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Brazil NCA in Ethanol Production

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The document discusses ethanol production in Brazil. It notes that Brazil is the largest global producer of ethanol, producing 20 billion liters per year. Brazilian ethanol is produced from sugarcane, which has advantages over corn and other feedstocks in terms of energy efficiency and lower greenhouse gas emissions. The Brazilian ethanol industry benefits from a supportive policy environment including blending mandates and the development of flexible fuel vehicles. It has developed strong related industries including equipment manufacturers, commodity traders, and research institutions that support the ethanol value chain.

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ETHANOL The Brazilian path toward economic independence Nicol Destre 627261 Priscilla Martella 630601 Giulia Romana Penna 627391 Michela Rossi 627451 Beatrice Ruospo 630641
Why is ethanol interesting? Sustainability: it reduces impact on environment Economic benefits: - very positive energy balance - convenience for producers over gasoline Latecomers advantages New generations: improved sustainability Learning curve: decrease in prices
BIOFUEL: definition • Combustible materials directly or indirectly derived from biomass, commonly produced from:  Plants  Animals  Micro-organism  Organic wastes • Biofuel may be:  Solid  Liquid  Gaseous • Purpose  create a renewable energy, the so-called “bioenergy”, that can be used for:  Transportation  Heat and electricity production http://www.unep.fr/scp/rpanel/pdf/assessing_biofuels_full_report.pdf
Global biofuel industry
Why Biofuel? “The era when industrial development strategies could be formulated without reference to energy sources, is over” • Before 18th century  “Malthusian Trap • In the 18th century  Industrial Revolution: the key to opening the Trap was the tapping of fossil fuel, initially coal • Today  Latecomers’ impediments due to: - Energy security - Economic security - Environmental security One Solution: BIOFUEL Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”
Advantages (1) • Biofuel is cheaper than oil  it overcomes the problems concerning: Energy security: oil supply are peaking  reaching the half way mark to its exhaustion, prices arise  Economic security: over- reliance on imported oil created when it was cheaper  the poorer the country, the greater its dependence on oil imports and the greater its vulnerability to price increase Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; J. Mathews: “Energy flows and the process of industrialization”
Advantages (2) • Biofuel provides environmental security  it can avoid a man-made planet’s catastrophe due to pollution and climate change because:  It represents the first step on a clean technology development trajectory  It burns more cleanly  It generates fewer greenhouse gases  It promotes rural development and social inclusion  It is safer than fossil fuels: nothing happens if a spill occurs NOTE: To this purpose, feedstocks have to be grown and harvested in a sustainable way, avoiding the Indirect Land Use Change (ILUC) “the unintended consequence of releasing more carbon emissions due to land use changes around the world induced by the expansion of croplands for ethanol or biodiesel production in response to the increased global demand for biofuels” Source: http://en.wikipedia.org/wiki/Indirect_land_use_change_impacts_of_biofuels Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; J. Mathews: “Energy flows and the process of industrialization”
Latecomers advantages • It reduces poverty thanks to new jobs • It can generate new export industries • It can be the focus of new international alliances • It promotes South-South cooperation • Potential entrance into the industry by countries with a low level of science and technology Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; :J. Mathews: “Energy flows and the process of industrialization”
Disadvantages in sustainability • Losses in biodiversity • Greater water consumption • Substantial use of fertilisers and pesticides • Possible destruction of tropical forests • Increase in food prices due to conflicts between agriculture vs. ergoculture • First-generation will remain a niche product compared to fossil fuel BUT BRAZIL OVERCOMES ALMOST ALL OF THESE DISADVANTAGES WITH ITS ETHANOL PRODUCTION FROM SUGARCANE Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; SATW: “Biofuels – Opportunities and limits”; J. Mathews: “Energy flows and the process of industrialization”
BIOETHANOL DEFINITION: A fuel for internal-combustion engines that is made by fermenting biological material to produce alcohol (ethanol) GENERATIONS I Generation II Generation III Generation IV Generation - Feedstocks: - Feedstocks: - Feedstocks: - Feedstocks: seeds, grain, corn, non-food sources micro-algae and artificial organism sugarcane (e.g. waste micro-algae (as Craig Venter biomass) found synthetic - Used part: only - Used part: whole bugs which could sugar or starch plant make fuels such as ethanol) Source: SATW “Biofuels – Opportunities and limits”
