THE BRAZILIAN EXPERIENCE WITH ETHANOL

Ricardo de Gusmão DornellesDirector – Renewable Fuels Department

Ministry of Mines and Energy

José Nilton de Souza VieiraDeputy Director – Agro-Energy Department

Ministry of Agriculture, Livestock and Food Supply

Addis Ababa – Ethiopia – July, 2007.

International Seminar on BiofuelsAfrican Union-Brazil-UNIDO

Brazilian Ethanol Experience: Summary

1. Introduction: A Brief Energy Outlook

2. The Brazilian Ethanol Experience

3. Ethanol and the “Fuel, Food, Feed” Debate

4. Final Remarks

A BRIEF ENERGY OUTLOOK

WORLD ENERGY CONSUMPTION

Source: BP Statistical Review (June/2006)

Energy consumption - Per capita Tonnes oil equivalent (toe)

Equator

Cancer Tropic

Consumo de energia per capita(em toneladas de óleo equivalente)

Capricorn Tropic

Tropical Area Biofuels

The greater consumption per capita is outside the tropics!

WORLD ENERGY CONSUMPTION

Source: BP Statistical Review (June/2006)

WORLD ENERGY CONTEXT

World economy growth

Demand growth

High prices for energy

Refining capacity in the limit

Strong dependency on non-renewable energy sources

Climate change reality

Geopolitical instability and conflict at important energy supplier countries

THE CHALLENGE FOR ENERGY POLICY

Long term energy supply security

Cheaper prices for energy sources

Keeping the local energy competitiveness

Dealing with climate change and environment

BIOFUELSBIOFUELS

Biofuels Energy Policy: Main Objectives

To increase biofuels production and consumption

To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition

To promote a global market for biofuels

To protect the environment, regarding food security

Main Actions

Solid regulatory framework, considering biofuels in fact as fuels, not only as agriculture goods

Ethanol and Biodiesel Programs

Compatible international specifications and standards and promoting production in other countries

Social and Environmental Certificate

To increase biofuels production and consumption

To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition

To promote a global market for biofuels

To protect the environment, regarding food security

RENEWABLESOURCES44.8 %

225.8 MILLION

TOE

Hydroelectricity14.8%

Uranium1.6%

Natural Gas9.6%

Petroleum and Derivatives

37.9%

Other Renewables Sources

3.0%

Sugarcane14.6%Wood and other

Biomass12.4%

Coal6.0%

BRAZILIAN ENERGY MIX - 2006

Source: Brazilian Energy Balance (BEN,2007)

Ministry of Mines and Energy (MME)

RENEWABLE

NON-RENEWABLE

Brazil0

20

40

60

80

100

World

14

86

4555

%

CURRENT MATRIX OF VEHICLE FUELS - 2006

54,5% (2005)

2.9% (2005)

8.4% (2005)8.5% (2005)

25.6% (2005)

0% (2005)

Gasoline C 27.2 + 7.3 = 34.5%

34.1% (2005)

Ethanol (Total)7.3 + 9.9 = 17.2%

16.9% (2005)

VNG3.2%

Diesel48.9%

B23.3%

9.9%7.3%

Gasoline A27.2%

Diesel (Total)48.9 + 3.3 = 52.2%

54.5% (2005)

Anhydrous Ethanol Hydrated Ethanol

*

* Pure Gasoline – Before blending with ethanol Diesel blended with 2% of Biodiesel

Why ethanol?

It is easy to be produced in large scale;

It has competitive costs, compared to current oil prices;

It can be produced from different raw materials;

It is a way of promoting the economic development in rural areas;

It has promising perspectives in the world market.

Why sugar cane?

It allows the highest productivity (liters/hectare);

It has exceptional thermal and environmental balances;

It allows an increase in the competitiveness of the mills (flexibility, higher quality and lower costs of sugar);

It leads to an increase in agricultural yield (industrial residues transformed in fertilizers).

Economic Agents of Sugar Cane IndustrySugar and Alcohol Industrial Phase

Fuel Distributors

Gas Stations

Exporters

Sugar Cane Agriculture Phase

Regulatory Domain: Ministry of Agriculture

1.000.000 jobs in the countryside 367 Industrial Plants

92% of total gas stations in Brazil have an ethanol pump.

