Summary
Brazil's comprehensive vehicle flex-fuel or ethanol plan is a model for other countries considering alternative energy including the U.S. renewable energy and energy-efficiency standards, The American Clean Energy and Security Act of 2009, and clean energy financing.
Analysis
Brazil has demonstrated a serious commitment to building a Green economy through its investment in alternative energy. Several recent statistics on Brazil’s renewable energy industry in comparison to the U.S. have been published by the Iowa State University Extension office. Renewable energy constitutes 46 percent of Brazil’s total annual energy supply versus only seven percent for the U.S. The largest source of renewable energy in Brazil is ethanol, comprising one-third of Brazil’s Green energy supply.
First and foremost, there are two fundamental types of ethanol. First, cellulosic ethanol can be produced from a wide variety of cellulosic biomass feedstocks including agricultural plant wastes (corn stover, cereal straws, and sugarcane bagasse), plant wastes from industrial processes (sawdust, paper pulp) and energy crops grown specifically for fuel production, such as switchgrass. Second, conventional ethanol is derived from grains such as corn and wheat or soybeans, and it requires fossil fuels to produce heat during the conversion process, generating substantial greenhouse gas emissions.
Interestingly enough, 90 percent of Brazil’s electricity is derived from renewable sources; primarily hydroelectricity, as most clean alternative energy is the U.S. is also garnered from hydropower at this time. However, only nine percent of the U.S. electricity supply is from renewable sources; approximately half of American electricity is generated from coal. Remarkably, Brazil became net energy independent in 2006, after many years of energy dependence, due to the expansion of its ethanol program for fueling vehicles. During the 1970s, Brazil was importing over 80 percent of the oil it consumed, analogous to the U.S even until now. Large oil imports and high oil prices were damaging Brazil’s economy; thus, in 1975 Brazil implemented the National Alcohol Program. It focused on four policies to accelerate ethanol production:
1) It required Petrobras(NYSE:PBR), its major oil company, to purchase a pre-set amount of ethanol.
2) It provided $4.9 billion of low-interest loans to stimulate ethanol manufacturing.
3) It offered subsidies so that ethanol’s pump price was 41 percent lower than the price of gasoline.
4) It required that all fuels be blended with at least 22 percent ethanol (E22).
Even though crude oil prices were intermittently low in the 1980s and 90s, Brazil maintained its ethanol program in contrast to America’s cyclical emphasis on renewable energy and fuel efficiency standards, depending on the price of oil. In 2000, Brazil deregulated the ethanol market and removed its subsidies, but the ethanol mandate was continued. Depending on market conditions, all fuels were required to be blended with 20 to 25 percent ethanol. Currently, the mandate is 25 percent ethanol in gasoline, which was approved on June 1, 2007.
According to Petrobras CFO Almir Barbassa, ethanol now powers more than 50% of all the light vehicles in the nation. In addition, Petrobras predicts that by 2020 the gasoline market for light vehicles will contract by 17% and that sugar cane based ethanol will fuel 75% of all light vehicles. This company spokesman has cited improvements in production processes, which have allowed ethanol to be priced 40% cheaper than gasoline, as the reason for its competitiveness. Flex-fuel cars that can handle both ethanol and gasoline constitute 90% of the new car sales in Brazil, which will drive the market. A recent study in Biofuels Digest states that ethanol reduces liquid fossil fuel demand by slightly less than 2% globally. Brazil’s ethanol industry is based on the more environmentally-friendly sugar cane ethanol, which requires significantly less greenhouse gas emitting fossil fuel processing, whereas the Bush administration dramatically increased subsidies for conventional ethanol, primarily derived from corn stocks, as part of a knee-jerk reaction to escalating oil prices in 2007. Moreover, 75% of all federal renewable energy tax incentives in 2007 were received by the ethanol industry, which is more than four times the $690 million in credits available to companies trying to expand all other forms of renewable energy, including solar, wind and geothermal power, according to a report in Force Change. Several of the corn-ethanol plants built using federal dollars closed in 2008 and 2009, as oil prices plunged simultaneous with the lack of a comprehensive ethanol fuel policy in place as in Brazil.
In comparison, the Obama administration has also been supportive of ethanol but also has emphasized increased gasoline fuel mileage and automobile emissions standards as the primary method for greening the American auto industry and curbing carbon emissions. However, an undetermined portion of Stimulus funding for renewable energy will be utilized for ethanol fuel research and subsidies, including more of a focus on the greener cellulosic ethanol than the Bush administration. What’s more, past research and development funding for hydrogen fuel cell-based vehicles was eliminated in their initial 2010 U.S. Budget proposal. According to a Congressional Budget Office report, the increased use of ethanol in 2007-08 accounted for about 10 percent to 15 percent of the rise in food prices, as it became a cash crop, while the remaining inflation in food prices was attributed to elevated oil prices.