Ethanol in Brazil • Biggest ethanol producer worldwide (20 billion liters per year) • It covers a large percentage of national fuel consumption  No niche product • Presence of vast tracts of sunshine and desolate landscapes  No food vs. land for fuel issue and no deforestation • Moreover, Brazilian sugarcane has better characteristics with respect to US corn and EU sugar beets:  Perennial crop (vs. annual crop of corn and sugar beets):  Lower need of energy input for cultivation Cheapest form of ethanol (corn  Requires little care three-times costlier)  Lower labor, transport and input costs  Inferior use of pesticides  Higher energy gain (up to 8:1 vs. corn’s four-times less energy efficiency)  Less greenhouse gas emissions  Shorter processing time  Faster growth Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; SATW: “Biofuels – Opportunities and limits”
Ethanol Life Cycle Assessment Analysis of the environmental impact (LCA) and the economic feasibility (LCC) of sugarcane ethanol fuel, making a comparison between gasoline and ethanol as fuels and between E10, E85. Ethanol as a sustainable transportation fuel • The potential for ethanol production is equivalent to about 32% of the total gasoline consumption worldwide, when used in E85 for a midsize passenger vehicle (Kim, Dale study) -> such reduces consumer’s use of fossil fuels and the attendant impacts on climate change, especially GHG and CO2. • To produce 1kg of ethanol only 12,6kg of sugarcane is needed in future case and 30kg in the base case • GHG decrease by 81% when replacing gasoline by ethanol fuels Sources: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009. Kim S, Dale BE. “Global potential bioethanol production from wasted crops and crop residues”. Biomass and Bioenergy 2004
CO2 budget of the Brazilian ethanol program Historical CO2 sugarcane emission scenario takes into account lifecycle emissions due to ethanol production and avoided emissions due to the displacement of fossil fuels both because of ethanol and bioelectricity C balance 17 years later C balance immediately 1992 Net missions=zero Net missions=zero Source: S. Pacca, J.R. Moreira, “Historical carbon budget of the Brazilian ethanol program” , Energy Policy 37 (2009) 4863-4873
LCC of sugarcane ethanol in Brazil An analysis of the Economic Feasibility of bio-ethanol as transport fuel based on the comparisons between:  Technologies & costs for the car-driving function: driving on gasoline and ethanol fuels  Ethanol produced from two processes:  Base case that involves bio ethanol co-production of sugar from sucrose and electricity from bagasse and wastes using the current technology  Future case that involves bio ethanol co-production of sugar from sucrose and electricity only from wastes • Life Cycle Costing indicates the cost (tax excluded) of 1 kilometer driven by a midsize car using gasoline, E10, E85 and 100% ethanol • It’s a steady state model because no discounting and depreciation are taken into account • As the lifetime of the ethanol refinery is assumed to be 10 years, the capital investment is divided over 10 years Source: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009
LCC Tables - Based on gasoline production cost at 0.59 $/kg - Driving with ethanol is more economical than gasoline Even with the assumption of doubling the prices of both crude oil and sugarcane: driving on ethanol fuels is much cheaper in both the base and the future case Source: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009
Brazilian Ethanol Industry: NCA? •Home Natural Endowment •Climate conditions •Large domestic market and •Land fertility increasing demand •R&D •Demand-side stimulus: Demanding regulatory standards: E(10), E(25) National Alcohol program • Flex-fuel engine innovation breakthrough FACTOR DEMAND CONDITIONS FACTORS FIRM, RELATED & •Historically fragmented sugar •Industrial cluster and ethanol industries RIVALRY & SUPPORTING in São Paolo •The top ten ethanol producers STRUCTURE INDUSTRIES •Sugarcane harvesting and sugar control only 24% of the market production industry •210 companies, 368 sugar and •Industrial equipment manufacturing (Dedini) ethanol mills and 128 sugar plants in •Chemicals and biotech industry the State of Sao Paulo (Canavialis and Alellyx) • Increasing openness to FDI •Distribution • Toward consolidation? (Petrobas, ADM, Bunge, Cargill)
Factor conditions • Natural home resources: - 5mil hectares sugar cane crops - Enormous amount of arable land available - Tropical climate - Water abundance - Land fertility • Cheap labor • R&D: - Strong private investment - Strong Agricultural and biofuel research institutions Mission: providing feasible solutions for the sustainable development of Brazilian agribusiness through knowledge and technology generation and transfer
