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Corn+Soybean Digest

Ethanol's Bright Future

I talked about how Brazil has become a powerhouse in fuel alcohol in the December issue. With the arrival of flex-fuel vehicles that burn pure alcohol, gasoline or any combination of the two, the future looks bright — so bright that Brazilians and foreigners are expected to invest about US$3 billion over the next five years in order to raise Brazil's alcohol production capacity by 40%.

Huge expanses of land, lots of sunshine and experience have helped the industry offer ethanol at an average price of US$30 a barrel.

But skies were not always so blue for the Brazilian fuel alcohol industry. In the late 1970s — not long after the government launched its 100% alcohol fuel program, dubbed Pro-Alcohol — nearly half of all cars rolling off assembly lines burned straight alcohol.

However, as petroleum prices dropped over time, that proportion decreased dramatically. Industry insiders said the fuel alcohol industry was on life support.

“The Pro-Alcohol program in Brazil didn't die, thanks to the U.S.,” says Laura Tetti, environmental consultant for the Sao Paulo Sugarcane Agri-Industry Union. “In 1998 Tommy Thompson of the Governors' Ethanol Coalition gave a speech in Brazil about U.S. plans for an ethanol program and our folks woke up.”

Brazilian federal congressman Antonio Carlos de Mendes Thame disagrees. “The actual rebirth of the Pro-Alcohol program was a process that occurred almost exclusively because late Sao Paulo Governor Mario Covas began a comprehensive ‘Pact for Jobs’ program aimed at saving the ethanol industry, while promoting the creation of thousands of new jobs,” he says.

Nevertheless, Brazil still has a long way to go. “Japan has sent a delegation to Brazil to investigate the possibility of establishing a supply agreement. But they gave up on the idea, fearing another poor harvest or world price variations might disrupt supply. And the Brazilian government would not ensure it for lack of adequate emergency reserves,” Thame explains.

Canada has imposed legislation establishing a compulsory gas-ethanol blend by 2005, but it may be forced to delay the process until the nation can produce enough ethanol to meet the current demand.

With a 10% ethanol blend, Ontario alone would require about 200 million gallons, while total Canadian production today is about 66 million gallons. Demand in Saskatchewan and Manitoba represent an extra 40 million gallons. The other alternative would be to import ethanol from the U.S. and Brazil.

Today Americans drive some 1.5 million flexible-fuel vehicles, running on different gas-ethanol blends.

A blend of 85% ethanol and 15% gasoline (E85) or higher qualifies as an alternative fuel under the Energy Policy Act of 1992. So far, E85 isn't widely available in the U.S., but more locations are stocking it all the time.

High petroleum prices and political unrest in oil-producing regions make domestically produced fuels more attractive. Coupled with the environmental benefits of vegetable-based fuels, the attraction of using more U.S. corn for automobile fuel becomes even greater.

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