Brazilian Biofuels Programmes from the WEL Nexus Perspective

Brazil’s biofuel programmes viewed from the WEL-nexus perspective2 Brief history of Brazil’s biofuel programmesThe history of the Proalcool and PNPB programmes reveals conceptual differences in themotivation for their development. While Proalcool was a clear effort to guarantee a market fora specific industry (sugar cane) and to seek an alternative fuel to gasoline as a way to achieveenergy security, PNPB was created mainly for reasons of social inclusion and regionaldevelopment.This section provides a brief description of the development of these two programmes.2.1 ProalcoolThe first and second ‘oil shocks’ of the 1970s threatened Brazil’s so-called, ‘economic miracle’.About the same time, the country’s sugar industry invested heavily in modernisation inresponse to high sugar prices in the international market in the early 1970s, subsequentlyjeopardised when sugar prices almost collapsed in the mid-1970s. The combination of thesefactors, together with other government objectives, such as energy security, led to thecreation of Proalcool (CNPq, 1980; Rosillo-Calle and Cortez, 1997).The successful inclusion of ethanol in the Brazilian fuel structure was the result of enormousstate intervention that included: shaping agricultural and industrial policies toward theprogramme goals; investing public resources in R&D; regulating and giving incentives to theprivate sector to pursue innovation and invest in ethanol-related activities; and givingincentives to car owners to shift to ethanol fuelled vehicles (Puppim de Oliveira, 2002).Proalcool followed four different phases. In the first phase (1975–79), the objective was toinstall distilleries in existing sugar mills and to produce anhydrous ethanol to be blended withgasoline. This phase was marked by a difficult relationship between the government and themultinational corporations (MNCs) producing cars in Brazil, and also within the government asseveral key officials opposed the programme. It was largely thanks to governmentdetermination that the ethanol-fuelled cars were a success (Rosillo-Calle and Cortez, 1997),although it is important to note that the military dictatorship ruling Brazil at that timefacilitated top-down interventions.Some authors call the second phase of Proalcool the ‘Honeymoon Phase’ (1979–85), whenethanol succeeded as a gasoline substitute, consolidating the programme. According to Hiraand Oliveira (2009), the specific policies the government implemented in this phase were: Establishing higher minimum ethanol fuel blends with gasoline (progressivelyincreased to 25%) Guaranteeing lower prices for ethanol than for gasoline Guaranteeing minimal prices to bio-ethanol producers Creating credit lines for sugar mills to expand capacity Requiring ethanol to be available at gas stations Maintaining strategic reserves to stabilise supply Establishing several policies to push ethanol-based car productionIn response to the intervention and the positive environment (high petroleum prices in theinternational market, among others), pure ethanol-fuelled cars accounted for more than 90%of all new cars sold in Brazil in the mid-1980s, with the remaining fleet running on a blend of25% ethanol and 75% gasoline. Fuel distribution systems were adapted and ethanol becameavailable at most service stations (Nardon and Aten, 2008).In 1986 petroleum prices fell from US$30–40 to US$12–20 a barrel, pushing down the marketprice of ethanol. At the same time, in an attempt to curb inflation, the newly electedgovernment launched an economic programme that included a reduction in incentives for9