Will Obama make the U.S. another Brazil: part I

July 13, 6:36 PMPhoenix Green Business ExaminerBrian Coppa

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, 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. 

Regardless of how one feels about ethanol, Brazil's determination and commitment to generating a Green economy and energy independence deserves some consideration.

See part II of my article later this week, on the comparison of Brazil’s ethanol auto industry with developments in the U.S.

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