Free Prices Market

160 Operating Distributors Only distributors may blend ethanol with motor gasoline

3,42 Billion liters exported in 2006

Source = MAPA – MME – MDIC - 2006

Regulatory Domain: Ministry of Mines and Energy / ANP (National Petroleum Agency)

Ethanol in Brazil – Sugar Mills Location - 2007

Source: Ministry of Mines and Energy – Ministry of Agriculture, Livestock and Food Supply - 2007

Production in 2006:18 billion liters

NORTHEAST REGION 79 INDUSTRIAL UNITS:

SUGAR MILLS 8 ETHANOL PLANTS 19 ETHANOL AND SUGAR 52

91% of the ethanol production

9% of the ethanol production

Operating Sugarcane Mills

Sugarcane Mills under construction

11% (2005)

SOUTH-CENTRE REGION 288 INDUSTRIAL UNITS:

SUGAR MILLS 8 ETHANOL PLANTS 59 ETHANOL AND SUGAR 221

MAIN QUESTIONS:

Soil conservation

Soil chemistry

Agrochemical inputs

Expansion frontiers

Harvest practices

Labor

Agricultural phase...

Vinasse

Aerobic treatment

New Technology: development of biodigestion of vinasse

Use of vinasse to yield ferti-irrigation

Vinasse production in ethanol plants:

10 ~ 15 liters of vinasse per liter of ethanol

Ferti-irrigation Using VinasseBy Conventional Sprinklers or...

Source: Centro de Tecnologcia Canavieira - CTC

“Canal + Big Guns”“Canal + Big Guns”

Ferti-irrigation Using Vinasse

Source: Centro de Tecnologcia Canavieira - CTC

By Canal & Hard Hose or...

Trucks & Hard Hose

MAIN QUESTIONS:

The usage of the water;

Indirect usage of the residues;

Energy generation using crop residues;

New technologies;

Carbon market (Kyoto Protocol).

The Industrial phase...

BAGASSE (SOLID RESIDUE)

FILTER RESIDUEVINASSES (LIQUID RESIDUE)

Water Uses in Ethanol Plants

Estimated mean end use of 21 m3/tons of sugar cane

(mills having annexed distillery)Others Uses

13%

Fermentation Cooling

14%

Alcohol Condensers

Cooling19%

Sugar Cane Washing

25%

Condensers / Multijets

29%

Source: Centro de Tecnologia Canavieira - CTC

Water Consumption in Ethanol Plants

In spite of the high mean end use, volumes of water collection has been decreasing, as a result of rationalizing of water consumption: reuses, circuit closing, reduction of sugar cane washing and other process changes.

Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005

Uses (m3 / tons of sugar cane) 1990 1997 2005

Collection 5,60 5,07 1,83

Water Consumption in Ethanol Plants

TRADITIONAL PROCESS: SUGAR

CANE WASHING

NEW TECHNOLOGY: DRY CLEANING

REDUCES WATER CONSUMPTION

Main Goals of Water Use in Ethanol Plants

Collection........................................1,0 m3/ton of sugar cane

Mean Consumption........................1,0 m3/ton of sugar cane

Effluent released (BOD, COD)....... zero

Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005

STRATEGIES:• Rational use (non treated water and water used in process)• Reuse of treated effluents and water used in process• Self-monitoring of quality and quantity of water collected, used and released• Prevent controls of pollution

Energy Cogeneration Using Bagasse

CANE BAGASSE + HIGH EFFICIENCY BOILER + TURBO GENERATOR

ENERGY: AUTO SUFFICENCY AND EXCEDENTS TO EXPORT

Amazon Forest

Pantanal

Atlantic Forest of Brazil

Sugarcane CropsCANASAT Project

Source: IBGE (Preservation Areas) and CTC (Sugarcane Crops)

Center-South Region Crops Location – 2005/2006

A Region that grows sugarcane crops for more than 30 years

More than 1,300 miles far from the Amazon Forest boundaries

Potential areas for sugar cane in Brazil

Million hectares %HIGH 8 2MEDIUM 114 32LOW 149 41IMPROPER 91 25TOTAL 362 100

AREAPOTENTIAL

Production potential without irrigation

Million hectares %HIGH 38 11MEDIUM 98 27LOW 168 46IMPROPER 58 16TOTAL 362 100

POTENTIALAREA

Production potential with irrigation

Without irrigation systems With irrigation systems

Source: MCT - CGEE - Unicamp / initial results

Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006and Laura Tetti – USP – 2002

Ethanol in Brazil: Oil economy and environmental benefits

FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL

0

20

40

60

80

100

120

140

160

180

1970 1974 1978 1982 1986 1990 1994 1998 2002 2006

YEAR

106 BEP

This curve shows how much gasoline would be necessary to satisfy the fuel demand for

light vehicles.

Total economy of 813 millions boe or 16 months of the present Brazilian

petroleum production.

TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED)

GASOLINE PRODUCTIONGASOLINE CONSUMPTION

TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV)

Accumulated economy of 8 years of pure gasoline national consumption.

