PontesVolume 3Número 5 • dezembro de 2007

O Mercado Internacional de Etanol: que papel cabe ao Brasil?

by Arnaldo Walter

There is great interest worldwide on the use of biofuels in large scale and, at present, ethanol is considered the best alternative. As the international ethanol market is in the initial stage, many hurdles must still be overcome. The best strategy for Brazil, second largest producer and the one with the lowest production costs, is possibly stimulate production in other countries and advocate effectively sustainable fuel production.

The market for biofuels and ethanol

Recently, worldwide, much has been said about the increased production and consumption of biofuels. Three main driving forces can be identifi ed for both: (i) the environmental issue associated particularly the need to reduce emissions of greenhouse gases (GHGs), (ii) the security of energy supply, due to higher prices International oil and heavy reliance on imported oil - particularly from the United States of America (USA), Japan and several countries in the European Union (EU), and (iii) social, and economic issues associated with the need for job creation and the improvement or maintenance of living conditions in rural areas. The weight of these elements varies in each country or region. In the EU, for example, the most frequent argument is related to the need to reduce GHG emissions, in the U.S., increased security of energy supply. In both cases, however, the preservation of the interests of domestic farmers is an equally fundamental issue.

Some figures show the current frame of the consumption of biofuels in the world. As for ethanol, data for 2006 indicate that global ethanol production was approximately 51 billion liters. It is estimated that, of this total, between 39 and 40 billion liters were consumed as an automotive fuel. This ethanol consumption in transport is equivalent to approximately 2% of global gasoline consumption - most signifi cant numbers are found only in Brazil (more than 30%) and the U.S. (slightly more than 3%). There is also great interest in the biodiesel, but its consumption in transport in 2005 was 3.8 billion gallons, equivalent to 0.2% of diesel consumption. In this case Germany presents itself as a leader to concentrate more than 50% of world production and consumption of biodiesel.

However, many countries defi Niram goals consumption of biofuels in transport systems. In the EU target for 2005 was 2% (based on energy), although on average the consumption of biofuels - more biodiesel than ethanol - have been less than 1%. The goal for 2010 is 5.75%, while the target announced in early 2007 (valid for 2020) is 10%. For the EU, the goals can be achieved with both ethanol and biodiesel, and at least in the short term, consumption of biodiesel should be more important.

In the U.S. in mid-2005, was defi ned the goal that the consumption of biofuels in transport - in this case, especially ethanol - should be equivalent to 28.4 billion liters in 2012. In early 2007, however, the U.S. government defi ned a far more ambitious goal: to reduce the projected consumption of oil for 2017 by 20%. Thus, the estimated consumption of biofuels is more than 132 billion liters that year (35 billion gallons). In the first six months of 2007, ethanol consumption in the U.S. grew 34% compared to the same period in 2006 and, in 2007, ethanol consumption is expected to reach close to 28 billion liters. Since 2006, the U.S. is the world’s largest producer of ethanol and will open a lot of advantage in the coming years.

Japan, on the other hand, may be an important biofuel consumer, mainly because it was not able to be a producer, at least based on the conventional technology. For reasons of security of energy supply and that GHG emissions can be reduced (to fulfill the goals of the Kyoto Protocol), considers the use of ethanol-gasoline blends or adding ETBE (an additive produced from ethanol) with gasoline. Since 2005, E3 (3% blend of ethanol to gasoline in volume basis) is used in some regions of Japan, although not mandatory. An alternative would be to make compulsory the use of E3 around the country, with prospects of reaching the E10 in 2010. There is resistance from the oil industry, however, you prefer the use of ETBE to the use of ethanol. Furthermore, there is concern the small number of countries that could export ethanol to Japan to meet the eventual goal of 10% ethanol in gasoline by 2010, it is estimated that Japan would need to import more than 6 billion gallons per year .

International trade from the perspective of large markets

The ethanol production in the U.S. is almost entirely from corn, and production costs are on average twice higher than the costs in Brazil, from sugar cane. More than high cost to produce a unit of energy in the form of ethanol are consumed about 0.8 units of fossil energy. Even some critics, as scientist David Pimentel, Cornell University, USA, confi rm that the fossil energy consumption is higher than production of energy in the form of ethanol. Therefore, the benefits in terms of reduction of GHG emissions - if any - are very modest.

The relationship between fossil energy consumed and energy produced in the form of ethanol is somewhat more favorable in the EU (1 to 2, approximately), but production costs are at least three times the cost of production in Brazil. In the EU, ethanol production occurs mainly from cereals (such as wheat) and sugar beet.

The focus of many critics of alternative biofuels (ethanol in particular) is precisely the fact that production in the U.S., the EU and in China (world’s third largest producer, with corn as the main feedstock) occurs with inputs that have food use. Thus, with increasing ethanol production will inevitably pressure on the supply and prices of food. In theory there is no problem in Brazil, since there is large availability of land and production occurs from sugarcane, with possible impacts on the prices of sugar, but not on the prices of food staples.

The large-scale production of ethanol from corn and grain is the defi nitive solution, U.S. and EU recognize this fact. For this reason, there is a huge effort to make possible the production of so-called second-generation biofuels from cellulosic biomass (such as wood, grasses, residues, etc.). The production of wood, for example, has much lower cost to the production of corn and wheat and can be made in soils of inferior quality. It would also be possible to produce liquid fuels in the EU from imported from Brazil or Africa, for example, with relatively low costs and captive significant increase in wood supply security.

