Biofuels in BrazilThe Ethanol Experience

Paulo C. R. Lima, M.Sc., Ph.D.Energy Consultant for Brazilian Congress

Main biofuels in Brazil

> Ethanol (present and future)

> Biodiesel (future)

> Sugarcane bagasse

> Charcoal

Brazil´s area ~ 850,00Total area for agriculture 320,00

Cultivated area – all crops 60,40with sugar cane 5,34

for ethanol 2,66

Source: Ministério da Agricultura, Pecuária e Abastecimento

Brazil´s potentialMillions of hectares

Cultivated area: 5.5 million haIt could be 20 times greater

Fonte: Carvalho L. C. C - 2005

Ethanol in Brazil

Proálcool: world´s greatest programStarted in 1975 The addition of ethanol increases the octane numberAdditive that replaces Methyl Tertiary Butyl Ether (MTBE) and Ethyl Tertiary Butyl Ether (ETBE)More than 3 million flex-fuel vehicles (ethanol, gasoline or any mixture of them)Gasoline with 20% a 25% of anhydrous ethanolEthanol is competitive

91

149

350303

263

1975 1980 1990 1995 2003Source: UNICA – União da Indústria Canavieira do Estado de São Paulo

383

440

(1.0

00.0

00 t)

Sugarcane production and key facts

PROÁLCOOL

Flex-Fuel Vehicles

Ethanol export

2004 2005

Law nº 8.723, 1993 (22%+/-2% e 1%

allowance)

12,5914,37

15,413,87

13,0210,59 11,54

12,6214,72

1.00

0.00

0 m

3

2004/2005

1995/1996

1996/1997

1997/1998

1998/1999

1999/2000

2000/2001

2001/2002

2002/2003

2003/2004

Source: UNICA

15,28

2006: 17 million cubic meters

Ethanol production

Ethanol market

Brazil:13,2% of total energy consumption in road transport sector;40,4% of total fuel consumption for Otto Cycle vehicles (it was 56,9% in 1988).

USA: ethanol represents just 2,5% of total fuel consumption of Otto Cycle vehicles.

Source: Nastari, P. M. - 2005

IMPACTS OF ETHANOL PRODUCTION

Social

70.000 farmers

395 distilleries

1million

people

70.000 farmers

395 distilleries

1million

people

16 million cars powered by gasoline with 25% ethanol

addition

16 million cars powered by gasoline with 25% ethanol

addition

3,0 million cars powered by hydrated

ethanol

3,0 million cars powered by hydrated

ethanol

More than 1 million flex fuel cars

More than 1 million flex fuel cars

Environment

From 1992 to 2003, the jobs on sugarcane crop has reduced by 33%, according to PNAD (Pesquisa Nacional de Amostras Domiciliares)

SUGARCANEProductivity improvement (Center-South)(ton per hectare-year)

Source: Amorim e Lopes - 2005

1977

53

2003

80

ETHANOLIncrease of productivity (Center-South)

liter

s/ha

-yea

r

4200

5300

6550

4000

4500

5000

5500

6000

6500

7000

1980 1986/1988 2004

Source: UNICA

Source: Goldemberg,J. & Macedo,I., 2005

Ethanol price at distillery

Gasoline price at refinery

Learning curve

Production cost: US$0.18–0.25 per liter Average export price in 2003: US$ 0.23 per liter

New plants Processing capacity: 2.1 million tons of sugarcane per yearProduction capacity: 430 m3/dayCapital cost: US$ 60 million Raw material cost: US$ 0.143 per liter of ethanol Capital cost: US$ 0.017 per liter of ethanol

Ethanol production costs

Source: Nastari, P. M. - 2005

NEW DISTILLERIES(around 50)

New plants

0

2

4

6

8

10

12

Sugarcane Sugar beet Wheat straw Corn Wood

ethanol feedstock

ener

gy o

utpu

t/inp

ut ra

tioEnergy balance of ethanol production

ELECTRICAL ENERGY – Installed Power(sugarcane bagasse)