Demand factors Evidences • First oil crisis in 1973 • Sugarcane capacity had reached a high and prices collapsed Government stimulus: Alcohol program Supply-side Demand side • Low interest loans to build •Country’s gasoline to be ethanol plants running with blended with ethanol (E10) technologies that allow them to  E(25) produce either sugar or ethanol •Dedicated engines running on pure alcohol were • Petrobas was ordered to developed by the CTA in Sao purchase a guaranteed amount Paulo of ethanol from producers and •The government ensured the to make ethanol available at pump price of pure alcohol would filling stations be 64.5% of the gasoline price • In the mid-1980s the program dipped since the price of oil fell to record lows • In 1997: Liberalization process • In 2003 flex-fuel vehicles (FFVs) were introduced DEMAND which are capable of running with blends from E0 to E100 FACTORS In 2008 FFVs represent 88% of total Brazilian car sales in Brazil •US$16 billion Investment (1979 -1990) Brazil is now turning to ethanol as aviation fuel as well • US$120 billion Savings in oil imports
Ethanol learning curve The Alcohol program is the most important empirical example of learning curve. The high competition in the ethanol activity has caused the prices to move towards production costs in the medium and long term. • Progress ratio of technology (PR): Δ prices /cumulative sales • Low PRs mean efficient technology penetration • Brazil: (1980-1985) PR 93% , (1985-2002) 71% • Europe underperformed in solar PVs, wind and combined cycle gas turbines with higher PRs in the same time periods. Source: Ethanol learning curve, by Goldemberg, Coelho, Nastari, Lucon
Related and supporting industries The ethanol cluster in São Paulo São Paulo state dominates the production of sugarcane and is also the primary center for ethanol production in Brazil (UNICA, Sugarcane Industry Association, 2009) • Climate • Soil properties • Strong sugarcane crop yields (the central-south region accounts for 85% of total sugar cane and ethanol production) • Cost competitiveness • Closeness to the economic centers of the south region APLA is an entity seeking to develop and unite all the whole ethanol productive chain which is composed of industries that produce equipment, research and technical development centers, associations of the ethanol sector and producers: • 10 distilleries • 70 industries • 5 Institutions and Research and Development Centers • 19 Public and Private Entities
APLA - Members Ministério de Desenvolvimento, Indústria e Comércio Exterior
Ethanol Value Chain: Are all steps covered in Brazil? Sugar Refining Ethanol extraction & distillation Distribution end-use Cultivation and harvesting of Bagasse sugar cane Industrial equipment Petrobas, ADM, manufacturing industry: Bunge, Cargill Cogeneration equipment, machinery Chemical & Biotech (Santal, Dedini) industry: fertilizing and herbicides (Canavialis and Alellyx) Bagasse is used in the co-generation process the burning of bagasse with improved technologies produces a large electricy surplus that is supplied to the grid.
Equipment and manufacturing providers • Founded in 1920 Rod. Rio Claro - Piracicaba (Brazil) • Develops, manufactures, and sells capital goods and services in Brazil • It offers parts, components, equipment, complete plants, and units • High-efficiency technology in: reception, staging, extraction and processing of the juice to produce sugar and ethanol • New technologies for sustainable plants, greenfield or existing plants with the addition or replacement of existing equipment
Commodity dealers •Headquartered in Decatur, Illinois, USA •The world’s premier agribusinesses, with operations on six continents •Ethanol(from corn) and biodiesel leading producer •ADM delivers clean-burning ethanol to refiners through an expansive network of trucks, railcars, barges and terminals •Since 1997 Brazil is an important part of ADM’s growing global business: - delivering of crops from production areas to processing plants - production of biofuels fertilizers and chemicals •Headquartered in London, UK •The sugar trading and marketing arm sources sugar and ethanol through our origination network •In Brazil, Thailand and other geographies •Production activity complementary to the distribution one : 8 sugarcane mills in Brazil •Several mills have cogeneration plants •The mills are close to the main domestic markets in Brazil and have excellent access to export logistics systems •Headquartered in Minneapolis, USA •International producer and marketer of food, agricultural, financial and industrial products and services •Investor in an entity that operates an ethanol dehydration facility in El Salvador with origination from Brazil. Distribution of the anhydrous ethanol produced by this business. •Operating an ethanol terminal in Santos, Brazil, and two sugar cane mills and distilleries in Brazil.
