The document summarizes Brazil's strategy for developing a domestic market for bioethanol. It involved strong government support through subsidies and incentives for private sector production and consumption. This helped drive major increases in sugarcane production and ethanol use. The strategy achieved its goals but became too expensive. It transitioned to more market-based policies with deregulation in the 1980s. Ongoing analysis is evaluating sustainability indicators and socio-environmental risks to help guide further expansion of ethanol production and use.

1. Universidade Estadual de CampinasUNICAMP The creation of a domestic market for bio-ethanol in Brazil and perspectives of future expansion of ethanol production Gilberto De Martino Jannuzzi 18. June 2008 HS XV, Institut für Geodäsie, Nussallee 16, UniversityofBonn

3. Structure of this presentation Creating the market for ethanol National infra-structure Production Distribution Retail market Affordability to final consumers The private sector: the “Usineiros”, car manufacturers, Ultimate objective: self-sustainable business (market) Social objectives (energy as public good) and strategic objectives (security of supply as a public good) Public sector component

4. The strategy Identification of the public good: rationale for a public policy (and public funds) LPG: energy as a social need (mid 60’s) Alcohol: energy as a “national security” issue (late 70’s) Strong governmental role in the economy: State company Petrobras Alcohol: purchase from private producers, distribution Institutional and regulatory stability Ability to introduce subsidies and incentives, pricing controls Strong participation of the private sector since the start-up: Alcohol: production, automobile industry

5. Ethanol strategy Large incentives to producers 1979-85 Subsidies to newdistilleries, retrofits, upgrades, etc Governmentpurchasedallproductionatgivenprice Final subsidies to ethanolconsumers, nationalfixedpricing, country-widedistribution Blendswithgasolineandintroductionof 100% ethanolfuelledcars Incentives (taxcuts) for ethanolcars (privatefleet), specially taxis andgovernmentfleets Gasolinetaxedheavily (1979-85) After 1985: lackofclear policies, higher sugar prices Private sector (sugar industry) becameinterested in increasedproductivitiy

6. Ethanol National Program: Proálcool (1975-1985): Productiongrowsfrom 0.6 to 11.6 Bi litres Post-85: estabilizationofethanolproduction supplyshortage in 1989 Nineties: Deregulation Priority for sugar and sugar exports Internalmarketgrows: flexfuelvehicles in 2003 Results in increasing agricultural and industrial productivity

7. National automobile production (1979-2003) Note: includes diesel, gasoline and alcohol vehicles Source: ÚNICA, 2004

8. Ethanol production learning curve

9. Ethanol and gasoline prices

10. Brazilian Production Evolution of Production: sugarcane, sugar and ethanol

11. Light fleet vehicles and Consumption of Ethanol (Hydrous and Anhydrous)

13. Improvements overtime Results of Public and Private investments in R&D

14. Productivity (t/ha) Season 06/07 -84 t/ha 81.5 77.7 73.3 55.7 IBGE, 2003

16. Evolution of the fermentation yield

17. Evolution of the fermentation period

18. Conclusions: Ethanol Strong governmental presence Supply: governmental purchased total production from private sector Petrobras (government) responsible for country-wide distribution Subsidies, incentives, tax cuts Price controls Strong and important private sector participation as part of the supply chain (and demand sector) but supported by the government (guaranteed revenues and buffer to sugar prices fluctuation), automobile industry De-regulation (mid-eighties) Program too expensive to Petrobras Discussion about purchase prices from producers Producers from the Southeast decided to invest in productivity gains Quality controls now under the Petroleum agency (ANP) Producers can sell directly to pump stations Prices set by the market, with ANP oversight Introduction of bi-fuel cars since year 2002

19. BIOFUEL PRODUCTION COSTS Doornbosch and Steenblink, 2007 Note: 1. Oil price US$ 20 – 70/barrel

20. LAND AVAILABLE FOR ENERGY BIOMASS PRODUCTION IN 2050 (Gha) Doornbosch and Steenblink, 2007

21. Present Location of Sugar-Ethanol Mills in Brazil

22. Near Term Expansion of New Sugar-Ethanol Mills ( ), C-S

23. Brazil: main crops 2007 Brazil: 851 106 ha Total Arable land: 350 106 ha

24. Displacement of World Gasoline and Diesel Consumption (10%) Notes: 1. 150 billion liters ( 120 billion liters of gasoline) 2. 135 billion liters ( 120 billion liters of diesel)

25. ETHANOL AND BIODIESEL GHG REDUCTION Doornbosch and Steenblik Notes: 1. Compared with gasoline; 2. Compared with mineral diesel

26. ENERGY BALANCE IN ETHANOL PRODUCTION Notes: 1-Source: ORNL, 2- Source: Copersucar/UNICAMP, 3- Corn Stover not included,4- Tops and leaves not included, 5- Does not include credit for co-products, 6-Includes credit for 8% bagasse surplus

27. COST OF GHG EMISSION REDUCTION DUE TO SUBSIDIES TO ETHANOL AND BIODIESEL(US$/ton of CO2 equivalent) Doornbosch,R. and Steenblik,R. (OECD),2007