(MW)Electricity consumption for sugar and ethanol processing

Power capacity connected to the national grid

Short term potential

Medium term potential

Source: Aneel/Unica

Cogeneration potential

Plants can generate 80 kWh/sugarcane ton in excess (low pressure systems)

Investment can be recovered in 3 to 4 years

Cogeneration can have an important impact on income of ethanol producers (25-28%)

Sugarcane bagasse, stem tips and leaves can provide great amount of energy

Fonte: Nastari, P. M. - 2005

Perspectives for ethanol in developing countries

BIODIESELBIODIESEL

Brazil has Brazil has 90 million 90 million hectares available hectares available for producing oil for producing oil cropscrops..

Law nº 11.097 / 2005- Introduces biodiesel into the Brazilian energy matrix

- 2% has to be added to diesel in 3 years(by January 2008) - 800 million liters

- 5% has to be added in 8 years (by January2013) - 2 billion liters

- Oil and gas royalties can be used to finance biofuels R&D projects

Law 11.116 / 2005- Special monophase regime for federal taxation (PIS/PASEP and COFINS)

- Biodiesel producers has to be authorized by ANP (National Agency for Oil, Gas and Biofuels)

- Special record at Secretaria da Receita Federal (Ministry of Finances)

Decree nº 5.297- Defines the value of PIS/PASEP and COFINS

- Creates the “Social Fuel Stamp”

Source: Gomide, R. B. - 2006

Social Fuel Stamp – IN 01 / 2005Ministério do Desenvolvimento Agrário - MDA

Requirement for concession:• Buying of raw material of family farming

• 50% NE • 10% North and CW• 30% SE and South

• Formal contracting

• Technical assistance and training

Resolution nº 3 / 2005Conselho Nacional de Política Energética - CNPE

- Public auctions to anticipate the 2% goal. Raw material from family farming and “Social Fuel Stamp”

Portaria nº 483 / 2005Ministério de Minas e Energia - MME

- Guidelines for public auctions to be executed by Oil, Gas and Biofuel National Agency

Resolution nº 31 / 2005Agência Nacional do Petróleo, Gás Natural e

Biocombustíveis - ANP

Auction Bidding nº 061 / 2005Auction Bidding nº 007 / 2006

Agência Nacional do Petróleo, Gás Natural e Biocombustíveis - ANP

1º Auction

2º Auction

3º and 4º AuctionsAgência Nacional do Petróleo, Gás Natural e

Biocombustíveis - ANP

- Estimated volume: 850 million liters to fill 2% - Brazil’s diesel consumption is near 40 billion liters

BIODIESEL PLANTS

Source: Gomide, R. B. - 2006

- Brazil has a great potential for biofuel production but a small potential to promote citizenship

- Biofuels legal framework is confusing and inconsistent

- Ethanol and biodiesel are subject to different public policies

- Ethanol can be treated as “social fuel” like biodiesel

- The Brazilian legislation does not define any incentive for cooperativism and small distilleries or production units

