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Ethanol Part II- Why It Works in Brazil

Ethanol works in Brazil. Unlike the United States' corn ethanol program, the Brazilian sugar cane ethanol program makes good economic sense, and has allowed Brazil to become energy independent. Prior to the 1980's Brazil was dependent on oil imports just as the US is now. Today, Brazil produces enough cheap Ethanol to provide for 60% of its fossil fuel needs for vehicles. Only 40% comes from gasoline.

Running vehicles on Ethanol in Brazil dates back to World War I. In 1919, the Governor of northern province Pernambuco mandated all government vehicles run on Ethanol. The first major plant went into full scale production in 1927, and a year later there were 500 vehicles in the region running on the pure stuff.

Today, Brazil produces 33% of the world's Ethanol, second only to the US in pure quantity. In 1976 the Brazilian government implemented its first mandate- it required all light vehicles to run on at least 10% ethanol. By 2003, the number moved up to 20%, and today there are more than 6 million "flex fuel" vehicles on the road that can run on anywhere from 10% ethanol to 100% ethanol. In short, Brazil is 30 years ahead of the United States in practical Ethanol use.

Let's move on to the main theme- why does Ethanol work so well in Brazil, but is a flawed strategy in the United States? It's simple- it relates to the raw material costs used to create Ethanol. The Ethanol model derived from sugar cane works- The Ethanol model derived from corn does not work.

I received a lot of emails on last week's article where I described the US's use of Ethanol as a "$7 billion waste of money". There were arguments on both sides. I appreciate your feedback. Now, here are the facts. I'll let you decide if my conclusions are accurate. 

These are 2007 statistics:

• Brazil produced 5 million gallons, the US produced 6.5 million
• Brazil used 3.6 million hectares of land, the US used 10 million
• Brazil yielded 7,000 to 8,000 liters per hectare, the US yielded 3,800 to 4,000 liters per hectare
• Brazil yielded 8.3 to 10.2 units of energy for 1 invested, the US yielded 1.3 to 1.6 for 1 invested
• Brazil's share of market in ethanol- 50%- US share of market in ethanol- 4%
• Brazil's cost of production- $.83 per gallon- US cost of production- $1.14
• Brazil's government subsidy- 0- US government subsidy- $.51 per gallon ($7 billion of taxpayer money).

In the mid 70's and into the Arab oil embargo of the 80's the Brazilians stuck with their commitment to Ethanol as an alternative fuel. When the price of oil soared over $100 earlier this year, the Brazilians benefited greatly by being able to export their oil, only because half of the fossil fuels used to run light vehicles in Brazil comes from their own ethanol production.

Ethanol is hardly a perfect fossil fuel. It is highly corrosive, so special infrastructure is required to handle it. Ethanol cannot be used in replacement of diesel, so it's not too useful heavy duty vehicles. 

Ethanol is a great alternative fuel source- just not when it's derived from corn. So, as far as the US is concerned, what's the solution? For starters, we will be producing Ethanol from sugar cane before too long. Louisiana will be the first producer. There are three plants coming online in 2009 processing sugar cane. It is estimated their production will rise to 100 million gallons annually within in three years.

Brazil won't be exporting Ethanol to the US unless or until the $.54 per gallon protectionist tariff is removed. If US corn Ethanol is so great, why do we need the tariff?

Which brings us to Part III in this series which answers the question: Where will our Ethanol come from if we have the sense to drop the flawed corn based model and move to the sugar cane based model?

The answer- stay tuned for Part III later this week. I'll share an idea in a small company Ethanol producer with the resources to make Ethanol work in the US.

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