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BRAZIL: Homegrown Fuel Supply Helps Drivers Breathe Easy

by Marla Dickerson L.A. Times
June 15th, 2005


SAO PAULO, Brazil — While Americans fume at high gasoline prices, Carolina Rossini is the essence of Brazilian cool at the pump.

Like tens of thousands of her countrymen, she is running her zippy red Fiat on pure ethanol extracted from Brazilian sugar cane. On a recent morning in Brazil's largest city, the clear liquid was selling for less than half the price of gasoline, a sweet deal for the 26-year-old lawyer.

"You save money and you don't pollute as much," said Rossini, who paid about $18 to fill her nearly empty tank. "And it's a good thing that the product is made here."

Three decades after the first oil shock rocked its economy, Brazil has nearly shaken its dependence on foreign oil. More vulnerable than even the United States when the 1973 Middle East oil embargo sent gas prices soaring, Brazil vowed to kick its import habit. Now the country that once relied on outsiders to supply 80% of its crude is projected to be self-sufficient within a few years.

Developing its own oil reserves was crucial to Brazil's long-term strategy. Its domestic petroleum production has increased sevenfold since 1980. But the Western Hemisphere's second-largest economy also has embraced renewable energy with a vengeance.

Today about 40% of all the fuel that Brazilians pump into their vehicles is ethanol, known here as alcohol, compared with about 3% in the United States. No other nation is using ethanol on such a vast scale. The change wasn't easy or cheap. But 30 years later, Brazil is reaping the return on its investment in energy security while the U.S. writes checks for $50-a-barrel foreign oil.

"Brazil showed it can be done, but it takes commitment and leadership," said Roland Hwang, vehicles policy director for the Natural Resources Defense Council in San Francisco. In the U.S. "we're paying the highest prices at the pump since 1981, and we are sending over $100 billion overseas a year to import oil instead of keeping that money in the United States…. Clearly Brazil has something to teach us."

Much of Brazil's ethanol usage stems from a government mandate requiring all gasoline to contain 25% alcohol. Vehicles that ran solely on ethanol fell out of favor here in the 1990s because of an alcohol shortage that pushed drivers back to gas-powered cars. But thanks to a new generation of vehicles that can run on gasoline, ethanol or any combination of those two fuels, more motorists like Rossini are filling up with 100% alcohol again to beat high gas prices.

The exploding popularity of these so-called flex-fuel vehicles is reverberating across Brazil's farming sector. Private investors are channeling billions of dollars into sugar and alcohol production, creating much-needed jobs in the countryside. Environmentalists support the expansion of this clean, renewable fuel that has helped improve air quality in Brazil's cities. Consumers are tickled to have a choice at the filling station.

Officials from other nations are flocking to Brazil to examine its methods. Most will find Brazil's sugar-fuel strategy impossible to replicate. Few countries possess the acreage and climate needed to produce sugar cane in gargantuan quantities, much less the infrastructure to get it to the pump.

Still, some Brazilians said their government's commitment to ditching imports and to jump-starting homegrown energy industries were the real keys to Brazil's success.

"It's a combination of strong public policy and the free market," said Mauricio Tolmasquim, president of a federal energy research agency based in Rio de Janeiro. "That's the Brazilian secret."

Brazil's fortunes have been tied to sugar since the Portuguese conquerors found that their tropical colony boasted ideal conditions for cultivating the tall, grassy plant. Brazilians produce and eat more cane sugar than any people on the planet, so the notion of using it to power their vehicles was a natural. After all, Henry Ford once viewed ethanol, which can be made from corn, barley and other crops, as a strong contender to fuel the Model T.

But the discovery of cheap, abundant petroleum changed everything. Like much of the rest of the world, Brazil guzzled imported crude until the 1970s oil shocks put its economy over a barrel. So totally reliant was Brazil on foreign oil that surging prices wreaked havoc on its balance of trade. That led to massive borrowing, huge deficits and, eventually, hyperinflation and a devaluation of its currency.

Thus the Brazilian government, then a military dictatorship, launched efforts in the mid-1970s to wean the nation off imports. Those efforts included its National Alcohol Program, known as Proalcool.

"To become less dependent was a matter of life and death," said Jose Goldemberg, secretary of the environment for the state of Sao Paulo.

With the help of public subsidies and tax breaks, farmers planted more sugar cane, investors built distilleries to convert the crop to ethanol and automakers designed cars to run on 100% alcohol. The government financed a mammoth distribution network to get the fuel to gas stations and kept alcohol prices low to entice consumers. It worked. By the mid-1980s, virtually all new cars sold in Brazil ran exclusively on ethanol.

But a 1989 shortage coupled with low gas prices soured many on the renewable fuel. Sales of alcohol-only cars tumbled in the 1990s, and the government gradually withdrew its subsidies and lifted price controls on ethanol. Demand stalled.

