Ethanol nation: Brazil finds energy freedom with sugar-based fuel

[6 Shooter]

Stations in São Paulo, Brazil, give the option of gasoline or ethanol.

Pull into any fuel station in Brazil and the question will be the same: "Álcool ou gasolina?" Ethanol or gasoline?
This South American nation is the first country in the world to adopt ethanol as a major fuel. Instead of relying on oil from the Middle East, Brazil looks to its fields of sugarcane to help power its cars and trucks. Most vehicles sold here are capable of running on either ethanol or gasoline, and the country is well on its way to creating the world's first ethanol-based economy.

Many see Brazil as a model for America's transition from an economy dependent on foreign oil to one based on several alternative fuels, including ethanol. But while Brazil is a laboratory for U.S. automakers and a case study for policymakers, its embrace of ethanol is the result of very different historic, political and agricultural realities.

"I've talked to a lot of U.S. government officials, and they say, 'Let's just replicate the Brazil experience,' " said Ray Young, head of General Motors Corp.'s Brazilian operations. "But it's not that easy."

Where cane is king

The biggest difference is where each country gets its ethanol.

In the United States, most ethanol comes from corn. In Brazil, it comes from sugarcane.

"This land is some of the best in the world," said José Pilon, proudly pointing to rich red soil as he surveys acres of sugarcane that spread out in every direction from his Santa Maria Plant, a sugarcane refinery about two hours west of São Paulo.

His well-worn red polo shirt and aging Volkswagen sedan belie Pilon's status as one of the biggest planters in the region and a major refiner. His combined operations grossed $300 million last year and he sits on the board of Brazil's most powerful ethanol organization.

He plants 40,000 acres of cane, enough to meet about 60 percent of his plant's needs, and buys the rest from about 100 other growers in the area.

The cane fields are burned before harvesting to remove the husks and make it easier to cut. The process fills the air with cinders, forcing workers to shield their eyes with mesh-covered goggles.

Most cane harvesting is still done by hand in Brazil by migrant workers who earn about $200 a month. Each is expected to cut seven or eight tons of cane a day.

"It's not so hard," said Dilmara Souza Santos. "You have to know how to do it."

She is 23, and this is the second year she has left her home in Salvador, in the northeastern state of Bahia, to cut cane for Pilon because there is no work at home.

The plant is a massive, open-sided edifice that fills the air with a sweet aroma as it transforms cane by the truckload into sugar and ethanol.

The cane comes here to be crushed, filling the air with a dry rain of fine cane particles. It is separated into a dun-colored liquid and moist piles of fiber. As at most of Brazil's cane refineries, the fiber is dried and burned to provide electricity for the plant and the surrounding town.

Some of the liquid is turned into crystallized white sugar. Most of it is pumped next door to the plant's distillery where it is fermented to produce the pure alcohol that fuels Brazil's cars and trucks. It is a process not unlike the distillation of liquor. In fact, Pilon's father and uncles originally built the distillery to produce pinga, a popular Brazilian spirit.

"It's not complicated," Pilon said, peering into a fermentation tank. "It's just heat."

The plant runs 24 hours a day during the production season, which runs from May through November. Pilon employs 800 permanent workers and 300 more migrants like Souza Santos during the harvest season. The whole operation produces 16 million gallons of ethanol and 80,000 tons of sugar a year.

"Normally, sugar is a little more profitable, but not with the dollar the way it is," said Pilon, who makes good money either way. "You always will have customers for alcohol and sugar."

Brazil is the largest producer of sugarcane and ethanol experts here say sugarcane is a far better source for ethanol than the corn used in the United States.

It is cheaper to produce, and it takes almost six times the energy to turn corn into ethanol as it does sugarcane. Moreover, the sugarcane plant consumes much more carbon per acre than corn. In fact, proponents of Brazilian ethanol say the sugarcane it is made from consumes more carbon from the atmosphere than is created by distilling and burning the fuel.

"If you look at the whole production cycle, sugarcane is better," said Henrique Pereira, a manager of product engineering at GM in Brazil, and one of the automaker's resident ethanol experts.

Ethanol by decree

Brazil's ethanol odyssey began with the global oil crisis of 1975.

At the time, Brazil had no domestic petroleum production, and the disruption of oil supplies from the Middle East combined with the hyperinflation already rampant in Brazil to create an economic crisis.

"Oil became almost 50 percent of our hard-currency expenditures," said Rogelio Golfarb, director of governmental affairs and public relations for Ford Motor Co., and the outgoing president of Brazil's auto industry trade group.

Brazil had already begun stretching its gasoline supply by mixing it with ethanol to produce gasohol. Then, the generals running the country decided to switch entirely to ethanol. They set quotas for sugar refineries, requiring each one to devote a percentage of its output to ethanol.

In 1976, the military regime declared that only ethanol could be used in Brazilian motorsports, a move aimed at encouraging popular acceptance. By 1977, all fuel stations were required to pump ethanol -- a law that remains in place today. A year later, taxis, police vehicles and vehicles operated by Brazil's state-run utilities had to run on the new fuel.

