Brazilian Ethanol

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Brazilian Ethanol

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... the end of 80's, 90% of the new cars sold in Brazil were pure ethanol. Marina ... Nowadays you can buy flexfuel vehicles for any of the major car manufacturers. ... – PowerPoint PPT presentation

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Title: Brazilian Ethanol


1
Brazilian Ethanol
  • Marina Mendes Tavares
  • mmtecon.googlepages.com/ Guest_Lecture

2
Introduction
  • Brazilian experience with Ethanol Program
    (Pro-Alcool).
  • Ethanol in the USA.
  • Main consequence of the USA Ethanol program in
    the price of food.

3
Brazil
  • Brazil is a democracy.
  • Brazil is 5th largest country in the world (with
    8,511,965 sq km, about 400,000 sq km bigger than
    USA without Alaska).
  • Brazil is 5th most populous country in the world
    (about 196 million).
  • Brazil is 10th country in GDP per capita (about
    9,700 per head).
  • Brazil GDP is 1,835,642 millions of dollars in
    2007.
  • US GDP is 14,712,369 millions of dollars in 2007.

4
Oil Prices in the World Market
5
Ethanol Brazil
  • Ethanol in Brazil is made from sugar-cane (which
    is the major source of sugar as well).
  • Brazils National Alcohol Program, PROALCOOL, was
    launched on November 14th,1975 (decree Nº
    76.593).
  • Main objective give incentives for ethanol
    production.

6
ProAlcool Objectives
  • At the time, Brazil was importing 80 percent of
    its oil.
  • 1973 - OPEC oil embargo and production cutback
    had raised concerns that oil dependency could
    endanger national security.
  • Two main goals for this program
  • energy security (reduce dependence on imported
    oil, motivated by 1973 OPEC oil embargo)
  • agricultural price support (sugar prices were
    record low at the time).

7
ProAlcool 1st phase
  • Mandated mix of Gasoline with Ethanol
  • - Mix in proportion of up to 24.
  • Increase the number of refineries
  • 2 billions of government investment in the form
    of loans with low interest rate.
  • PETROBRAS responsible for distribution and also
    keeping gasoline prices artificially higher.
  • Such involvement from PETROBRAS represented 4
    billions in losses.

Marina Mendes Tavares
8
Effects of Program Sugar, Ethanol and Sugarcane
production.
9
ProAlcool 2nd phase
  • After the second shock on oil prices (1979-1980),
    oil imports in 1980 represented 45 of Brazilian
    foreign exchange.
  • Main incentives to the program were
  • Tax reduction to buy ethanol cars.
  • Guarantee the demanded for ethanol cars, from
    government companies.
  • Low interest rates in loans for agro-industrial
    ethanol firms.
  • Guarantee that the price of alcohol sold was 59
    of gas price, (price ceiling).

Marina Mendes Tavares
10
ProAlcool 2nd phase cars
  • In 1980 the first popular E100 car is
    manufactured Fiat 147.
  • In the end of 80s, 90 of the new cars sold in
    Brazil were pure ethanol.

Marina Mendes Tavares
11
Effects of Program car production in Brazil.
12
Pro-Alcool Crisis
  • Pro-Alcool was successful during the beginning of
    80s. But not without its problems.
  • A change in external factors has caused a
    shortage in ethanol supply.
  • The main factors of the ethanol crisis were
  • Decrease in the price of petroleum.
  • Increase in the price of sugar.
  • Lack of government resources to sustain
    pro-alcool.
  • Increase in the demand for ethanol.

13
Ethanol 1989 shortage explained
  • All of a sudden, Ethanol might loose all its
    advantages over gasoline, says Augusto Garrido.
    Owner of a fleet of 10 cars running on Ethanol
    that are now for sale, soon to be replaced by
    gasoline running cars.

14
Sugar Price in the World Market
15
Ethanol Crisis
  • As a consequence of the shortage
  • Demand for ethanol cars decreased, (lack of
    credibility in program).
  • Decrease in the production of ethanol cars
    (substitute goods)
  • Automobilist Industry preferred to produce
    gasoline cars that were consumed in all world.

16
Ethanol Currently
  • During the 90s government provided incentives to
    the use of ethanol in Public Transportation.
  • In 2003 Volkswagen build the first flexfuel
    vehicle Gol 1.6 Total Flex. Followed by
    Chevrolet Corsa 1.8.
  • Nowadays you can buy flexfuel vehicles for any of
    the major car manufacturers.
  • There around 40 different models.

17
Ethanol Currently
  • Gas in Brazil contain 24 of ethanol.
  • Flex Cars can run with any ratio of ethanol and
    gas.
  • Natural Gas is also popular in Brazil.
  • Many Taxi drivers
  • have tri-fuels cars that
  • can run with gas, ethanol
  • or Natural Gas.

