Ethanol regulation in Brazil
evolution and current situation
Luiz A Horta Nogueira
Universidade Federal de Itajubá
BRAZIL
Biofuels represent about 30% of automotive energy
consumption in Brazil, where regulation has always
played a decisive role.
Outline
 Bioenergy in Brazil: basic figures and facts
 Relevance of regulation in biofuels markets
 Ethanol regulation in Brazil
 Ethanol prices: evolution and concerns
 Final remarks
Ethanol regulation in Brazil
L Horta Nogueira BRAZIL
1
Bioenergy in Brazil
Biofuels always accounted for a significant share of Brazilian energy matrix.
Currently, sugar cane, wood and several waste biomass mean 1/3 of total
energy supply.
Primary energy production in Brazil
(EPE, 2012)
2
Sugarcane energy in Brazil
Sugarcane energy products (ethanol and electricity) demand in Brazil is
equivalent to about 800 thousand barrels of oil per day.
More than 32 million Brazilian cars run using ethanol, either pure (E100) or
blended with gasoline (E25-E18).
The area occupied with sugarcane plantation for energy represents a small
share of arable land (<1%), with reduced impacts on biodiversity and the
production of other agricultural products.
Typical sugarcane mill in the
Brazilian Center South region
(BNDES, 2009)
3
Sugarcane bioelectricity in Brazil
In 2011, 6.6% of whole electricity generation in Brazil (532 TWh) was based
on biomass, used in 432 power plants with 8.3 GW of capacity.
.
35.1 TWh
80% bagasse
20% wood
Energy Sources for Electricity Production
in Brazil, 2011
(EPE, 2012)
Ethanol use: the initial steps
Gasoline blended with ethanol has been a mandatory practice in Brazil
since 1931 (minimum E5, average E7.5), reinforced after the oil crisis
during the seventies, when the use of high blends (E25) in all gasoline
motors and pure hydrous ethanol in dedicated motors was adopted.
Ford Model T adapted for pure ethanol,
used for public demonstrations in the 20’s
% ethanol
25%
% etanol
20%
15%
(INT, 2006)
10%
5%
Ethanol content in the Brazilian gasoline
(BNDES, 2008)
0%
1925
1945
1965
1985
2005
5
Ethanol use today
Since the Seventies, all Brazilian gas stations sell just two different liquid
fuels for spark ignited engines (Otto):
 Gasoline / Anhydrous Ethanol blends (E18 to E25, specified as
regular (AKI* 87) and super (AKI 91) gasoline)
 Hydrous Ethanol (94.5 % Ethanol, AKI 105)
*Anti-Knock Index (AKI) = (RON + MON)/2
In Brazil is not allowed to use diesel oil in
light vehicles.
Nowadays, the consumption (in volume)
of ethanol and pure gasoline are approx.
the same.
Ethanol use: flexfuel era
Vehicles with engines able to use any blend of hydrous ethanol (E100) and
gasoline (blended with 25% anhydrous ethanol, E25), with good performance
and accomplishing environmental requirements, were introduced
successfully in 2003 in Brazil.
Today they correspond to 90% of new cars sold.
100% ethanol
Hydrous
Ethanol
(6% water)
“Brazilian
gasoline”
E25
Two phases region
Ternary diagram
ethanol/gasoline/water
(CTC, 2004)
100% gasoline
100% water
The ethanol evolution: productivity
During the last three decades improvements has been introduced in
the ethanol production, multiplying the total productivity by 2.6, due
to agronomic and industrial gains.
(CONAB/MAPA, 2010)
8
Sugarcane production improvements
Sugarcane breeding
Use of vinasse as fertilizer
(CTC, 2009)
(UNICA, 2008)
Mechanized sugarcane harvesting
Efficient feedstock logistics
(UNICA, 2008)
(Scania, 2007)
Sugarcane expansion potential
The sugarcane agro-ecological zoning has defined that 65 Mha is available
for sugarcane production (new and traditional) respecting environmental
constraints and minimum productivity conditions
In Brazil, better practices in calf breeding can liberated about 75 M ha.
(FGV, IBGE, 2008)
10
Relevance of regulation in
biofuels market
To foster biofuels production and use, just market forces will be not
enough.