In 1979, the government ordered automakers to begin shifting production to ethanol-powered vehicles for the domestic market. Until then, the companies modified existing engine designs to meet the growing demand for ethanol vehicles. Now, they began producing entirely new engines designed to run only on ethanol.

By the mid-1980s, it was hard to find a gasoline-powered car in Brazil. Almost all production had shifted to ethanol-only vehicles, and consumers had embraced the new technology, encouraged by hefty taxes and registration fees imposed on gas-powered vehicles. It also helped that ethanol prices were 60 percent of gasoline prices.

Just when the transition to ethanol seemed complete, the whole experiment collapsed in the late 1980s as world sugar prices skyrocketed and oil prices retreated.

Almost overnight, cane growers began switching their refineries back to sugar production to take advantage of the high prices. Brazil's supply of ethanol evaporated, and soon fuel stations stood empty. Cars were abandoned by the side of the road. Some desperate motorists tried filling up with gasoline and destroyed their engines.

Though the sugar boom was short-lived, the damage was done. Brazilians turned their backs on ethanol. Dealers could hardly give their stocks away. Democracy had been restored in Brazil, and market forces took over where the generals left off. By 1990, production of ethanol-capable vehicles had dropped to less than 20 percent of the overall national output.

But the promise of ethanol remained too great for Brazil to ignore.

Flex-fuel technology emerges

In the early 1990s, GM and Ford began working on flexible-fuel engines that could run on gasoline and ethanol, coordinating their research-and-development efforts in Brazil with those under way in the United States.

Ford unveiled Brazil's first prototype capable of running on either gasoline or alcohol in 2002. But GM brought the first flex-fuel vehicle to market in 2003.

Fortunately for GM, the timing coincided with a big drop in ethanol prices, and its new bi-fuel cars were an immediate hit. Today, almost all GM vehicles sold in Brazil are powered by flex-fuel engines.

Nearly 60 percent of Ford's sales in Brazil are flex-fuel vehicles today. That number is skewed by the large number of pickups it sells, most of which are diesel-powered.

Brazil's transition to flex-fuel vehicles has been a boon for U.S. automakers, because it is one area in which both Ford and GM are well ahead of the Japanese, who have been slow to embrace the new technology. Toyota Motor Corp. is now launching its first flexible fuel vehicle in Brazil -- the last major manufacturer to do so.

"We need to develop affordable technologies for emerging markets," said Young, head of GM's Brazilian operations. "We could never afford hybrid systems here in Brazil. The Brazilian public perceives this technology as high technology."

GM's Brazil team is working closely with its engineers in the United States to develop flex-fuel technology for the U.S. market. However, Young said it is not as simple as sharing engine designs.

"Our emissions standards in Brazil are simpler than the United States," he said. "For the United States to replicate our program here, it would require a lot more work."

New fuel, new economy

Today, Brazilians are switching back to ethanol, thanks to the backstop of flex-fuel engines that they see as a hedge against any future fuel shortage.

"With flex fuel, the risk disappeared," Ford's Golfarb said.

Last year, seven new refineries came on line in Brazil, and 18 more are under construction.

The switch to ethanol has helped stabilize gasoline prices in Brazil, which now produces more than enough gasoline to meet the reduced demand for that fuel in the largely ethanol-based economy.

Today, ethanol represents about 40 percent of all non-diesel fuel used by motorists in Brazil. It yields better performance, but shorter range and reduced efficiency. On the other hand, it is much cheaper than gasoline -- at least during the period of the year when it is produced.

Ethanol is only manufactured in Brazil between May and November because refineries have nothing to process at the height of the sugarcane growing season. As a result, prices fluctuate during the year and Brazilians often switch back to gasoline during the period ethanol refineries are idle.

To help motorists decide which fuel to use, GM includes a handy chart in every vehicle owner's manual. Drivers note the price of ethanol, the price of gasoline and the chart tells them which makes the most fiscal sense.

This year, the price of ethanol in São Paulo immediately went to 1.499 reais per liter (about 75 cents) once production began in May, compared to 2.399 reais per liter (about $1.20) for gasoline. In Brazil, even regular gasoline is about one-quarter ethanol.

Brazil expects to double ethanol production by 2013. Some environmentalists worry that expanding ethanol production will put further pressure on the already decimated Brazilian rainforests. But Golfarb said those fears are unfounded.

"The Amazon forest is the worst place in the world to plant sugarcane, because of the humidity," he said. "You need a dry season."

Moreover, there is no shortage of good cane land elsewhere in Brazil, where 7.4 percent is under cultivation. Of that, less than 1 percent is used to grow sugarcane, and that amount is already meeting the nation's ethanol needs.

Planters like Pilon would like to see more Brazilian ethanol used in the United States, where government subsidies still make it cheaper to use ethanol from corn.

"We have the land, we have the technology, we have the expertise," Pilon said. "There is all this global demand, but sales are not following because countries are not importing ethanol from Brazil. Every night, I am praying for (President) Bush to reduce the tariffs."

