“Specific to our country”

[ Interview with Emilio La Rovere and André Pereira ]

What has Brazil done in terms of bio-fuels?
La Rovere: First of all, let’s distinguish ethanol, which can replace gasoline in Otto cycle engines, from biodiesel, which can replace diesel. Brazilian experience with using ethanol as a fuel dates back to the first half of the 20th century, but only in the late 70s was the governmental programme PROALCOOL launched. The idea was to promote the production and use of ethanol, not only for the sake of coping with the oil shock, but also in order to deal with falling sugar prices. Sugar cane was used to produce ethanol, so while Brazil’s fuel supply grew, the sugar supply fell. Today, sugar cane provides up to 14 % of the total primary energy used in Brazil. The country is the world’s greatest sugar-cane ethanol producer. The USA produce more ethanol than Brazil, but from corn and at higher costs. Moreover, fossil-fuel consumption is also much higher in the States. In Brazil, production reached more than 15 billion litres last year, of which 2.5 billion litres were exported. There are several ways of using ethanol as fuel, it can be used as an additive to gasoline, it can be used as “gasohol”, which is a blend of ethanol and gasoline, and ethanol itself can power so-called neat-ethanol cars. Brand new flex-fuel cars, moreover, use various mixes of ethanol gasohol or gasoline.

And what about biodiesel?
La Rovere: Again, Brazil is a pioneer. In the early 80s, the country worked on the first programme, however, it did not go ahead. Falling oil prices were among the reasons. A few years ago, however, President Lula’s administration decided to launch a new biodiesel programme in order to speed up rural development. It is too early to talk about results.

What do you consider the greatest achievements of PROALCOOL?
Pereira: It is one of the largest programmes for commercial use of biomass in the energy sector worldwide. PROALCOOL has proven the large-scale feasibility of producing and using ethanol as a fuel. Thanks to this programme, Brazil has boosted its foreign exchange reserves, generated employment, improved air quality in the cities and avoided greenhouse-gas emissions. Over the years, technology has improved and productivity has grown. Per-hectare yields of sugar cane have increased, and so has the volume of ethanol produced from a ton of sugar cane. Brazil now commands some advanced technologies, such as neat-ethanol or flex-fuel cars.

What obstacles were there?
La Rovere: Initially, PROALCOOL was quite controversial. People worried about negative environmental and social impacts. Moreover, ethanol production costs were very high, close to $ 100 per barrel. Public subsidisation was thus essential for getting started. The government contributed soft loans up to 90 % of investments in new distilleries and even up to 100 % for increasing the area of sugar cane cultivation. Loan conditions were very favourable to producers. For instance, they enjoyed negative interest rates and grace periods of three years. Moreover, the government established ethanol minimum prices, which were higher than those for sugar. On the consumption side, soft taxation made sure that mileage prices for ethanol always compared reasonably to gasoline.

What were the social and environmental concerns?
La Rovere: Well, it was said that sugar-cane plantations might crowd out food production. Water pollution was caused by the runoff of cane-washing water and the leaching of stillage. In cities, people worried about air pollution due to pre-harvesting burning on plantations, such burning is required for manual harvests. Soil erosion was yet another issue. However, civil society and academia have kept a close eye on the programme. Today, experts agree that to a large extent the negative impacts have been reduced since PROALCOOL began.

How did that happen?
La Rovere: For instance, the area used to increase sugar-cane production was mostly pasture land before. Therefore, staple-food production was hardly affected. Pre-harvest burnings, however, are still a problem, but the practice has been progressively banned in São Paulo State, and that is where 60 % of the production is located. Today, 20 % of the crop area is harvested mechanically, which makes it possible to use the bagasse, the pulpy residue of the plants after sugar extraction, more efficiently. Bagasse is actually an important energy source in its own right, used for generating heat and electricity. Water pollution has been sharply reduced, since stillage is now properly disposed and widely spread back onto the fields as fertilizer. This practice has increased crop productivity and reduced production costs. On the other hand, the quality of urban air – particularly in São Paulo, the largest and most-polluted agglomeration – has improved because gasohol- and ethanol-powered cars were cleaner than gasoline-powered ones. Moreover, the use of ethanol as an additive allowed Brazil to become one of the first countries to ban the use of leaded gasoline.

And what about the feared social side-effects?
La Rovere: Well, there are actually some positive impacts, for instance on rural employment. Today, ethanol production provides more than 700,000 direct jobs and more than 200,000 indirect jobs. While it is true that labour conditions remain harsh for manual workers, especially in the North-East, overall, the labour force employed in sugar-cane production in São Paulo State is paid relatively well compared with other sectors of agriculture or even industry and services. However, one must be aware of a trade-off. Mechanical harvesting, which is beneficial in business and environmental terms, tends to reduce the number of rural jobs, which is unfortunate in social terms.