“Both the Brazilian ethanol big customer and ethanol top competitor. It is also the fourth biggest ethanol producer itself” The Economist, Sept 2010 • Headquartered in the city of Rio de Janeiro • Publicly traded corporation (majority stockholder is the Government of Brazil) • A leader in the Brazilian oil industry • More than 100 production platforms, 16 refineries, 30.000 km of ducts and more than 6.000 gas stations • Petrobras Biocombustível, a wholly-owned subsidiary aimed to develop and manage biodiesel and ethanol production projects • Its subsidiary, Petrobras Internacional Braspetro BV, incorporated Brazil-Japan Ethanol Co., Ltd. in Japan
What does the Diamond leave out? • Energy ratio • International Competition: EU and US trade barriers Therefore, Porter’s Diamond is efficient up to a point
Ethanol Energy Balance Energy contained in a given volume of ethanol Fossil energy required for its production* *in the form of fertilizers, pesticides, diesel fuel spent in mechanized harvesting and the transportation of sugarcane to the processing mill, J. Goldemberg The net energy balance for ethanol production in Brazil is high: 8.1 Energy Balance Country Type Energy balance United States Corn ethanol 1.5 Brazil Sugarcane ethanol 8.1 Germany Biodiesel 2.5 United States Cellulosic ethanol† 2 (Sources:“Ethanol for a Sustainable Energy Future”, J.Goldemberg, Science ,2007; “Brazilian ethanol is sustainable and has a very positive energy balance” IEA Report
Trade barriers Europe United States • Ethanol imports (non denaturalized • U.S. secondary tariff on ethanol: alcohol): €0.192/l $54 cents/gallon • Small quantities of ethanol (expiration date at the end of Tariffs (denaturalized): €0.0102/l 2010) • Duty free treatment for some • Preferential access for developing countries (No Brazil) countries • 2003 CAP “Energy Crop Payment”: • 2004 Volumetric Ethanol Excise €45 per hectar Tax Credit (expiration date on • Since 2005: 31dec 2010): -oilseeds producers have received -tax credit for gasoline blenders Subsidies support through the single farm ($45 cent/gallon) payment system -credit to cellulosic ethanol - Cereals also used to receive per producers ($1/gallon) hectare compensatory payments - small-producer tax credit for before the reform of the CAP. ethanol ($10cent/gallon) Source: Eu And U.S. Policies On Biofuels: Potential Impacts On Developing Countries M. J. Jank, G. Kutas, L. F. D. Amaral, A. M. Nassar
2004 VEETC Highlights: Since 1980s the corn ethanol industry has received: • $45bln on ongoing government subsidies • costing $6 bln out of the tax payers pockets every year Subsidies are expiring on 31 Dec 2010: • TAX CREDIT to blend Ethanol With Gasoline • IMPORT TAX On Foreign Ethanol (on sugarcane ethanol from Brazil) Ongoing debate on: Should ethanol subsidies be renewed or not? Source: http://www.nytimes.com/2010/10/12/business/energy-environment/12iht-renbrazil.html?_r=1&pagewanted=all
Ethanol Subsidies IN FAVOR OF AGAINST OF • Business group • Florida Sugar Lobbies • Corn Ethanol Producers • Environmentalist organizations • Editorial writers and journalists They are both working hard to What benefits can competition bring to extend this date for three decades in U.S. consumers ? order to limit competition • it equals better quality ethanol • it lowers prices at the pomp Source: UNICA video “All I Need to Know About U.S. Ethanol Subsidies”
Overstated Claims IN FAVOR OF AGAINST OF • 100.000 jobs lost BUT Productive farmers & ethanol refiners will keep their job • Domestic biofuel production will Without the tax credit and tariff BUT plummet by 40 % domestic ethanol production will increase to 14.5 billion gallons by 2014 • Increase only of 5% in imports from • US more dependent on foreign BUT foreign suppliers biofuel producers • Greater access to clean affordable and renewable fuels like sugarcane fuel ethanol would actually help diversify US energy supplies Source: UNICA video “All I Need to Know About U.S. Ethanol Subsidies”
BioFuel’s Latest Challenge 30 Nov 2010 World premiere: Lufthansa first airline to use biofuel on commercial flights Bio-synthetic kerosene to be used from April 2011 The “burnFAIR” project is designed to research the long-term alternatives to conventional aviation jet fuel and at underpinning the sustainability of air traffic “We know that biofuel is an issue we In April 2011, Lufthansa is to begin a six- must address carefully” observed month trial with an Airbus A321 in which Lufthansa Chairman and CEO one of its engines will use a 50-50 mix of Wolfgang Mayrhuber. biofuel and traditional kerosene. During the six months trial, Lufthansa will “Our fuel is sustainable. No rain save around 1,500 tones of CO2 emissions. forest will be deforested for Lufthansa Lufthansa will be the world’s first airline to biofuel. utilize biofuel in flight operations within the In the procurement of biofuel, we framework of a long-term trial. ensure it originates from a sustainable The project will cost Lufthansa an estimated supply and production process. Our €6.6 million. licensed suppliers must provide proof of
