Advanced BioFuels USA

by Roberto Coelho* (Advanced Biofuels USA) The global energy demand will rise 35% by 2035 due to population and economic growth, taking into account environmental and countries’ regulations.
Brazil’s part of this forecast growth in energy demand can be significantly provided by electricity production from renewable sources and also by a huge increase in oil production.  What about the role of biofuels?
Self-sufficiency in oil in Brazil was reached in 2006; however, high consumption rates, population and economic growth, combined with political and operational factors, hampered the upward trend of production and Petrobras (the state owned oil company and the largest fuel producer in Brazil) was obliged to re-start importing oil in 2007. Petrobras forecasts an investment of US$ 40bi in production and research of oil and derivatives by 2013, aiming to achieve again the country’s oil self-sufficiency. However, there is general consensus that this is not the only way to achieve energy self-sufficiency.
Brazil is a major producer of ethanol made from sugarcane, which is a renewable source. Most ethanol fuels are derived from crops, but others (from corn, sugar beet and wheat) are not as sustainable as ethanol from sugarcane. Although all these ethanol fuels are derived from crops, ethanol from food grains such as corn and wheat have higher greenhouse gas lifecycle footprints and cause more “food vs. fuel” concerns than those made from sugarcane.
Ethanol production is such that it allows the country to export ethanol to developed countries when external prices are higher than internal prices.
Besides investments in oil, other tools are needed to achieve self-sufficiency such as adequate policies for fuels in the country. Existing refineries from Petrobras already produce the maximum amount of gasoline they can afford. Therefore, for light vehicles (running with blends of gasoline/ethanol and/or ethanol)[1], and considering the recent increase in fuel consumption[2], the current alternatives are to produce more ethanol or to import more gasoline.
This seems to be a simple choice and the easiest answer seems to be to produce more ethanol if we consider that ethanol is produced domestically and from renewable energy sources, while gasoline is a fossil fuel and non-renewable.
However, the reality is that today Petrobras imports gasoline at very high prices to meet the country’s internal needs of fuel. Why is this needed?
In fact, sugarcane production has decreased in 2011/2012, due to negative weather conditions affecting agricultural productivity and so available ethanol was reduced. However, recently these difficulties were solved and, still internal ethanol availability continues to be reduced. In fact, ethanol production increased in the country but not the amount offered to local consumers.
This is due to the fact that the gasoline prices (type C – blended with anhydrous ethanol) is indirectly controlled by the government for political and economic reasons, such as impact on inflation rates and other indicators. Since ethanol prices in the pump station must be up to 70% of gasoline prices to accommodate the reduced mileage of ethanol compared to gasoline in currently available engines, control of gasoline prices means control of ethanol prices. So for ethanol producers it makes more business sense to export ethanol instead of supplying the internal market.
Besides this price control, there is also a structural issue. Ethanol prices at the pump station include state taxes (ICMS),  These taxes are higher or equal to gasoline taxes in most Brazilian states.
Obviously if ethanol prices to the final consumer are higher than gasoline (ethanol price must be a maximum of 70% of gasoline price at the pump), consumers opt for gasoline.
Consequently, a reduction in ethanol sales implies increasing gasoline consumption and the consequent need to import more gasoline. This reflects an inconsistency in the government policy, which, on one hand, stimulates the increase of energy and consumer goods such as light duty vehicles, and on the other hand, controls the price of gasoline and diesel, not allowing the market to regulate itself.
Other factors such as weather conditions which effect the production of sugarcane, and have indeed reduced the production, also impact the supply of ethanol. But there is no doubt that the main factor is the price issue. Ethanol, to be sold in Brazil, needs to be competitive with gasoline in a free market environment; however, the price of gasoline is maintained by the government at low levels, directly affecting ethanol consumption.[3]
Another important point to be mentioned is the struggle that Brazil has in the country’s refining operation which needs to prioritize the production of diesel (due to the high consumption of diesel oil in trucks, buses and, even more, for small decentralized electricity generation in Brazilian Amazon which is mainly based on small thermoelectric power plants fueled with highly subsidized diesel oil[4]) and therefore generates a deficit in the supply of gasoline and the consequent increase of imports. Therefore, pure diesel oil has to be imported by Petrobras, also affecting the energy balance and the trade balance of the country. Along with diesel, other imported energy sources represent a share of 17% from the total imports of the country.
Another significant problem related to diesel consumption in the country is the fact that the diesel oil distributed by Petrobras is extremely polluting, with sulfur content up to 3000 ppm (compared to 50 ppm in the European Union). Recently Petrobras started to distribute the so called “metropolitan diesel”, in large cities, but it still has 500 ppm sulfur content.
The alternative for this would be biodiesel which despite being produced from soybean and animal fat, which are by-products of Brazilian exports[5], is not economically competitive. Biodiesel from soy and animal fat has a lower cost when compared with other oilseeds yet this biodiesel is sold in auctions for prices much higher than diesel and Petrobras covers the difference in final prices to consumers. Furthermore there is a high environmental impact from these two types of biodiesel, since soybean and cattle are very much responsible for the expansion of the agricultural frontier, according to recent studies from the University of Sao Paulo[6].
Another option is biodiesel from palm oil, a very efficient crop to produce vegetable oil. Palm oil has a higher production cost but can be produced in a sustainable way following the agro-environmental zoning introduced in the country recently. Therefore the palm oil-based biodiesel, despite higher costs, would be an interesting option to reduce the consumption of petroleum diesel, but appropriate policies are necessary for enabling it.
Brazil has large reserves and is a major oil producer, but investment only in oil production will not solve the issue of the country’s energy self-sufficiency since the bottleneck is related to fuel consumption.
Bottom line: society needs to discuss how to reward the environmental and social benefits of the available options, such as biofuels.
After all, is not there any concern about the air we breathe?