It is necessary also:
- to inform consumers
- to reduce risk perception of investors
- to guarantee benefits for the society and environment.
More than this, it is necessary to conciliate interests, generally powerful in
the energy scenario and obtain political support among stakeholders.
The actual experience with biofuels introduction in several countries
confirm the importance of public perception and a careful planning of the
program, frequently involving oil companies, which generally are the
owners of logistic chain of oil products.
11
Relevance of regulation in
biofuels market
In 1975, after the Oil Shock, the Brazilian government launched the
Proalcool program to promote ethanol as fuel, with clear incentives:
a) establishing mandatory blending of ethanol in gasoline at increasing levels.
b) guaranteeing lower consumer prices for hydrated ethanol relative to gasoline (at
the time, fuel prices were determined by the government)
c) guaranteeing competitive prices for the ethanol producer, even in the face of
more attractive international prices for sugar than for ethanol;
d) offering financing under favorable conditions for mills to increase their
production capacity
e) reducing taxes on new cars and reducing annual registration fees for hydrated
ethanol vehicles
f) making compulsory the sale of hydrated ethanol at gas stations
g) maintaining strategic reserves to ensure supply outside of the production
season.
After 1986 practically all those inventive were removed.
12
Relevance of regulation in
biofuels market
To create effective and sound conditions for biofuels market development,
besides creating proper conditions for investments in biofuels production,
some measures can be advised:
1. Biofuel quality specifications should be established
2. An equilibrated tax regime should be implemented
3. A blending program should be implemented
4.§ A R&D program must be promoted
Ethanol regulation in Brazil
L Horta Nogueira BRAZIL
13
Proper biofuels specs are essential
Any fuel specification should harmonize basically different perspectives:
Consumers
Fuel producers
It is generally a government role to define fuel specification, by its
regulatory agencies.
14
Proper biofuels specs are essential
Any fuel specification should harmonize basically different perspectives:
Consumers
Environment
Fuel producers
It is generally a government role to define fuel specification, by its
regulatory agencies.
Beyond set fuel specifications, to evaluate systematically the product in
market and enforce properly any distortion are also relevant governmental
responsibility.
15
Proper biofuels specs are essential
In Brazil, ethanol (pure or in gasoline blends) and biodiesel specs are
established by ANP, the Brazilian regulatory agency for oil, natural gas and
biofuels.
These values are defined after a several audiences with stakeholders.
Brazilian Spec of Anhydrous Ethanol (ANP 36, 2005)
Característica
Aspecto
Unidades
-
ASTM
Visual
Método
ABNT/NBR
Especificación
Límpido y exento de
impurezas
Incoloro
30 máx.
Color
Visual
Acidez Total (como ácido Mg/l
D 1613
9866
acético)
Conductividad Eléctrica
D 1125
10547
500 máx.
mS/m
3
Masa Específica
kg/m
D 4052
5992
791,5 máx.
A 20 °C
o
Grado alcohólico
INPM
5992
99,3 mín.
Grado de Hidrocarburos
% vol
13993
3 máx.
a/
Ion Cloruro
Mg/kg
D 512
10894/10895
1,1
Grado de etanol
% vol
D 5501b/
99,3 mín.
Íon Sulfato
Mg/kg
10894/12120
4,3 máx.
Hierro
Mg/kg
11331
5,5 máx.
Sodio
Mg/kg
10422
2,2 máx.
Cobre
Mg/kg
10893
0,07 máx.
Fuente: Agência Nacional de Petróleo, Gás Natural e Biocombustíveis (s/f), Resolução da ANP No. 36 de
6/12/2005.
16
The tax regime makes difference
In order to balance final costs in the fuel market and introduce the externalities
costs and benefits, an equilibrated tax regime should be implemented.
In the Brazilian context the fiscal target is to offer to consumers final costs
approx. similar using either ethanol, or gasoline.
Fair prices are crucial for biofuel promotion.