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Brazil NCA in Ethanol Production

  • 1. ETHANOL The Brazilian path toward economic independence Nicol Destre 627261 Priscilla Martella 630601 Giulia Romana Penna 627391 Michela Rossi 627451 Beatrice Ruospo 630641
  • 2. Why is ethanol interesting? Sustainability: it reduces impact on environment Economic benefits: - very positive energy balance - convenience for producers over gasoline Latecomers advantages New generations: improved sustainability Learning curve: decrease in prices
  • 3. BIOFUEL: definition • Combustible materials directly or indirectly derived from biomass, commonly produced from:  Plants  Animals  Micro-organism  Organic wastes • Biofuel may be:  Solid  Liquid  Gaseous • Purpose  create a renewable energy, the so-called “bioenergy”, that can be used for:  Transportation  Heat and electricity production http://www.unep.fr/scp/rpanel/pdf/assessing_biofuels_full_report.pdf
  • 5. Why Biofuel? “The era when industrial development strategies could be formulated without reference to energy sources, is over” • Before 18th century  “Malthusian Trap • In the 18th century  Industrial Revolution: the key to opening the Trap was the tapping of fossil fuel, initially coal • Today  Latecomers’ impediments due to: - Energy security - Economic security - Environmental security One Solution: BIOFUEL Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”
  • 6. Advantages (1) • Biofuel is cheaper than oil  it overcomes the problems concerning: Energy security: oil supply are peaking  reaching the half way mark to its exhaustion, prices arise  Economic security: over- reliance on imported oil created when it was cheaper  the poorer the country, the greater its dependence on oil imports and the greater its vulnerability to price increase Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; J. Mathews: “Energy flows and the process of industrialization”
  • 7. Advantages (2) • Biofuel provides environmental security  it can avoid a man-made planet’s catastrophe due to pollution and climate change because:  It represents the first step on a clean technology development trajectory  It burns more cleanly  It generates fewer greenhouse gases  It promotes rural development and social inclusion  It is safer than fossil fuels: nothing happens if a spill occurs NOTE: To this purpose, feedstocks have to be grown and harvested in a sustainable way, avoiding the Indirect Land Use Change (ILUC) “the unintended consequence of releasing more carbon emissions due to land use changes around the world induced by the expansion of croplands for ethanol or biodiesel production in response to the increased global demand for biofuels” Source: http://en.wikipedia.org/wiki/Indirect_land_use_change_impacts_of_biofuels Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; J. Mathews: “Energy flows and the process of industrialization”
  • 8. Latecomers advantages • It reduces poverty thanks to new jobs • It can generate new export industries • It can be the focus of new international alliances • It promotes South-South cooperation • Potential entrance into the industry by countries with a low level of science and technology Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; :J. Mathews: “Energy flows and the process of industrialization”
  • 9. Disadvantages in sustainability • Losses in biodiversity • Greater water consumption • Substantial use of fertilisers and pesticides • Possible destruction of tropical forests • Increase in food prices due to conflicts between agriculture vs. ergoculture • First-generation will remain a niche product compared to fossil fuel BUT BRAZIL OVERCOMES ALMOST ALL OF THESE DISADVANTAGES WITH ITS ETHANOL PRODUCTION FROM SUGARCANE Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; SATW: “Biofuels – Opportunities and limits”; J. Mathews: “Energy flows and the process of industrialization”
  • 10. BIOETHANOL DEFINITION: A fuel for internal-combustion engines that is made by fermenting biological material to produce alcohol (ethanol) GENERATIONS I Generation II Generation III Generation IV Generation - Feedstocks: - Feedstocks: - Feedstocks: - Feedstocks: seeds, grain, corn, non-food sources micro-algae and artificial organism sugarcane (e.g. waste micro-algae (as Craig Venter biomass) found synthetic - Used part: only - Used part: whole bugs which could sugar or starch plant make fuels such as ethanol) Source: SATW “Biofuels – Opportunities and limits”