Some critics at the time chalked it up to the inevitable consequences of government meddling. But today many laud Brazil's Proalcool program for creating a viable domestic market for ethanol, and for spawning an industry with tremendous export potential that now employs more than 1 million Brazilians.

Meanwhile, ethanol remains little more than a boutique fuel in the United States. Although the U.S. is the world's second-largest ethanol maker, producing 3.4 billion gallons last year compared with around 4 billion gallons for Brazil, ethanol's main use is as a gasoline oxygenate to boost air quality rather than as a serious replacement for foreign oil. However, high gas prices have some farm belt legislators pushing Congress to mandate greater use of domestic corn-based ethanol in the nation's fuel supply to reduce oil consumption.

Virtually all cars sold in the U.S. since the early 1980s can run on gasoline containing as much as 10% ethanol. In addition, there are an estimated 5 million flex-fuel vehicles already on U.S. roads that can burn a mixture as high as 85% ethanol. But big logistical and political hurdles remain. Only a few hundred of the nation's approximately 169,000 retail gas stations are equipped to sell so-called E85 fuel. Nationwide distribution would require station owners to invest hundreds of millions of dollars in special tanks and pumps.

Although U.S. ethanol makers say they could easily double their output to meet any increase in demand, experts say that's still a drop in the bucket compared with the tens of billions of gallons that would be needed annually to displace meaningful amounts of oil. The U.S. industry is loath to give up tariffs that protect it from cheaper alcohol from Brazil.

Meanwhile, some environmentalists say feedstock such as grasses and municipal waste offer much more promise than corn. But huge investments in research are needed to get the costs down for this so-called cellulosic ethanol.

What most can agree on is that Brazil is an example of what might have been if America had seriously committed itself 30 years ago to renewable energy.

"If we would have spent one-hundredth of the money that we have spent to send tanks around the world to protect our oil supplies … we would already be using cellulosic ethanol," said Michael Bryan, chief executive of BBI International, a Colorado-based bio-fuels consulting company.

Although public support was crucial in getting Brazil's program up and running, the private sector is now driving growth with flex-fuel cars.

At Volkswagen's sprawling Anchieta plant near Sao Paulo, the gleaming Fox and Polo models inching down the assembly line look just like regular cars. The only immediate clue that they are revolutionizing the Brazilian auto market is the TotalFlex logos on their back windshields.

The company was the first to unveil dual-fuel vehicles in Brazil in March 2003. The technology has proven to be such a hit with consumers that in a little more than two years the company has shifted nearly 90% of its domestic production to flex-fuel capability.

"It was a big bang in the market," Volkswagen spokeswoman Junia Nogueira de Sa said.

Equipped with a single fuel system, these vehicles employ sensors that allow the engine to adjust to gasoline and alcohol in any combination. Flex-fuel vehicles don't cost any more than regular gasoline-powered models. The only visible difference under the hood is a tiny auxiliary fuel tank that holds a bit of gasoline to aid starting on cold days, a common problem with the old alcohol-only models.

Today, a half dozen carmakers, including General Motors Corp. and Ford Motor Co., offer dual-fuel versions of their vehicles in Brazil, and more are on the way. Consumers bought around 48,000 of the vehicles the first year they were available in 2003, representing about 4% of total car sales. That figure quickly jumped to 328,000 cars, or 22% of the total volume, in 2004, and last month nearly half of the new cars sold were flex vehicles. Analysts predict that dual-fuel technology will easily dominate the market within a few years.

Cars aren't the only things being powered by ethanol in Brazil. Small planes such as crop-dusters are converting to alcohol. And Brazil's electrical grid, which experienced a severe shortage in 2001 because of a drought in its vital hydroelectric sector, is getting a charge from sugar.

In contrast to U.S. corn-based ethanol, which requires substantial amounts of fossil fuel to plant, harvest and distill, Brazil's industry uses crushed sugar cane stalks known as bagasse to feed the steam boilers that power its mills and distilleries. The process is environmentally friendly and so efficient that these centers are generating more energy than they can use. Ethanol producers are supplying Brazil's grid with more than 600 megawatts of electricity. The near-term potential is at least 10 times that.

Near the city of Ribeirao Preto in northeastern Sao Paulo state, the harvest is underway in Brazil's richest sugar-cane-producing region. Trucks lumbering under mounds of fresh-cut cane creep into Jardest Sugar & Alcohol. The vast milling and distilling complex, owned by Brazilian sugar trading giant Crystalsev, will run 24 hours a day nonstop until the season ends in December. The air is fetid with char from the fires that are clearing the fields of debris and vermin in preparation for the arrival of teams of scythe-wielding cutters. A lush emerald sea of cane rolls toward the horizon in every direction.

And there is a lot more where that came from. Brazil has about 13.5 million acres planted with sugar cane. More than 200 million dormant acres lie ready to cultivate.

"Oil is running out. The world needs more clean, renewable fuel," Crystalsev executive Maurilio Biagi Filho said. "And we are going to be there to supply it."




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