Tuesday, June 14, 2005

Brazil's Huge Experiments with Bio-fuels

GCC links to this article in the BBC titled, " The rise, fall and rise of Brazil's biofuel". The history of bio-fuel usage in Brazil presents an excellent case study for economies (including India) that are today trying to move towards bio-fuels in a big way.

The Rise

In a politically inspired decision, Brazil's military dictatorship decided to reduce dependence on Middle Eastern oil (probably as a reaction to the oil price hikes in the 1970's). Thus was started a program to use ethanol made from sugar-cane, which was plentiful in Brazil, as a substitute for petrol in motor vehicles. The program subsidised farmers for growing sugar-cane, subsidised ethanol at the pumps to actually make it cheaper than petrol and ensured mass production of vehicles that ran on ethanol instead of petrol.

"As a result, in 1985 and 1986, more than 75% of all motor vehicles produced in Brazil - and more than 90% of cars - were designed for alcohol consumption."

The Fall

Then a combination of factors brought down the curtains on this major technological feat. The military government fell in 1985, and so did concerns of "national security". Oil prices fell steeply from their 1970's highs, while sugar prices rose (making ethanol also more expensive), and finally Brazil discovered huge internal reserves, thus vastly enhancing oil self-sufficiency.

Despite the great environmental benefits, production of ethanol powered vehicles fell to just 0.06% of production in 1997.

The Resurrection

That was about when ethanol and bio-fuels in general were getting popular in the US, encouraged by President Bush's vision to grow fuel instead of digging for it. This was of course helped by the fact that oil prices were rising steadily.

The big technological break came in 2003 when flex-fuel cars entered production in Brazil. Flex-fuel cars can run on petrol, ethanol or any blend of both, aided by an on-board computer that monitors the quality of the fuel and makes appropriate adjustments.

"In 2004, the first full year that "flex-fuel" cars were on sale, they accounted for more than 17% of the Brazilian market, and are on course for an even bigger share this year."

Appropriately more companies are adding flex-fuel cars to their offerings, and they are not all local companies.

The good news is other countries, including the US, are beginning to give Brazil a tough fight for its leadership in the crop-based motor fuel space. Like in any other renewable energy source, the bio-fuel resurgence in Brazil was a result of tax breaks and technological advancement - the tax breaks do the hand-holding till the technology is mature and strong enough to fend for itself.