  • 11. Ethanol in Brazil • Biggest ethanol producer worldwide (20 billion liters per year) • It covers a large percentage of national fuel consumption  No niche product • Presence of vast tracts of sunshine and desolate landscapes  No food vs. land for fuel issue and no deforestation • Moreover, Brazilian sugarcane has better characteristics with respect to US corn and EU sugar beets:  Perennial crop (vs. annual crop of corn and sugar beets):  Lower need of energy input for cultivation Cheapest form of ethanol (corn  Requires little care three-times costlier)  Lower labor, transport and input costs  Inferior use of pesticides  Higher energy gain (up to 8:1 vs. corn’s four-times less energy efficiency)  Less greenhouse gas emissions  Shorter processing time  Faster growth Source: J. Mathews: “A Biofuels Manifesto: why biofuels industry creation should be ‘Priority Number One’ for the World Bank and for developing countries”; SATW: “Biofuels – Opportunities and limits”
  • 12. Ethanol Life Cycle Assessment Analysis of the environmental impact (LCA) and the economic feasibility (LCC) of sugarcane ethanol fuel, making a comparison between gasoline and ethanol as fuels and between E10, E85. Ethanol as a sustainable transportation fuel • The potential for ethanol production is equivalent to about 32% of the total gasoline consumption worldwide, when used in E85 for a midsize passenger vehicle (Kim, Dale study) -> such reduces consumer’s use of fossil fuels and the attendant impacts on climate change, especially GHG and CO2. • To produce 1kg of ethanol only 12,6kg of sugarcane is needed in future case and 30kg in the base case • GHG decrease by 81% when replacing gasoline by ethanol fuels Sources: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009. Kim S, Dale BE. “Global potential bioethanol production from wasted crops and crop residues”. Biomass and Bioenergy 2004
  • 13. CO2 budget of the Brazilian ethanol program Historical CO2 sugarcane emission scenario takes into account lifecycle emissions due to ethanol production and avoided emissions due to the displacement of fossil fuels both because of ethanol and bioelectricity C balance 17 years later C balance immediately 1992 Net missions=zero Net missions=zero Source: S. Pacca, J.R. Moreira, “Historical carbon budget of the Brazilian ethanol program” , Energy Policy 37 (2009) 4863-4873
  • 14. LCC of sugarcane ethanol in Brazil An analysis of the Economic Feasibility of bio-ethanol as transport fuel based on the comparisons between:  Technologies & costs for the car-driving function: driving on gasoline and ethanol fuels  Ethanol produced from two processes:  Base case that involves bio ethanol co-production of sugar from sucrose and electricity from bagasse and wastes using the current technology  Future case that involves bio ethanol co-production of sugar from sucrose and electricity only from wastes • Life Cycle Costing indicates the cost (tax excluded) of 1 kilometer driven by a midsize car using gasoline, E10, E85 and 100% ethanol • It’s a steady state model because no discounting and depreciation are taken into account • As the lifetime of the ethanol refinery is assumed to be 10 years, the capital investment is divided over 10 years Source: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009
  • 15. LCC Tables - Based on gasoline production cost at 0.59 $/kg - Driving with ethanol is more economical than gasoline Even with the assumption of doubling the prices of both crude oil and sugarcane: driving on ethanol fuels is much cheaper in both the base and the future case Source: E. van der Voet, G. Huppes, “Life cycle assessment and Life cycle costing”, chapter published in Renewable and Sustainable Energy Reviews 2009
  • 16. Brazilian Ethanol Industry: NCA? •Home Natural Endowment •Climate conditions •Large domestic market and •Land fertility increasing demand •R&D •Demand-side stimulus: Demanding regulatory standards: E(10), E(25) National Alcohol program • Flex-fuel engine innovation breakthrough FACTOR DEMAND CONDITIONS FACTORS FIRM, RELATED & •Historically fragmented sugar •Industrial cluster and ethanol industries RIVALRY & SUPPORTING in São Paolo •The top ten ethanol producers STRUCTURE INDUSTRIES •Sugarcane harvesting and sugar control only 24% of the market production industry •210 companies, 368 sugar and •Industrial equipment manufacturing (Dedini) ethanol mills and 128 sugar plants in •Chemicals and biotech industry the State of Sao Paulo (Canavialis and Alellyx) • Increasing openness to FDI •Distribution • Toward consolidation? (Petrobas, ADM, Bunge, Cargill)
  • 17. Factor conditions • Natural home resources: - 5mil hectares sugar cane crops - Enormous amount of arable land available - Tropical climate - Water abundance - Land fertility • Cheap labor • R&D: - Strong private investment - Strong Agricultural and biofuel research institutions Mission: providing feasible solutions for the sustainable development of Brazilian agribusiness through knowledge and technology generation and transfer
