Abstract
Brazil is an international pioneer in biofuels, with more than 40 years of experience in the production and use of sugarcane ethanol. This paper describes institutional factors that contributed to the development of the biofuel industry, including the military regime and state-owned Petrobras in the 1970s and 1980s, the post-deregulation period in the 1990s, and changes in the 2000s, including new institutions targeting feedstock pricing arrangements and the growth in demand for flex-fuel cars, which allowed for market-based incentives. State intervention allowed the industry to overcome barriers of infrastructure, a transportation network, development of ethanol-powered vehicles, and output price stability and credit support. The paper concludes with key lessons from Brazilian ethanol production. While Brazil initially supported ethanol production in an effort to replace petroleum, it is now incentivizing expansion of a consumer market to address environmental and climate problems. Government support has allowed for efficient allocation of byproducts and positive impacts on the labor market, and agricultural sector in general. Still improvements in stability and predictability of the institutional environment are important for future growth. The lessons from Brazil provide insight into the challenges of biofuels in other countries attempting to replace fossil fuels with renewable resources.
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Notes
- 1.
Fuel ethanol prices were fixed by the government using sugar prices as a basis, so that it would be indifferent for the producer to manufacture either sugar or ethanol from the same raw material (sugarcane).
- 2.
Tax falling on vehicles’ register and annual license, to be charged previously to the vehicle’s register or annual license renewal. The amount charged used to be calculated on the total value of the vehicle: 7% for those run on gasoline and 3% for ethanol-run ones.
- 3.
- 4.
Due to slow legal proceedings for the projects approval and high inflation rates, at the time when projects were approved the amount requested had lost its value, and therefore it was not sufficient for the implementation of investments any longer.
- 5.
At that time, Petrobras was a state-owned company and, legally, had a monopoly on the oil sector in Brazil. Currently, it is partially owned by the state.
- 6.
Comissão Nacional de Energia—CNE (National Energy Commission).
- 7.
- 8.
More details regarding Consecana can be found in Consecana Manual available in www.unicadata.com.br and in Moraes et al. (2014).
- 9.
Brazil’s share of the global market varies depending on the source cited. However, according to all sources, it has remained at approximately 50% in recent years.
- 10.
Otto-cycle engines include those powered by compressed natural gas, gasoline, or ethanol (excluding those powered by diesel fuel).
- 11.
More details of the consolidation process can be found in Moraes et al. (2014).
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de Moraes, M.A.F.D., Rodrigues, L., Kaplan, S. (2017). The Sugarcane Industry and the Use of Fuel Ethanol in Brazil: History, Challenges, and Opportunities. In: Khanna, M., Zilberman, D. (eds) Handbook of Bioenergy Economics and Policy: Volume II. Natural Resource Management and Policy, vol 40. Springer, New York, NY. https://doi.org/10.1007/978-1-4939-6906-7_3
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