The big four auto makers in Brazil, General Motors(NYSE:GM), Ford, Fiat and Volkswagen(ETR:VOW), whom account for 80 percent of the Brazilian auto market, joined forces with the Sugar Cane Industry Association (Unica) in April in a campaign aimed at expanding the use of cellulosic and sugar cane-based ethanol in flex-fuel vehicles. Local subsidiaries of U.S.-based General Motors Corp and Ford Motor Co(NASDAQ:F), Italy's Fiat SpA(BIT:F) and Germany's Volkswagen AG(ETR:VOW) will collectively distribute 2 million free booklets explaining the benefits of ethanol for consumers who buy their flex-fuel cars in Brazil. This effort is part of Unica's efforts to change consumers' view on the fuel, since most flex-fuel car owners decide whether to use ethanol or gasoline solely based on price. Unica believes that a bigger awareness of ethanol's environmental benefits would increase its demand. However, the booklets inflate the numbers showing that ethanol has 90 percent less greenhouse gas emissions than gasoline, emphasizing that cane absorbs the carbon dioxide while it grows in the fields. In addition, the literature is partially misguided in showing the two fuels as equal substitutes based on performance, since high ethanol blends have a low vapor pressure; so starting the engine in cold weather can be a problem. According to Unica, since 2003, ethanol used by flex-fuel cars has sequestered 45 million tons of greenhouse gases - the equivalent of planting 144 million trees in 20 years. These numbers have been supported by the Iowa State University Extension office’s data and may actually be an underestimate.
In summary, Brazil has led the world in ethanol development. This country has the advantage of using its abundant sugar cane harvests rather than corn, producing an ethanol that contains several times as much energy as is used to produce it whereas, Alexander Farrell, a UC Berkeley professor of energy and resources, has stated that U.S.-made ethanol contains approximately only 25% more energy than is used to produce it. A 2009 CARB study estimates that sugar cane ethanol from Brazil has a significantly lower carbon footprint than gasoline or corn-based ethanol, but the high U.S. tariff on ethanol imports has kept this product out of the market. Studies have found that the current use of ethanol reduces greenhouse-gas emissions versus gasoline; but as ethanol production increases, properly gauging its emissions depends on changes in land use and fossil fuel consumption utilized in treatment.
Corn-ethanol, unlike the emerging cellulosic ethanol processing, does not make use of agricultural waste, which has a land use impact. U.S. scientists are pursuing a breakthrough that would enable many kinds of organic farm waste and even trees to be converted to ethanol. In the mean time, proponents say that ethanol in general will eventually provide a cost-effective alternative to gasoline and will reduce American dependence on foreign producers of crude, as well as creating an indigenous U.S. industry that supports farmers. In contrast, T. Boone Pickens is strongly advocating natural gas as the answer for American energy independence.
Although ethanol has a low public profile as an alternative fuel in California, it is rapidly gaining attention in the Midwest, where the corn-based fuel is primarily produced and more widely available. A blend of 85% ethanol (a form of alcohol) and 15% gasoline is sold as E85 fuel at approximately 2131 U.S. gas stations, mainly in the Midwest, according to E85prices.com. The fuel contains about 25% less energy than traditional gasoline, so fuel mileage drops and the cruising range on a tank decreases. Producing flexible fuel vehicles is part of GM's effort to reduce America's dependency on foreign oil," as GM spokesman Tom Read recently stated, "For every 37 gallons of E85 used, one barrel of oil is saved. Because E85 ethanol is a renewable fuel made from U.S. grown bio material it helps reduce greenhouse gas emissions." According to auto industry spokesmen, it only costs an extra ~$150 per vehicle to accomodate both ethanol and gasoline fuel. GM and Ford have previously committed to offering 80% of their fleet as flex fuel vehicles by 2015. For most consumers to make the plunge for E85 over gasoline, several studies have shown it should sell for 25% (preferrably more) less than gasoline, but the discount nationally for E85 is only 16% at this time, according to E85prices.com. The recent CBO report mentioned earlier appears to be leaning towards ethanol support, possibly reflecting findings at Argonne National Laboratory, which state that compared with gasoline, corn-ethanol amounts to a 20% reduction in lifecycle greenhouse-gas emissions. Corn-ethanol, although cleaner than gasoline, should perhaps be considered more of a transition fuel, as it still requires a non-waste product, making it less sustainable in the long-run.
The moral of the story is that a highly educated long-term vision and commitment is necessary for a country’s automobile industry. Brazil made strides towards ethanol over 30 years ago and has been reaping the benefits in the last several years in its energy independence and reduced greenhouse gas emissions. Their comprehensive vehicle fuel plan is a model for other countries considering alternative energy including the U.S. renewable energy and energy-efficiency standards, The American Clean Energy and Security Act of 2009, and clean energy financing.
See the following two-part series of original Source articles for additional background and reference information on this topic: part I and part II.
