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BRAZIL: Fuel Alcohol Diplomacy

Mario Osava

RIO DE JANEIRO, May 30 2006 (IPS) - Biofuels, especially ethanol derived from sugarcane, are becoming increasingly important in Brazilian diplomacy, as demonstrated by the business mission to Central America headed by the minister of Development, Industry and Foreign Trade, Luiz Furlán.

Furlán, together with some 50 members of the business community, is visiting Panama, Costa Rica, Guatemala, El Salvador and Honduras on a trip lasting from May 29 to Jun. 3, which is one of the concrete steps taken recently by the Brazilian government to give biofuels pride of place in its foreign trade strategy.

The Central American countries are keen to produce their own biofuels, thus reducing their dependence on ever more expensive imported oil, and taking advantage of their favourable climate and soil conditions and traditional sugarcane cultivation, said the Brazilian minister.

Brazil has also made an agreement with France, on the occasion of President Jacques Chirac’s visit to Brasilia on May 25, to create an international fund to provide ethanol technology to developing countries, especially in Africa and the Caribbean region. That initiative is to be announced at the Group of Eight (G-8) Summit of the most powerful countries in the world, to be held in July in St. Petersburg, Russia.

Within two or three decades, Brazil will be “the world’s top power in terms of energy,” because of its “revolution” in that field as a pioneer in the use of ethanol as a biofuel, as well as vegetable oils mixed with fossil fuels for diesel engines, stated President Luiz Inácio Lula da Silva in an interview published on May 24 by the French newspaper Le Monde.

Lula pointed out in the interview that Brazil was able to declare self-sufficiency in oil this year.

Brazil is interested in transferring its technology so that more countries will produce ethanol, or fuel alcohol, even though they will become its competitors.

The Brazilian government and business community recognise the need for more sources of supply, so that this alternative, renewable fuel may become a freely traded commodity around the world. “We don’t want to be the only player,” Furlan said.

Brazil is the largest producer and exporter of ethanol, and is credited with being the most competitive. But there will be no growth in foreign markets, nor will they open up to Brazil’s product, until there are alternative suppliers who can prevent their total dependence on one South American country that has a monopoly and can dictate prices.

Offering technology to Central American countries might bolster ties with other sectors where Brazil could expand its trade, such as automobiles, shoes, textiles and cosmetics. The goal is to almost double exports to the region, which last year amounted to 1.17 billion dollars.

Furthermore, the aim is to encourage Brazilian investment in Central America, so as to profit from the U.S. market, which is opening up to products from the region as a result of the free trade agreement about to enter into force in five Central American countries and the Dominican Republic.

Central America is one of the regions identified by a Brazilian government study as a good candidate for reproducing Brazil’s successful experiment with ethanol, prompted by the 1973 oil crisis when Brazil sought a substitute for petrol. At that time, Brazil was importing more than 80 percent of the oil it consumed.

Africa, and some South American and Asian countries also produce sugarcane and could contribute to the market. South Africa is carrying out a pilot project on ethanol, and El Salvador is shortly to open an alcohol distillery paid for by Brazilian and Salvadoran capital, Furlán said.

Promoting ethanol in other markets also contributes to the sale of cars made in Brazil with “flex-fuel” technology, which allows the car to run on petrol, ethanol, or any blend of the two.

At present, more than 70 percent of new Brazilian cars are of this type. And in Brazil, all petrol is blended with 25 percent fuel alcohol, and some cars are run entirely on hydrated alcohol.

At “the beginning of the end of the oil era,” now is the time for ethanol, a clean energy source which generates a large number of jobs, to come into its own, said Eduardo Pereira de Carvalho, president of the São Paulo Sugar Cane Agroindustry Union (UNICA) which represents Brazil’s largest sugar and alcohol producers.

This sector is expanding rapidly in anticipation of a surge in world consumption of ethanol. In the country’s south-central region alone, 89 new sugar plants and distilleries are being built, 20 of which will become operational this year. The country’s production capacity is set to grow from 18 billion to 25 billion litres of fuel alcohol a year by 2010.

The Brazilian sugar and fuel alcohol industry is “an example of efficiency that should be followed by sugarcane producing countries” in the tropical zones of Africa and Central America, Carvalho said.

International trade in ethanol still faces high barriers in the large markets of the industrialised world. But there are signs that the United States is preparing to free up imports, in the light of the rise in oil prices and its dependence on imported crude. At the same time, Japan and European countries are adopting the practice of adding ethanol to petrol.

Brazil’s energy potential will rise even further next year, with the introduction of H-Bio, a blend of 10 percent hydrogenated vegetable oil with diesel fuel. The technology developed by the state company Petrobras allows the use of up to 18 percent vegetable oil, thus saving on diesel fuel consumption.

H-Bio is different from biodiesel, which requires vegetable oil to be processed before adding it to diesel fuel. Brazil has already started to add two percent of biodiesel to diesel fuel, a proportion that is to rise to five percent in 2013. The Lula administration is seeking to make small family farms the main producers for this programme.

H-Bio will bring about faster changes, create a large new market for soybeans and other oil-producing crops, and provide another version of the story of alcohol, 30 years later.