Box 3: Biofuel policies in Brazil

Around 45 percent of all energy consumed in Brazil comes from renewable sources, reflecting the combined use of hydroelectricity (14.5 percent) and biomass (30.1 percent); the use of sugar cane in the internal renewable energy supply in 2006 represented 32.2 percent of renewable energy and 14.5 percent of total internal energy supply (GBEP, 2007).

Brazil has been a pioneer in national regulatory efforts for the bioenergy sector and has accumulated significant experience and expertise in the area of biofuels, particularly concerning the use of ethanol as a transport fuel. The Brazilian experience of using ethanol as a petrol additive dates back to the 1920s, but it was only in 1931 that fuel produced from sugar cane officially began to be blended with petrol. In 1975, following the first oil crisis, the Government launched the National Ethanol Programme (ProAlcool), creating the conditions for large-scale development of the sugar and ethanol industry. The programme was aimed at reducing energy imports and fostering energy independence. Its main goals were to introduce into the market a mixture of petrol and anhydrous ethanol and to provide incentives for the development of vehicles that were fuelled exclusively with hydrated ethanol. Following the second major oil shock, in 1979, a more ambitious and comprehensive programme was implemented, promoting the development of new plantations and a fleet of purely ethanol-fuelled vehicles. A series of tax and financial incentives was introduced. The programme induced a strong response, with ethanol production rising rapidly along with the number of vehicles running exclusively on ethanol.

Subsidies provided through the programme were intended to be temporary, as high oil prices were expected to make ethanol competitive with petrol in the long run. However, as international oil prices fell in 1986, the elimination of subsidies became problematic. In addition, rising sugar prices led to scarcity of ethanol, and in 1989 severe shortages in some of the main consuming centres undermined the credibility of the programme.

The period from 1989 to 2000 was characterized by the dismantling of the set of government economic incentives for the programme as part of a broader deregulation that affected Brazil’s entire fuel supply system. In 1990, the Sugar and Ethanol Institute, which had regulated the Brazilian sugar and ethanol industry for over six decades, was extinguished, and the planning and implementation of the industry’s production, distribution and sales activities were gradually transferred to the private sector. With the end of the subsidies, the use of hydrated ethanol as fuel diminished drastically. However, the mixture of anhydrous ethanol with petrol was boosted with the introduction in 1993 of a mandated blending requirement specifying that 22 percent of anhydrous ethanol must be added to all petrol distributed at retail petrol stations. The blending requirement is still in place today, with the Inter-Ministerial Board for Sugar and Ethanol establishing the required percentage, which can range from 20 to 25 percent.

The most recent phase of the Brazilian ethanol experience began in 2000 with the revitalization of ethanol fuel and was marked by the liberalization of prices in the industry in 2002. Ethanol exports increased further as a result of high oil prices in the world market. The dynamics of the sugar and ethanol industry began to depend much more on market mechanisms, particularly in the international markets. The industry has made significant investments, expanding production and modernizing technologies. An important factor in domestic market development in recent years has been the investment of the automobile industry in bi-fuel or dual-fuel alcohol–petrol cars, also referred to as flex-fuel vehicles, which are able to run on a blend of petrol and ethanol.

Biodiesel, by contrast, is still an infant industry in Brazil, and biodiesel policies are much more recent. The biodiesel law of 2005 established minimum blending requirements of 2 percent and 5 percent to be accomplished by 2008 and 2013, respectively. Reflecting social inclusion and regional development concerns, a system of tax incentives was established for the production of raw materials for biodiesel on small family farms in the north and northeast regions of Brazil. Under a special scheme, the “Social Fuel Seal” (Selo Combustível Social) programme, biodiesel producers who buy feedstocks from small family farms in poor regions pay less federal income tax and can access finance from the Brazilian Development Bank. The farmers are organized into cooperatives and receive training from extension workers.

Current bioenergy policies in Brazil are guided by the Federal Government’s Agroenergy Policy Guidelines, prepared by an interministerial team. Linked to the overall policy of the Federal Government, the Ministry of Agriculture, Livestock and Food Supply has prepared a programme to meet the bioenergy needs of the country. The goal of the Brazilian Agroenergy Plan 2006–2011 is to ensure the competitiveness of Brazilian agribusiness and support specific public policies, such as social inclusion, regional development and environmental sustainability.