18
Ipanema
  • This is the IPANEMA, made by EMBRAER.
  • Agricultural aircrafts used in aerial dusting
    (pulverization).
  • First fixed-wing running
  • on ethanol.
  • This airplane has 80
  • market share in Brazil.

Marina Mendes Tavares
19
Ethanol Characteristics
  • Lower energy content of ethanol fuel, full flex
    vehicles get less miles per gallon.
  • Ethanol price must be between 25-30 of gasoline
    to break even.
  • Ethanol more competitive in Sao Paulo than in Rio
    de Janeiro.

20
Main Lesson of Brazilian Ethanol
  • Pro-Alcool was unsuccessful in the first part,
    because there was too much government
    intervention.
  • Highly susceptible to market forces (government
    subsidy not justified).
  • Pro-Alcool now is more successful, there is no
    government intervention, no subsidies.
  • With high price of Petroleum, ethanol is more
    competitive.
  • Advances in technology have decreased costs of
    production (there is still room for improvement).

21
II part Ethanol in the USA
22
Brazilian experience with Ethanol and USA
experience with Ethanol.
  • Quote from ETHANOL FACT BOOK
  • Brazil is a shining example of how a commitment
    by government can help achieve goals for ethanol
    production and use. In 1975, Brazil began an
    ambitious, three-stage, national alcohol fuel
    program designed to reduce its dependence on
    imported oil. Today, this program has been hailed
    as a valuable success.

23
Ethanol - USA
  • MBTE was polluting ground water. So the solution,
    shift to the use of ethanol as an additive.
  • Now, gas in US contain in general 5.6 of
    ethanol.
  • Nearly half of U.S. gasoline now contains up to
    10 ethanol (E10).
  • You are not allow to use more than 10 of ethanol
    in standard cars.

24
Ethanol - USA
  • In Minnesota E10 is mandatory.
  • E85 are cars that can run with at most 85 of
    ethanol.
  • There are 6.8 million of E85 cars in the US.

25
E85 Gas Stations
Source US Department of Energy
26
Ethanol - USA
  • Currently USA is the major producer of Ethanol,
  • Nearly 10 billion gallons of annual operating
    capacity is projected to be on line by 2008.
  • Current situation (ethanol market)
  • i) import tariff is 54 cents
  • ii) subsidy is 51 cents per gallon

27
US Ethanol Production
Marina Mendes Tavares
28
Ethanol USA
  • Ethanol in the US is produced from corn.
  • Like in Brazil in the past, subsidies are
    provided.
  • Sugar cane ethanol packs 8.2 times as much energy
    as used to produced.
  • Corn ethanol just packs 1.5.
  • Brazilian distillers can produce ethanol for 22
    cents a liters, corn based ethanol can produce to
    30 cents.

29
Implications of Biofuels
  • Reason for increased Demand for biofuels
  • i) Increase in the price of the substitute
    (gas)
  • ii) Change in preference (increase in the
    concern about environment issues).
  • So the equilibrium quantity increases.

30
Implications of Biofuels
  • What do you expect to happen with the price of
    food?
  • Increase in the price of livestock, since corn is
    used to feed animals.
  • Increase in the price of other crops, since there
    will be substitution in the field.
  • Increased correlation of corn price and ethanol
    prices.

31
Example of correlation across markets Price of
Corn and Soybeans.
32
World Market Share of Corn.
33
Distribution of Corn Production in the US
34
The End of Cheap Food?
  • Increase in the price of commodities foods.
  • Increase in the price of fertilizes that their
    main resource is oil.
  • Increase in the demand for food from emerging
    economies, (China and India).

35
Government Responses
  • Exporting Countries - exporting restrictions.
  • Importing Countries
  • i) Price Control
  • ii) Food Subsidy
  • iii) Cheap Credit

36
Examples
  • China - Price control in milk, bread, eggs and
    noodles.
  • Increase tariff on many exported grains and
    banned rice exports.
  • Russia Price control on some basic foods.
  • 40 export tariff on wheat.
  • EU suspended import duties on all grain except
    oat.
  • India banned the exports of all rice and cut
    tariff in oil corn and wheat.
  • Argentine export tariffs.

37
Conclusion
  • Ethanol produced from foodstuff provides positive
    pressure on food commodities prices.
  • Market intervention by Governments sometimes are
    necessary but certainly are highly controversial.

38
OTHER ARTICLES and SOURCES
  • Multimedia article on National Geographic
  • http//ngm.nationalgeographic.com/2007/10/biofuel
    s/biofuels-text)
  • http//www.ita.br/online/2007/itanamidia07/mar07/v
    ale8mar07.htm
  • http//www.biodieselbr.com/proalcool/pro-alcool.ht
    m
  • http//www.unica.com.br/dadosCotacao/estatistica/
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