's sugar cane producers union. "We receive visiting politicians from the U.S., and we get invitations to speak to the Senate Foreign Relations Committee and to leaders of investment funds. They know that Brazil's ethanol program exists, but beyond that, most of them have very little information about our actual experience."

That experience has been a sometimes painful 30-year evolution, marked by plenty of foresight and numerous false starts. It was born of a uniquely Brazilian political and economic environment, but industry analysts say it nevertheless provides lessons for a fledgling U.S. ethanol program that is already on pace to dethrone Brazil's as the largest in the world.

Subsidies and Mandates

Brazil's military dictatorship launched the national ethanol program in 1975, when about 90 percent of its fuel consumption depended on foreign oil. The government offered subsidies to sugar cane growers and forced service stations in every town of at least 1,500 people to install ethanol pumps. By the early 1980s, almost all new cars sold in Brazil ran on 100 percent ethanol.

But as the decade progressed and the military government was replaced by democracy, oil prices plummeted and the subsidies granted to ethanol producers were eliminated. Sugar processing plants turned from ethanol to edible sugar, creating a shortage of supplies at service stations. The auto industry, which had dedicated itself to ethanol-only cars, stopped producing them almost entirely.

"It was as if from one day to the next, the people who had ethanol cars had a problem on their hands, because no one wanted to buy them," said Henry Joseph Jr., head of the engineering program for Volkswagen of Brazil. "Ethanol cars went all the way from more than 90 percent of sales to less than 1 percent."

Through it all, the Center for Sugarcane Technology in Sao Paulo state -- a research facility created in the early 1970s and funded by the sugar industry -- continued working to improve efficiency in ethanol production by tinkering with almost everything from the genetic structure of sugar cane varieties to the industrial components of extraction. By the time oil prices began to rise steadily in the early years of this decade, ethanol producers had reduced production costs of a liter of ethanol from about 60 cents to about 20 cents.

Surrounded by fields of sugar cane that stretch in all directions, the center today boasts nearly 300 scientists, led by a research and development manager, Jaime Finguerut. Although he said the sugar growers recoiled when their subsidies were taken away, the move ultimately forced the industry to become more efficient. The subsidies offered U.S. farmers might be their own worst enemy, he suggested.

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