- Family farming depends on industrial producers

CONCLUSIONCONCLUSION

Tributos Federais: Decretos nº 5.297/04 e 5.457/05

R$ 0,218 R$ 0,218 R$ 0,151 R$ 0,070 R$ 0,00

R$/litroR$/litroR$/litroR$/litroR$/litroTotal tributos federais

R$ 0,148 = diesel mineral

Redução de 31%

Redução de 68%

Redução de 100% PIS/COFINS

R$ 0,070 InexistenteInexistenteInexistenteInexistenteCIDE

Alíquota Zero

Alíquota Zero

Alíquota Zero

Alíquota ZeroAlíquota ZeroIPI

Regra Geral

Norte, NE e Semi-árido

com mamona ou

palma

Agricultura Familiar

Agricultura Familiar no Norte, NE e

Semi-árido com mamona ou

palma

Diesel de

Petróleo

BiodieselTributos federais

R$ 0,218 R$ 0,218 R$ 0,151 R$ 0,070 R$ 0,00

R$/litroR$/litroR$/litroR$/litroR$/litroTotal tributos federais

R$ 0,148 = diesel mineral

Redução de 31%

Redução de 68%

Redução de 100% PIS/COFINS

R$ 0,070 InexistenteInexistenteInexistenteInexistenteCIDE

Alíquota Zero

Alíquota Zero

Alíquota Zero

Alíquota ZeroAlíquota ZeroIPI

Regra Geral

Norte, NE e Semi-árido

com mamona ou

palma

Agricultura Familiar

Agricultura Familiar no Norte, NE e

Semi-árido com mamona ou

palma

Diesel de

Petróleo

BiodieselTributos federais

Matriz Energética Brasileira

Biomassa29.1%

Petróleo eDerivados

39.7%

Gás Natural8.7%

Carvão Mineral6.5%

Hidreletricidade14.5%

Urânio (U 3O2)1.5%

Recursos Renováveis

43.6%

BIODIESELBIODIESEL

Áreas não exploradas Áreas não exploradas de de 90 milhões de ha 90 milhões de ha estão disponíveis para estão disponíveis para produção de grãos no produção de grãos no BrasilBrasil

Empreendimentos em OperaçãoCapacidade Instalada Total

Tipo N.° deUsinas (kW) % N.° de

Usinas (kW) %

Hidro 604 71.549.721 70,13 604 71.549.72170,13Natural 72 9.886.953 9,69Gás Processo 26 925.748 0,91 98 10.812.70110,60

Óleo Diesel 520 3.565.994 3,50Petróleo Óleo

Residual 18 1.163.970 1,14 538 4.729.964 4,64

Bagaço deCana 222 2.290.250 2,24

Licor Negro 13 782.617 0,77Madeira 25 212.832 0,21Biogás 2 20.030 0,02

Biomassa

Casca deArroz 2 6.400 0,01

264 3.312.129 3,25

Nuclear 2 2.007.000 1,97 2 2.007.000 1,97CarvãoMineral

CarvãoMineral 7 1.415.000 1,39 7 1.415.000 1,39

Eólica 10 28.550 0,03 10 28.550 0,03Paraguai 5.650.000 2,33Argentina 2.250.000 5,85Venezuela 200.000 0,08Importação

Uruguai 70.000 0,20

8.170.000 8,01

Total 1.523 102.025.065 100 1.523102.025.065 100

Matriz de Energia Elétrica

CARVÃO MINERAL 2,15 PETRÓLEO 76,84 GÁS NATURAL 16,85 URÂNIO 3,57 HIDRÁULICA 27,59 BIOMASSA 63,40

Produção de Energia Primária 106 tep

CARVÃO MINERAL

PETRÓLEO

GÁS NATURAL

URÂNIO

HIDRÁULICA

BIOMASSA

Miscellaneous thoughts/quotes/notes…addendum by James Page

“There is a required trade-off between energy and food production. With half of the world hungry, this is not a good idea at all.”The “green revolution” began in the ’70s. It’s taken 30 years to take off.Q: “What’s the better alternative? Nuclear? With all the risks? Or do we continue to flatten pristine environments of the Amazon?”

A: “We need technology to change this and increase yields and product in traditional areas where markets function better.”

17 Nov 2005 Nastari / Datagro @ NIPE Unicamp 37

Cont’d

Improvements in this technology will lead to 300,000 of Brazil’s poorest losing their jobs by 2014.“There is no way for Brazil to use renewable energy…costs are way too high.”

“The Amazon is the world’s air conditioning system.”

“The free market will lead us to the end.”

“The world is watching the United States and waiting for a change on their position on the omission of the gases with regard to global warming…

…of course, I’m not a defender of Mr. Bush, but the United States has great technological capability and we are going to need this.”

17 Nov 2005 Nastari / Datagro @ NIPE Unicamp 40

Citation for Addendum

Brazilian Chamber of Deputies. Personal Interviews and Presentation. July 2007.