But others in Brazil say this would only drive up the price of ethanol and take away the financial incentive Brazilians have to use the fuel.

In his State of the Union address in January, Bush called for a 20 percent reduction in U.S. gasoline consumption over the next 10 years. To help achieve that goal, he wants to increase annual U.S. consumption of ethanol from 5 billion gallons today to 35 billion gallons by 2017.

In March, Bush traveled to Brazil to discuss ways to expand ethanol production with President Luiz Inácio Lula da Silva.

They signed a landmark agreement to develop biofuel technology and promote private investment in ethanol in other countries, something that is viewed as a necessary next step toward creating a global ethanol industry.

"It obviously gave ethanol a global dimension that was extremely relevant for Brazil

Article

[Tom73]

My concern is that this puts the gas station and the grocery store in competition with each other. Food vs. energy.

[6 Shooter]

Tom - Aren't we getting into that with E-85 right now?

[U.P. John]

Doesn't sound like they gouge themselves like we do, and it doesn't even take much land resources...

Moreover, there is no shortage of good cane land elsewhere in Brazil, where 7.4 percent is under cultivation. Of that, less than 1 percent is used to grow sugarcane, and that amount is already meeting the nation's ethanol needs.

[Tom73]

Ethanol could leave the world hungry
One tankful of the latest craze in alternative energy could feed one person for a year, Lester Brown tells Fortune.

By Lester Brown
August 16 2006: 5:39 AM EDT

(Fortune Magazine) -- The growing myth that corn is a cure-all for our energy woes is leading us toward a potentially dangerous global fight for food. While crop-based ethanol -the latest craze in alternative energy - promises a guilt-free way to keep our gas tanks full, the reality is that overuse of our agricultural resources could have consequences even more drastic than, say, being deprived of our SUVs. It could leave much of the world hungry.

We are facing an epic competition between the 800 million motorists who want to protect their mobility and the two billion poorest people in the world who simply want to survive. In effect, supermarkets and service stations are now competing for the same resources.

This year cars, not people, will claim most of the increase in world grain consumption. The problem is simple: It takes a whole lot of agricultural produce to create a modest amount of automotive fuel.

The grain required to fill a 25-gallon SUV gas tank with ethanol, for instance, could feed one person for a year. If today's entire U.S. grain harvest were converted into fuel for cars, it would still satisfy less than one-sixth of U.S. demand.

Worldwide increase in grain consumption

The U.S. Department of Agriculture reports that world grain consumption will increase by 20 million tons this year, roughly 1%. Of that, 14 million tons will be used to fuel cars in the U.S., leaving only six million tons to cover the world's growing food needs.

Already commodity prices are rising. Sugar prices have doubled over the past 18 months (driven in part by Brazil's use of sugar cane for fuel), and world corn and wheat prices are up one-fourth so far this year.

For the world's poorest people, many of whom spend half or more of their income on food, rising grain prices can quickly become life threatening.

Once stimulated solely by government subsidies, biofuel production is now being driven largely by the runaway price of oil. Many food commodities, including corn, wheat, rice, soybeans, and sugar cane, can be converted into fuel; thus the food and energy economies are beginning to merge.

The market is setting the price for farm commodities at their oil-equivalent value. As the price of oil climbs, so will the price of food.

In some U.S. Cornbelt states, ethanol distilleries are taking over the corn supply. In Iowa, 25 ethanol plants are operating, four are under construction, and another 26 are planned.

Iowa State University economist Bob Wisner observes that if all those plants are built, distilleries would use the entire Iowa corn harvest. In South Dakota, ethanol distilleries are already claiming over half that state's crop.

The key to lessening demand for grain is to commercialize ethanol production from cellulosic materials such as switchgrass or poplar trees, a prospect that is at least five years away.

Malaysia, the leading exporter of palm oil, is emerging as the biofuel leader in Asia. But after approving 32 biodiesel refineries within the past 15 months, it recently suspended further licensing while it assesses the adequacy of its palm oil supplies. Fast-rising global demand for palm oil for both food and biodiesel purposes, coupled with rising domestic needs, has the government concerned that there will not be enough to go around.

Less costly alternatives

There are truly guilt-free alternatives to using food-based fuels. The equivalent of the 3% of U.S. automotive fuel supplies coming from ethanol could be achieved several times over - and at a fraction of the cost - by raising auto fuel-efficiency standards by 20%. (Unfortunately Detroit has resisted this, preferring to produce flex-fuel vehicles that will burn either gasoline or ethanol.)

Or what if we shifted to gas-electric hybrid plug-in cars over the next decade, powering short-distance driving, such as the daily commute or grocery shopping, with electricity?

By investing not in hundreds of wind farms, as we now are, but rather in thousands of them to feed cheap electricity into the grid, the U.S. could have cars running primarily on wind energy, and at the gasoline equivalent of less than $1 a gallon.

Clearly, solutions exist. The world desperately needs a strategy to deal with the emerging food-fuel battle. As the world's leading grain producer and exporter, as well as its largest producer of ethanol, the U.S. is in the driver's seat.