28. BIOFUELS ENERGY AND GHG BALANCES IEA, WEO2006 NER=Net Energy Ratio (output renewable energy/input fossil energy)

29. ENERGY PERFORMANCE OF ENERGY CROPS IN EU IEA, WEO2006 Solid fuel Brazilian conditions Includes all biomass

31. Challenges: - regularity and guarantee of supply - price stability

32. Sugarcane: world cultivated area and production FAO, 2005

33. Ethanol resists to oil prices fluctuation

35. Professor Rogério Cezar de Cerqueira Leite (UNICAMP)

36. Vice-Coordinators:

37. Dr. Manoel Sobral Jr (phase I)

38. Dr. Manoel Regis Lima Verde Leal (phases I e II)

39. Dr. Luís Cortez (phase III)

40. 9 senior researchers, around 20 researchers involved

41. Collaboration: CGEE, MCT, MAPA, EMBRAPA, TRANSPETRO, PETROBRAS, DEDINI, CTC

43. OE2: Assessment of new technologies (Carlos Rossell, PhD. and Oscar Braunbeck, PhD.) – phase II and phase III

44. OE3: Selection ofpotential suitable areas for sugarcane production in Brazil (Manoel Regis Leal, PhD.) – phase II and phase III

45. OE4: Infra-Structure: existing and need for improvement and expansion (Mirna Gaya Scandiffio, PhD.) – phase I and phase III

46. OE5: Assessment of socio-economic impacts (A.Scaramucci, PhD.) phase I and phase II

47. OE6: Construction of ethanol production scenarios and socio-economic impacts (André Tosi Furtado, PhD.)

48. OE7:Assessment of environmental impacts (M.Jannuzzi, PhD.) – phase II and phase III

50. POTENTIAL FOR SUGAR CANE PRODUCTION: SOIL AND CLIMATE - WITHOUTIRRIGATION High Average Low (World average) Inapropriate Amazon Rainforest Pantanal Atlantic Forest Other important preservation areas Above 12% slope area

51. POTENTIAL FOR SUGAR CANE PRODUCTION: SOIL AND CLIMATE – WITH IRRIGATION High Average Low (World average) Inapropriate Amazon Rainforest Pantanal Atlantic Forest Other important preservation areas Above 12% slope area

52. Ethanol transport – Brazil 1980 and 2007 Pipelines and Hydro ways are the best way to transport Ethanol from the cost vs benefit point of view

53. Ethanol Exports by 2025: 205.5 million of m3 Area=Prod. 106 m3 Clusters(c)

54. Cost Comparision for Ethanol Production (1)

55. Important Issues (cost reduction and improve sustainability) Productivity gains Otimization of agricultural operations Gains in industrial efficiency Reduction and recycling of effluents Reduction of energy and water consumption Otimization of use of other resources Use of new technologies

56. Expected Productivity Gains

57. Impact of New Technologies

58. Genetic improvement: conventional and genetic engineering Precision agriculture Raw cane harvesting with trash recovery Pre-processing and storage of bagasse and trash R&D Priority Areas: agriculture

59. Improvements of fermentation, crushing and destilation Reduction of vinasse production (per l of ethanol) High Energy Cane (“energy cane”) Hydrolysis of bagasse Gaseification: EE and fuels (F-T) R&D Priority Areas: industry

60. R&D Priority Areas Management Automation (advanced system) Infra-structure Production Model (small x large) Environment Licencing (methodology) Certification Alcoolchemistry and sucrochemistry Other products

61. Sugarcane Primary Energy

62. Genetic Improvement Optimized processing for ethanol production (convencional to advanced-hydrolysis) Raw cane harvesting with trash recovery Energy optimization Sugarcane Research Challenges

63. A análise em elaboração organização de informação quantitativa que deverá identificar indicadores para um desenvolvimento sustentável da política de expansão da produção de etanol Este estudo é baseado em dados de literatura e tem por objetivo quantificar a utilização de recursos críticos em todo o ciclo de produção e uso do etanol. Essa informação organizada através de indicadores poderá ser utilizada para a definição de “indicadores de sustentabilidade” para o etanol. análise de riscos sócio-ambientais associados ao cenário de expansão da produção e das estratégias sugeridas pelo projeto nos relatórios anterior (Fase 2). Essa etapa da análise inclui uma análise do tipo SWOT processo consultivo tem a finalidade de auxiliar a identificação de alternativas de menor impacto sócio-ambiental e validação das conclusões. Consulta aos aos especialistas envolvidos no projeto – Matriz de Impactos Ambientais Análise multicritério

64. vinhoto/água Energia (bagaço) CO2 Produção de cana Produção de álcool Escoamento x ha 1 m3 etanol y m3 z kg/ha fertilizantes/ defensivos ΔCO2 particulados ΔCO2 1 m3 etanol x ha

65. Análise SWOT Strength, Weakness, Opportunity, Threat Impactos na qualidade do ar Suprimento e qualidade da água Ocupação do solo e biodiversidade Preservação dos solos agrícolas Uso de defensivos agrícolas e fertilizantes