The technologies required for production of second generation biofuels are still, however, under development and not be commercial before 2015-2020. The U.S., for example, betting that it would be possible to produce large quantities of second generation fuels before 2017; doubt about it. Developing routes, one which is based on the aerated biomass cation - and allows the production of high quality diesel, methanol, synthetic gasoline, for example - is apparently closer to reach the commercial stage in relation to the route based on the hydrolysis of cellulose (which permits the production of ethanol).

On the other hand, if the above mentioned routes reach the commercial stage in 2020, by assumption, diffi cilmente production costs and the balance of GHG emissions would be better than the results achieved in Brazil today with the production of ethanol from sugarcane . Therefore, are two obvious questions: why countries such consumers do not buy the required ethanol from countries like Brazil, rather than produce it with high costs and low environmental benefits, and, according to comparative advantages, with the Brazil need to worry.

The answer to the first question is linked to the main motor to the use of ethanol, which include concerns about security of energy supply and the preservation of the interests of agriculture in developed countries forces. So even more expensive and reduced benefits in reducing GHG emissions, the production in the U.S. and the EU will continue to exist and grow much in coming years. In the U.S., the installed capacity will reach almost 48 billion liters in the end of 2008 - this more than doubles the capacity of existing production. The forecast from the U.S. Department of Agriculture (USDA, English acronym) is that the production of ethanol from corn to reach 57 billion liters in 2012-2013 - volume near capacity production from corn - 64 billion liters, according to study by the International Energy Agency.

In the case of the EU, the ability to produce fuel ethanol will reach 5 billion liters in mid-2008, when the limit of production from cereals and sugar beet is estimated at 27 billion liters. Thus, the production capacity in the EU could serve much the estimated for 2012 (6-7 billion liters) until all the demands estimated for 2020 (19 billion gallons) demand.

It is expected that both the U.S. and the EU to adopt strategies for maximizing domestic production. The numbers above, it follows that there must be short / medium term production capacity to meet domestic demand signifi cant fraction, and this capacity should be put to good use, because it would be politically exhausting not do it. At the same time, to have a strategy to prioritize local production (conventional), although pricey, you gain time for the second-generation technology reach commercial stage.

From that first consideration can be answered the second question. In Brazil, production costs and environmental advantages - balance favorable from the point of view of GHG emissions - are associated with current production, with a large concentration of that in São Paulo, where conditions are very favorable (soil, climate, technology etc. .). The production of 30-40 billion liters, for example, occur with higher costs and, in these conditions, the second-generation biofuels can be competitive. The environmental benefits will also be lower if not diversi cation has the production and integration processes - eg, effi ciently generate electricity from sugarcane waste, which is important both to keep costs down as to have low emissions GHG.

International trade in biofuels - ethanol, in particular - matter to the U.S. and EU, because the ethanol is a commodity the supply risks will be lower, there will be pressure to reduce the cost of local production, will be the largest market for equipment and services etc. . What certainly not applicable to holders of key markets is totally lost the capacity to produce locally, as well as accept a monopolistic position in Brazil. In the U.S. and EU, conventional local production will continue to occur and Brazil export to these markets (much less than you would like, it is true) because it has the lowest production costs. Tariff barriers continue to be imposed, however, otherwise the current production from maize and cereals in those countries be seriously compromised.

What is the best strategy for Brazil?

Brazil’s strategy should be to accept partnerships with the U.S. and EU. This, incidentally, is already being done. Brazil should be a partner, since we have the technology to produce ethanol from sugarcane consolidate in countries that begin programs of its kind in Latin America and Africa, for example. Ethanol is not defi nitive solution, but if it is really a commodity, will be seen as a better solution. Therefore, increasing the number of producing countries is also of interest to Brazil, because we sell more ethanol, and equipment and services.

On the other hand, if the production of second-generation biofuels is feasible, this will be even more viable in Brazil, due to our low cost biomass (eg bagasse and straw). Thus, we must also invest in alternative production routes, the hydrolysis and aerated cation.

Several precautions should be taken in adopting this strategy. First, the Brazilian position needs to be proactive on issues where we are fragile. We know that the production of ethanol in Brazil is not perfect as the preservation of biodiversity and the improvement of social conditions. Today, it is much better than it once was and has less negative than if you want to show on the outside aspects. But we can - and must - do better. Indeed, the Brazilian government itself acknowledges our weakness when you accept a guarantor be certified environmental and social compliance.

Second, you need to invest in science and technology, both with the improvement of performance parameters as the conventional process in the field of alternative routes. In the same vein, we need to diversify production, with exploration of all existing opportunities (eg, the production of electricity on a large-scale) and the creation of new opportunities (eg, the production of chemicals from biomass).

Third, you need to plan the expansion of ethanol production in Brazil and modernize its production chain. It is necessary to overcome barriers such as logistics, and have the view that ethanol will be part of the global energy mix. Other countries treat the subject with the amount due, and if not fi zermos the same, we will be marginalized in the market.

Arnaldo Walter is a mechanical engineer with a doctorate in energy. Is professor in the School of Mechanical Engineering at Unicamp and is part of the International Energy Agency-Bioenergy Sustainable Bio-energy Trade project: securing Supply and Demand.