Jose Goldemberg

Abstract Presently, ethanol from sugarcane replaces approximately 50% of the gasoline that would be used in Brazil if such an option did not exist. In some aspects, ethanol may represent a better fuel than gasoline and to a great extent a renewable fuel contributing little to greenhouse gas emissions in contrast with fossil-derived fuels. Production of ethanol increase from 0.6 billion liters in 1975/1976 to 27.6 billion liter in 2009/2010. Although production costs in 1975/1976 were three times higher than gasoline prices in the international market, such costs declined dramati­cally thanks to technological advances and economics of scale becoming full competitive (without subsidies) with gasoline after 2004. This was achieved through appropriate policies of the Brazilian government. These policies and the rationale for them as a strategy to reduce oil imports are discussed here with the possibilities of replication in other countries.

1 Introduction

Sugarcane has been cultivated in Brazil since the sixteenth century and more recently the country became the largest producers of sugar accounting for approximately 25% of the world’s production. The production of ethanol has been small but starting in 1931 the Government decided that all the gasoline used in the country (mostly imported) should contain 5% of ethanol from sugarcane. This was done to benefit sugar producing units when faced by declining prices of sugar in the international market which notoriously fluctuate over the years (Fig. 1).

Around 1970 the sugar industry in Brazil was stagnated, processing only 70-80 million tonnes of sugarcane per year mainly due to Government policies of guaranteed prices to producers: when the international price of sugar was low the

J. Goldemberg (*)

University of Sao Paulo, Institute of Eletrotechnics and Energy, Sao Paulo, Brazil e-mail: goldemb@iee. usp. br

J. W. Lee (ed.), Advanced Biofuels and Bioproducts, DOI 10.1007/978-1-4614-3348-4_2, © Springer Science+Business Media New York 2013

government purchased the sugar at prices that satisfied the producers. Competition and modernization were thus discouraged; each producer had a quota and therefore few concerns about losing money. Sugar producers did not plan in the long run and usually produced strictly what they considered attractive in a given year. Since the price of sugar in the international markets varies significantly over time, as seen in Fig. 1, such lack of planning frequently left them out of the market when prices suffered strong fluctuations [1].

The solution proposed at that time by Ministry of Industry and Commerce [2] was to expand production regardless of the prices of sugar and use the excess pro­duction (when prices were low) to produce ethanol which was more expensive to produce than gasoline. One of the drivers for that was the need to eliminate lead components from gasoline (lead tetraethyl) which was imported saving thus foreign currency. Such ideas did not prosper until the oil crisis of 1973: the cost of oil went suddenly from US$ 2.90 per barrel to US$ 11.65 per barrel. The import bill with oil (80% of which was imported) skyrocketed from 600 million dollars in 1973 to 2.5 billion in 1974, approximately 32% of all Brazilian imports and 50% of all the hard currency that the country received from exports.