+ US$ 61billions

IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 675 MILLION TONNES OF CO2 WAS AVOIDED

The only remaining incentive nowadays

Incentives established by the Pro-Alcohol in 1975

Alcohol price lower than gasoline price

Guaranteed remuneration to the producer

Tax reduction for hydrous alcohol cars

Loans for alcohol producers to increase their capacity

Gas stations were obligated to sell alcohol

Maintenance of strategical alcohol stocks

9 multinational automotive manufacturers settled in Brazil are producing nearly 100 different models of Total FFV

2006: Total FFV – a Brazilian reality

Source: Ministry of Development, Industry and Foreign Trade;Brazilian Association of Automotive Vehicle Manufacturers - 2007

Any mixture of gasoline and ethanol can be used, from 0 to 100%; In 2006: The domestic flex-fuel vehicle sales represented 78% of all 1,824,266 light

vehicles sold in the same period (imports included);

Total domestic flex-fuel vehicle sales (2003-2006): 2.67 million units)

FINAL REMARKS

ENERGY PRODUCTION

X

FOOD PRODUCTION

GLOBAL CHALLENGE

ANDAND

BRAZIL CHALLENGE

AREA (EXTENSION)PERCENTAGE

BRAZIL (TOTAL) 851 100%

ARABLE AREA 383 45%

PASTURES 210 25%(55% of arable area)

AVAILABLE FOR EXPANSION

91 11%(24% of arable area)

SUGARCANE AREA FOR ETHANOL

3 0,35%(0,8% of arable area)

OILSEED CROPS FOR B2 and B5 1,7 to 4,0 0,2 a 0,47%

(0,4% to 1% of arable area)

In millions of hectaresEnergy and Food Production

SUGARCANE PRODUCTIVITY (tonnes of sugarcane / ha)

746247

0

10

20

30

40

50

60

70

80

1975 1990 2005Sugarcane Production 2006 = 457 106 t

33% of the world production

World Average = 69 t/ha

ETHANOL PRODUCTIVITY (liters / tonnes of sugarcane)

867469

30

40

50

60

70

80

90

1975 1990 2005

ETHANOL PRODUCTIVITY(m³ / ha)

3,24,6

6,6

0

1

2

3

4

5

6

7

1975 1990 2005

EVOLUTION OF ETHANOL PRODUCTIVITY

1 ton of sugarcane = 80 liters of alcohol1 hectare of sugarcane = 6 m3 of alcohol

Sugarcane: Cropped and Preserved Areas due to Technological Improvements

Source: CIMA

Área Colhida

Área Poupada

2.000

3.000

4.000

5.000

6.000

7.000

8.000

Safras Agrícolas

Áre

a T

ota

l (1

00

0 h

a)

20

30

40

50

60

70

80

Pro

du

tvid

ad

e (

t/h

a)

Prod Médiaproductivity

cropped area

preservedarea

Pro

du

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vit

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ton

s/h

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Are

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Some basic statements: Energy supply is a great challenge to all the Developing Countries and reducing the oil dependence is a need for most of them;

Biofuels can be important to address this problem and it can contribute to reduce food security problems;

Brazil is the lowest cost producer of sugar and ethanol from sugar cane, but we can observe high sugar cane yields in several other countries;

Other countries, which are able to grow sugar cane competitively, could also become low cost producers of sugar and ethanol;

It is possible to combine agricultural aptitude with high technology and management in other countries, besides Brazil.

How to start a program of ethanol production?

Identifying potential areas (available raw material);

Considering technical and economic questions;

Developing a local basic equipments industry (or having appropriate technical support);

Finding the technologies more appropriated to each case (specially in terms of scale);

Investing in the best projects;

CONCLUSION

Ethanol can be an excellent business for tropical countries, especially for the traditional sugar cane producers;

Producing and blending ethanol with gasoline are simple tasks, if all the process is carefully planned;

Brazil learned with its own mistakes. Other countries don’t have to do the same;

Brazil is interested in sharing its experience because it needs the help of other suppliers to organize the international market.

Information on sugar cane breeding and varieties development: CTC, IAC and RIDESA;

Technical support for sugar cane production: ORPLANA, CANAOESTE and other consultants.

Technical packages for industrial production: APEX and FIESP;

Financing of equipment by Brazilian exporters by: BNDES – Brazilian development bank (Libor + 2%, 12-year loan).

How can we help?

CONCLUSION

CONCLUSION Biofuels do contribute to:

Energy security;

Improvement of environment conditions in urban areas;

Creation of jobs and income in rural areas;

Economic development.

However, in order to achieve this reality, it is required:

Governmental decision with adequate public policies

Global efforts towards creation of biofuels international market

Governmental policies do exert strong influence on climate for investment because they can produce immediate impacts over

costs, risks and barriers to competition.

THANK YOU!