  • 18. Demand factors Evidences • First oil crisis in 1973 • Sugarcane capacity had reached a high and prices collapsed Government stimulus: Alcohol program Supply-side Demand side • Low interest loans to build •Country’s gasoline to be ethanol plants running with blended with ethanol (E10) technologies that allow them to  E(25) produce either sugar or ethanol •Dedicated engines running on pure alcohol were • Petrobas was ordered to developed by the CTA in Sao purchase a guaranteed amount Paulo of ethanol from producers and •The government ensured the to make ethanol available at pump price of pure alcohol would filling stations be 64.5% of the gasoline price • In the mid-1980s the program dipped since the price of oil fell to record lows • In 1997: Liberalization process • In 2003 flex-fuel vehicles (FFVs) were introduced DEMAND which are capable of running with blends from E0 to E100 FACTORS In 2008 FFVs represent 88% of total Brazilian car sales in Brazil •US$16 billion Investment (1979 -1990) Brazil is now turning to ethanol as aviation fuel as well • US$120 billion Savings in oil imports
  • 19. Ethanol learning curve The Alcohol program is the most important empirical example of learning curve. The high competition in the ethanol activity has caused the prices to move towards production costs in the medium and long term. • Progress ratio of technology (PR): Δ prices /cumulative sales • Low PRs mean efficient technology penetration • Brazil: (1980-1985) PR 93% , (1985-2002) 71% • Europe underperformed in solar PVs, wind and combined cycle gas turbines with higher PRs in the same time periods. Source: Ethanol learning curve, by Goldemberg, Coelho, Nastari, Lucon
  • 20. Related and supporting industries The ethanol cluster in São Paulo São Paulo state dominates the production of sugarcane and is also the primary center for ethanol production in Brazil (UNICA, Sugarcane Industry Association, 2009) • Climate • Soil properties • Strong sugarcane crop yields (the central-south region accounts for 85% of total sugar cane and ethanol production) • Cost competitiveness • Closeness to the economic centers of the south region APLA is an entity seeking to develop and unite all the whole ethanol productive chain which is composed of industries that produce equipment, research and technical development centers, associations of the ethanol sector and producers: • 10 distilleries • 70 industries • 5 Institutions and Research and Development Centers • 19 Public and Private Entities
  • 21. APLA - Members Ministério de Desenvolvimento, Indústria e Comércio Exterior
  • 22. Ethanol Value Chain: Are all steps covered in Brazil? Sugar Refining Ethanol extraction & distillation Distribution end-use Cultivation and harvesting of Bagasse sugar cane Industrial equipment Petrobas, ADM, manufacturing industry: Bunge, Cargill Cogeneration equipment, machinery Chemical & Biotech (Santal, Dedini) industry: fertilizing and herbicides (Canavialis and Alellyx) Bagasse is used in the co-generation process the burning of bagasse with improved technologies produces a large electricy surplus that is supplied to the grid.
  • 23. Equipment and manufacturing providers • Founded in 1920 Rod. Rio Claro - Piracicaba (Brazil) • Develops, manufactures, and sells capital goods and services in Brazil • It offers parts, components, equipment, complete plants, and units • High-efficiency technology in: reception, staging, extraction and processing of the juice to produce sugar and ethanol • New technologies for sustainable plants, greenfield or existing plants with the addition or replacement of existing equipment
  • 24. Commodity dealers •Headquartered in Decatur, Illinois, USA •The world’s premier agribusinesses, with operations on six continents •Ethanol(from corn) and biodiesel leading producer •ADM delivers clean-burning ethanol to refiners through an expansive network of trucks, railcars, barges and terminals •Since 1997 Brazil is an important part of ADM’s growing global business: - delivering of crops from production areas to processing plants - production of biofuels fertilizers and chemicals •Headquartered in London, UK •The sugar trading and marketing arm sources sugar and ethanol through our origination network •In Brazil, Thailand and other geographies •Production activity complementary to the distribution one : 8 sugarcane mills in Brazil •Several mills have cogeneration plants •The mills are close to the main domestic markets in Brazil and have excellent access to export logistics systems •Headquartered in Minneapolis, USA •International producer and marketer of food, agricultural, financial and industrial products and services •Investor in an entity that operates an ethanol dehydration facility in El Salvador with origination from Brazil. Distribution of the anhydrous ethanol produced by this business. •Operating an ethanol terminal in Santos, Brazil, and two sugar cane mills and distilleries in Brazil.
