Brazil

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Brazils Ethanol Experience and Its
Transferability

• Masami Kojima
• Todd Johnson
• April 25, 2006

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Introduction

• Brazilian experience
• Private-sector led ethanol from sugarcane for
  gasoline substitution
• Hybrid distillery/mill complexes for flexibility
• Flex-fuel vehicles capable of using both 100
  ethanol and E20
• Little competition for land
• Where is ethanol likely to be most competitive?
• How to cover the incremental costs in early
  stages of sector development?
• Conclusions What can other countries learn from
  Brazil?

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Cane Production Potential
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Brazils production cost in mid-2005 of 23-29 US
cents per liter is equivalent to 35-50 per
barrel of oil, depending on vehicle fuel economy
International price of sugar in February 2006 was
US415/ton
Sugarcane accounts for 58-65 of the cost of
ethanol production in Brazil
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Economics of ethanol productionincluding molasses
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Incremental cost recovery

• Financing via carbon finance
• First CDM methodology for ethanol approved
• Value of carbon finance (US0.01-0.03/liter for
  5-20/ton of CO2 equivalent)
• Fully capture local environmental externalities
  in gasoline pricing another US0.01-0.02/liter?
• Financing via tax exemptions weigh the losses
  in gasoline tax revenue
• Let consumers choose and pay more for
  gasoline/ethanol blends

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Gasoline pricing policy

• Gasoline is the most heavily taxed fuel in most
  developing countries.
• Tax on gasoline is often used to cross-subsidize
  social fuels diesel, kerosene, LPG
• In 2004-2005, a number of governments reduced
  gasoline tax to reduce retail price increases
• Reducing gasoline taxes and fees further would
  have important socioeconomic consequences

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Gasoline price structure
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Special case of landlocked oil-importing
countries

• Assume 100 per ton to take sugar to the nearest
  port for export
• Assume 200 per ton to import gasoline
• Assume fuel economy penalty of 20 when ethanol
  is substituted for gasoline
• Ethanol production for domestic consumption to
  replace imported gasoline

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Economics in landlocked countries 250/ton,
including molasses
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What Can We Learn From Brazil?

• Lessons on how to achieve efficiency gains on the
  agricultural production and industrial
  processing how to promote private-sector led
  ethanol industry, and what changes in hardware at
  retail level are needed for ethanol use are
  useful for all countries considering a fuel
  ethanol program
• Increased use of bagasse can be a cost-effective
  and renewable fuel for heat and electricity in
  sugar producing countries

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Conclusions

• Ethanol may deserve consideration in
• low-cost sugar producing countries Brazil is
  the undisputed leader
• landlocked countries with high delivered costs of
  gasoline.
• Ethanol should be evaluated on economic merits
  and the risks should be clearly understood.
• Ethanol trade liberalization will benefit
  efficient producers and all consumers.
• Farmers should compare the economics of biofuel
  production with alternative uses of the same
  crop.
• Long-term impact on land availability for food
  production may be important in low-income
  food-deficit countries.