Would you say that the subsidies were spent well?
La Rovere: Well, they created a stable framework, expanding the sector and ensuring that ethanol production became a field for private R&D investment. Such efforts led to impressive technological progress and productivity growth. Within PROALCOOL’s first decade, the production costs of ethanol fell by 50 %, followed by a somewhat slower decline in the years since. Moreover, public funds helped to stabilise the market. In 1989, PROALCOOL faced a major supply crisis. It became difficult for the owners of neat-ethanol cars to fill up theirs thanks at the pump. Consumer confidence was eroding accordingly. Since 2003, their confidence has been progressively re-established thanks to lower prices and to the successful introduction of flex-fuel cars that run on either ethanol, gasohol or a mix of both. Most pump stations in Brazil are equipped to distribute both fuels, and drivers fill their tanks according to prices and availability.

What is the outlook?
Pereira: For ethanol, it is very favourable because of energy-security concerns and high oil prices, decreasing production costs and environmental hazards, in particular global warming. We expect ethanol production to keep growing in Brazil. Domestic demand may even triple in the next 20 years. However, it is not sure that will happen, and it may not even be desirable. Clearly, social and environmental impacts should be assessed beforehand. One of the most important aspects is comparing prices. Biofuel costs are going down, and should oil prices stabilise at present levels, which is a likely scenario, biofuel production will become economically feasible in more countries, and also based on other crops than sugar cane. Today, ethanol production makes perfect business sense in Brazil.

What about Biodiesel?
Pereira: Biodiesel also has a great potential, however, much still remains to be done in order to set up a consistent regulatory framework. The task is even more challenging than it was in the case of ethanol. Biodiesel is not economically competitive yet. Policy success will depend on more than only public funds and tax exemptions. So far, Brazil’s biodiesel programme is charitable for farmers, no doubt, but it is not really viable in economic terms. But that could change, once big energy companies like Petrobras become involved. After all, there is scope for synergies between biodiesel and ethanol production. For instance, it would make sense to use ethanol as an input for biodiesel production, and vice-versa, improving self-reliance and enhancing profitability thanks to the generation of emission-reduction credits, which are traded internationally.

What are the lessons for rich countries that need to reduce CO2 emissions?
Pereira: Well, if you use ethanol produced from sugar cane instead of gasoline, you reduce carbon emissions by roughly 90 %. But that is not the entire truth of the matter, you have to consider some specifically local factors: agricultural practices, including fossil fuel use; the yield of the culture per hectare; the efficiency and the energy requirements of the fuel conversion; the energy embedded in the fertiliser used to grow the plant; irrigation requirements; and the co-products, such as, in the case of sugar cane, the bagasse, which is an important energy source too. Therefore, what makes sense in Brazil is not necessarily feasible elsewhere. Moreover, we also have to consider other greenhouse gases such as CH4 and N2O if we want to understand the overall effect, and energy-crops production that results in deforestation process will not help any efforts to mitigate climate change. Nonetheless, prosperous nations under obligation to reduce greenhouse emissions would do well to study how to make best use of biofuels. Last but no least, GHG emissions reductions in the transport sector should be based not only in fossil fuel replacement by biofuels. Energy savings, which can be achieved through energy efficient gains and through a more rational transport sector based on public rather than individual transport, are more important than biofuel.

Will biofuels eventually compete with fossil fuels?
Pereira: There definitely is a problem of scale. Currently, Brazil has the best conditions and the highest competitive advantages to produce ethanol in the world. Nonetheless, production would have to increase dramatically if the country was to depend on biofuel only – and the economic, environmental and social costs of such change might be quite undesirable. That is even more so if we look at the global scale and consider aspects such as average productivity, water and land availability, costs, energy and CO2 balances. Technological break-throughs, however, may yet change such equations. That would be the case, for instance, of the so-called second generation biofuels, which will allow for a much higher productivity, reducing the relative need for land and energy in the production process..

What lessons are there for other developing countries?
La Rovere: What has happened in Brazil is very specific to our country. Today, there are several Clean Development Mechanism projects, and many of them deal with energy efficiency in ethanol production. They all generate CERs (Certified Emissions Reductions), which improve the cash flow of the industrial plant. Natural conditions in Brazil are very favourable, even without deforestation in the Amazon region, the country has the largest land area still available for agricultural use. There are various climate zones, fit for various crops. Biodiversity is immense, more diverse than anywhere else in the world, and there probably are important ways of making biofuels we do not even know about yet. So Brazil is particularly well-placed to be the leader in the production and use of biofuels. But certainly, biofuels-development presents a major opportunity to rethink rural development in general. Other developing countries should consider making more and other uses of biomass – and biofuels are only one option for doing so. Other options include making food, fibers, plastics, construction materials, industrial feedstock or pharmaceuticals. Many developing countries can foster development by exploring their biodiversity. As the noted scholar Ignacy Sachs says, they “may engage, ahead of industrial countries, into a genuinely sustainable and fairly labour-intensive development pattern, on the condition of respecting the rules for an ecologically sound management of forests, land and water”.

Questions by Hans Dembowski.