  • 25. “Both the Brazilian ethanol big customer and ethanol top competitor. It is also the fourth biggest ethanol producer itself” The Economist, Sept 2010 • Headquartered in the city of Rio de Janeiro • Publicly traded corporation (majority stockholder is the Government of Brazil) • A leader in the Brazilian oil industry • More than 100 production platforms, 16 refineries, 30.000 km of ducts and more than 6.000 gas stations • Petrobras Biocombustível, a wholly-owned subsidiary aimed to develop and manage biodiesel and ethanol production projects • Its subsidiary, Petrobras Internacional Braspetro BV, incorporated Brazil-Japan Ethanol Co., Ltd. in Japan
  • 26. What does the Diamond leave out? • Energy ratio • International Competition: EU and US trade barriers Therefore, Porter’s Diamond is efficient up to a point
  • 27. Ethanol Energy Balance Energy contained in a given volume of ethanol Fossil energy required for its production* *in the form of fertilizers, pesticides, diesel fuel spent in mechanized harvesting and the transportation of sugarcane to the processing mill, J. Goldemberg The net energy balance for ethanol production in Brazil is high: 8.1 Energy Balance Country Type Energy balance United States Corn ethanol 1.5 Brazil Sugarcane ethanol 8.1 Germany Biodiesel 2.5 United States Cellulosic ethanol† 2 (Sources:“Ethanol for a Sustainable Energy Future”, J.Goldemberg, Science ,2007; “Brazilian ethanol is sustainable and has a very positive energy balance” IEA Report
  • 28. Trade barriers Europe United States • Ethanol imports (non denaturalized • U.S. secondary tariff on ethanol: alcohol): €0.192/l $54 cents/gallon • Small quantities of ethanol (expiration date at the end of Tariffs (denaturalized): €0.0102/l 2010) • Duty free treatment for some • Preferential access for developing countries (No Brazil) countries • 2003 CAP “Energy Crop Payment”: • 2004 Volumetric Ethanol Excise €45 per hectar Tax Credit (expiration date on • Since 2005: 31dec 2010): -oilseeds producers have received -tax credit for gasoline blenders Subsidies support through the single farm ($45 cent/gallon) payment system -credit to cellulosic ethanol - Cereals also used to receive per producers ($1/gallon) hectare compensatory payments - small-producer tax credit for before the reform of the CAP. ethanol ($10cent/gallon) Source: Eu And U.S. Policies On Biofuels: Potential Impacts On Developing Countries M. J. Jank, G. Kutas, L. F. D. Amaral, A. M. Nassar
  • 29. 2004 VEETC Highlights: Since 1980s the corn ethanol industry has received: • $45bln on ongoing government subsidies • costing $6 bln out of the tax payers pockets every year Subsidies are expiring on 31 Dec 2010: • TAX CREDIT to blend Ethanol With Gasoline • IMPORT TAX On Foreign Ethanol (on sugarcane ethanol from Brazil) Ongoing debate on: Should ethanol subsidies be renewed or not? Source: http://www.nytimes.com/2010/10/12/business/energy-environment/12iht-renbrazil.html?_r=1&pagewanted=all
  • 30. Ethanol Subsidies IN FAVOR OF AGAINST OF • Business group • Florida Sugar Lobbies • Corn Ethanol Producers • Environmentalist organizations • Editorial writers and journalists They are both working hard to What benefits can competition bring to extend this date for three decades in U.S. consumers ? order to limit competition • it equals better quality ethanol • it lowers prices at the pomp Source: UNICA video “All I Need to Know About U.S. Ethanol Subsidies”
  • 31. Overstated Claims IN FAVOR OF AGAINST OF • 100.000 jobs lost BUT Productive farmers & ethanol refiners will keep their job • Domestic biofuel production will Without the tax credit and tariff BUT plummet by 40 % domestic ethanol production will increase to 14.5 billion gallons by 2014 • Increase only of 5% in imports from • US more dependent on foreign BUT foreign suppliers biofuel producers • Greater access to clean affordable and renewable fuels like sugarcane fuel ethanol would actually help diversify US energy supplies Source: UNICA video “All I Need to Know About U.S. Ethanol Subsidies”
  • 32. BioFuel’s Latest Challenge 30 Nov 2010 World premiere: Lufthansa first airline to use biofuel on commercial flights Bio-synthetic kerosene to be used from April 2011 The “burnFAIR” project is designed to research the long-term alternatives to conventional aviation jet fuel and at underpinning the sustainability of air traffic “We know that biofuel is an issue we In April 2011, Lufthansa is to begin a six- must address carefully” observed month trial with an Airbus A321 in which Lufthansa Chairman and CEO one of its engines will use a 50-50 mix of Wolfgang Mayrhuber. biofuel and traditional kerosene. During the six months trial, Lufthansa will “Our fuel is sustainable. No rain save around 1,500 tones of CO2 emissions. forest will be deforested for Lufthansa Lufthansa will be the world’s first airline to biofuel. utilize biofuel in flight operations within the In the procurement of biofuel, we framework of a long-term trial. ensure it originates from a sustainable The project will cost Lufthansa an estimated supply and production process. Our €6.6 million. licensed suppliers must provide proof of
  • 33. Thank you for your attention