Brazilian Biofuels Policy Under a Second Rousseff Term

UNICA is looking forward to working with Brazil's newly re-elected President Dilma Rouseff on putting the right policies in place for the country's future, writes Leticia Phillips.
By Leticia Phillips | November 20, 2014

Brazil’s sugarcane ethanol industry has grown along with the U.S. industry to create a global market for clean and renewable biofuels, and Brazilian producers are poised to invest and increase exports.  But they need the right policies to reach full potential.

Brazil’s October presidential election will have a major influence on the future of its sugarcane biofuels industry. President Dilma Rouseff’s policies have kept domestic gasoline prices below market averages, limiting new investment and creating problems for renewable fuel producers who want to increase output but face unfair market footing.

Despite these headwinds, Brazil’s sugarcane ethanol output has grown in recent years, producing 7 billion gallons in 2013 on the strength of market-driven infrastructure investments and is on track to have up to 1.7 billion gallons of low-carbon sugarcane biofuel available to U.S. markets in 2020. Industry growth has been impressive, but it would have been even greater if not for the biggest policy challenge faced by our industry, artificially low gasoline prices.

Brazil’s biofuels sector needs fair competition between renewable fuels and petroleum at market prices. Sugarcane producers hope Rousseff—fresh off her successful but narrow re-election—will adopt policies to boost domestic markets, grow Brazil’s economy and increase exports.

One of Rousseff’s main economic policies to keep inflation in check has been artificially limiting domestic gasoline prices to below-global market levels. This approach has decimated the alternative fuels sector. For context, consider that by November 2013, only 23 percent of flex-fuel car owners were regularly using ethanol, down from 66 percent in 2009.

During her acceptance speech, Rousseff said she will be the president of dialogue and change, and is ready to talk to all sectors of the Brazilian economy.  Sugarcane ethanol producers look forward to such an open and direct conversation. To her credit, we saw some positive signals during her campaign. The government approved the reinstitution of tax reimbursements for exports, and the Brazilian congress approved an increase to the level of ethanol blended into gasoline. But more needs to be done. We need a clear definition of the long-term role of biofuels and bioelectricity of Brazil’s energy mix. We also need a tax system that rewards renewable energy for being cleaner than fossil energy.

Brazil’s sugarcane-ethanol producers have shown enormous investment ability in recent years, provided the right market opportunities exist. For instance, when an influx of flex-fuel vehicles combined with rising export demand in 2003, the industry built more than 100 new mills from 2005 to 2011.

This new capacity also doubled sugarcane production in less than a decade, demonstrating the sector’s ability to quickly expand and planting the seeds for even greater yields. According to the Center for Cane Technology, today’s sugarcane ethanol productivity is 7,100 liters per hectare but it will grow to 24,500 liters per hectare within a few years.

Existing mills maintain vast ability to produce hydrous ethanol (sold at the pump as an alternative to gasoline) and anhydrous ethanol (blended into gasoline) with installed capacities of 105 million and 205 million liters per day, respectively. However, during the 2013-’14 harvest season, Brazil produced just 70 million liters of hydrous and 90 million liters of anhydrous ethanol per day.

Most Brazilian mills are small- to midsized facilities and the 2008 financial crisis resulted in consolidation with international companies such as Bunge, Cargill, Shell, Petrobras and Noble, among others. Also, while some mills have been shuttered in recent years, a majority of them could easily go back online if domestic demand increases. Combined with prior investment trends, it’s a clear signal that rising demand will result in mill expansion to provide adequate supply.

The industry has also invested in infrastructure and efficiency. More than $30 billion has gone toward boosting sugarcane-ethanol production capacity since 2004. In addition, more than $3.5 billion may be invested in pipelines and waterways within the next three years. These investments mean 90 percent of Brazil’s exports will be transported via pipeline or waterway, decreasing logistics costs.

Brazilian sugarcane producers are eager to supply low-carbon solutions that meet the world’s energy and environmental needs.  And like our American colleagues, we are active players in the international arena working to develop a global market for biofuels and bioproducts.  But we still have plenty of work to do in our own country getting domestic fuels policy right for Brazil’s future. Brazil’s sugarcane industry is ready to engage in productive dialogue with the president and increase investment to provide those clean, sustainable and affordable solutions for Brazil and the world. We just need the right policies in place. UNICA congratulates the president and looks forward to the continuing opportunity to work with her to accomplish these important goals.

Author: Leticia Phillips
North American Representative,
Brazilian Sugarcane Industry Association, UNICA