Sources: based on GBEP, 2007, and Buarque de Hollanda and Poole, 2001.

Source: FAO, The State of Food and Agriculture, Biofuels: Prospects, Risks and Opportunities (2008) , Chapter 33, p.24-25

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Other Figures & Tables on this publication:

TABLE 1: Biofuel production by country, 2007

TABLE 2: Biofuel yields for different feedstocks and countries

TABLE 3: Hypothetical potential for ethanol from principal cereal and sugar crops

TABLE 4: Voluntary and mandatory bioenergy targets for transport fuels in G8+5 countries

TABLE 5: Applied tariffs on ethanol in selected countries

TABLE 6: Total support estimates for biofuels in selected OECD economies in 2006

TABLE 7: Approximate average and variable rates of support per litre of biofuel in selected OECD economies

TABLE 8: Energy demand by source and sector: reference scenario

TABLE 9: Land requirements for biofuel production

TABLE 10: Water requirements for biofuel crops

TABLE 11: Import bills of total food and major food commodities for 2007 and their percentage increase over 2006

TABLE 12: Net importers of petroleum products and major cereals, ranked by prevalence of undernourishment

TABLE 13: Share of net staple food-seller households among urban, rural and total households

Box 1: Other types of biomass for heat, power and transport

Box 2: Biotechnology applications for biofuels

Box 3: Biofuel policies in Brazil

Box 4: Biofuel policies in the United States of America

Box 5: Biofuel policies in the European Union

Box 6: Main sources of uncertainty for biofuel projections

Box 7: Biofuels and the World Trade Organization

Box 8: Biofuels and preferential trade initiatives

Box 9: The Global Bioenergy Partnership

Box 10: Biofuels and the United Nations Framework Convention on Climate Change

Box 11: Jatropha – a “miracle” crop?

Box 12: Agricultural growth and poverty reduction

Box 13: Cotton in the Sahel

Box 14: Biofuel crops and the land issue in the United Republic of Tanzania

Figure 1: World primary energy demand by source, 2005

Figure 2: Total primary energy demand by source and region, 2005

Figure 3: Trends in consumption of transport biofuels

Figure 4: Biofuels – from feedstock to end use

Figure 5: Uses of biomass for energy

Figure 6: Conversion of agricultural feedstocks into liquid biofuels

Figure 7: Estimated ranges of fossil energy balances of selected fuel types

Figure 8: Support provided at different points in the biofuel supply chain

Figure 9: Biofuel production costs in selected countries, 2004 and 2007

Figure 10: Breakeven prices for crude oil and selected feedstocks in 2005

Figure 11: Breakeven prices for maize and crude oil in the United States of America

Figure 12: Breakeven prices for maize and crude oil with and without subsidies

Figure 13: Maize and crude oil breakeven prices and observed prices, 2003–08

Figure 14: Price relationships between crude oil and other biofuel feedstocks, 2003-08

Figure 15: Food commodity price trends 1971–2007, with projections to 2017

Figure 16: Global ethanol production, trade and prices, with projections to 2017

Figure 17: Major ethanol producers, with projections to 2017

Figure 18: Global biodiesel production, trade and prices, with projections to 2017

Figure 19: Major biodiesel producers, with projections to 2017

Figure 20: Total impact of removing trade-distorting biofuel policies for ethanol, 2013–17 average

Figure 21: Total impact of removing trade-distorting biofuel policies for biodiesel, 2013–17 average

Figure 22: Life-cycle analysis for greenhouse gas balances

Figure 23: Reductions in greenhouse gas emissions of selected biofuels relative to fossil fuels

Figure 24: Potential for cropland expansion

Figure 25: Potential for yield increase for selected biofuel feedstock crops

Figure 26: Potential for irrigated area expansion

Figure 27: Agricultural trade balance of least-developed countries

Figure 28: Distribution of poor net buyers and sellers of staple foods1

Figure 29: Average welfare gain/loss from a 10 percent increase in the price of the main staple, by income (expenditure) quintile for rural and urban households