3,00
R$/litro ou m3
Margens e fretes
2,50
ICMS
2,00
CIDE / Pis / Cofins
1,50
Produtor de biodiesel
Taxes on fuels
Produtor de etanol
1,00
Distribuidora de gás natural
0,50
Refinaria de petróleo
0,00
Oleo diesel
Etanol
hidratado
Gasolina (com
25% etanol
anidro)
Gás natural
veicular
Fuel prices breakdown in Rio de Janeiro, May 2009
(Sindicomb, 2009).
17
The ethanol conundrum in Brazil
Alleging inflation control, the Brazilian government (which holds the control
of Petrobras, the main oil products supplier) has kept the gasoline price (at
the refinery gate) at approximately 70 US$/barrel for the last 5 years, while
the international price of gasoline was above 120 US$/barrel .
More recently some price adjustment have been done, but a relevant lag
remains, with regards the international parity price, imposing losses to
Petrobras. Those price corrections were compensate by federal tax
reduction, in order to keep the price at gas stations stable.
In this period, the ethanol production cost increased (introduction of
mechanical harvesting, increase of wages and inputs, etc.), reducing the
ethanol competitiveness and moving the fleet (predominantly flex-fuel) to
consume gasoline.
Thus, due to this intervention in gasoline prices and gasoline tax reduction,
ethanol has been substituted by gasoline, and ethanol production in 2010
was 30% less than in 2008.
18
The ethanol conundrum in Brazil
Prices of regular gasoline, at producer gate, ex-taxes
1,10
1,00
US$/litro
Produtor Brasil
Gulf Coast FOB + 0.10
0,90
0,80
0,70
0,60
0,50
0,40
0,30
0,20
jan/05 jul/05 jan/06 jul/06 jan/07 jul/07 jan/08 jul/08 jan/09 jul/09 jan/10 jul/10 jan/11 jul/11 dez/11 jun/12 dez/12
(ANP, 2012; IPEADATA, 2012; IEA, 2012)
Issues on price parity: definition, exchange rate influence, FOB/CIF
conditions.
19
The ethanol conundrum in Brazil
CIDE (main federal tax) on gasoline in Brazil
Evolução da CIDE da gasolina
0,90
R$/litro
0,80
0,70
0,60
0,50
0,40
0,30
0,20
0,10
0,00
2001
2003
2005
2007
2009
2011
(MINFAZ, 2012)
The CIDE reduction means an annual subsidy of US$ 2.2 billion to
gasoline consumers.
20
The ethanol conundrum in Brazil
FFV's owners behaviour in relation to fuel price
(EPE, 2013)
A Brazilian fleet of light vehicles, largely FFV's, reacts very quickly
to changes in the relative price of fuels, rationally looking for the
cheapest one.
21
The ethanol conundrum in Brazil
Sales of fuel for light vehicles in Brazil
Vendas
(milhões de litros)
Variação das vendas
(%)
(ANP, 2012, edited by: Neves, M.F./ Markestrat)
22
The ethanol conundrum in Brazil
Net outcome of gasoline trade in Brazil
2.000
Milhões de US$
1.500
1.000
500
0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
-500
-1.000
-1.500
(ANP, 2012)
Brazil started to import gasoline, after many decades of selfsufficiency.
23
The ethanol conundrum in Brazil
Ethanol sales (anhydrous and hydrous)
Gasoline sales
1,40
1,20
1,00
0,80
0,60
0,40
0,20
0,00
2004
2006
2008
2010
2012
2014
(ANP, 2012)
There are some signals that the Brazilian government will
correct these distortions, but up to now it was "just for show".
24
Final remarks
 Planning and economic regulation are crucial for promoting
bioenergy in sustainable bases, with a clear role for public
policies.
 Besides incentives for implementing production infrastructure
and facilities, adopt a proper biofuel specification and a
balanced tax regime, taking into account externalities, are
decisive to success.
 Ethanol from sugarcane is competitive with fossil fuels, when a
balanced tax regime is implemented.
 The Brazilian ethanol program offers useful example of good
and bad government actions towards the development of the
bioenergy agroindustry.
Ethanol regulation in Brazil
L Horta Nogueira BRAZIL
25
Thanks for your attention.
L. A. Horta Nogueira
horta@unifei.edu.br
EXCEN/UNIFEI
EXCEN Excellence Centre on Energy Efficiency