Biofuels in Perspective

Bio-Ethanol Development(s) in Brazil 57
by new distilleries annexed to the existing sugar mills, while in the 1979–85 period many
autonomous distilleries were built.
It is estimated that from 1975 to about 1985 about US$ 11–12 billion were invested to
create a structure able to produce 16 billion liters of ethanol per year. On the other hand,
savings regarding avoided oil imports were estimated as US$ 52.1 billion (January 2003
US$) from 1975 to 2002. 4
Brazilian government reduced the support to the producers after 1985 and, as consequence,
the ethanol market faced difficulties during the 1990s. The crucial moment was
an ethanol supply shortage in 1989–90 that induced a strong drop in sales of neat ethanol
cars. For instance, sales of neat ethanol vehicles that have reached 92–96 % during the
Eighties were continuously reduced until summing up just about 1000 new vehicles per
year in 1997–98. 5
The PROALCOOL finished during the 1990s as long as government support ceased.
From the institutional point of view changes started in the early 1990s, first with liberalization
of fuel prices to consumers and secondly, in the late 1990s, with full deregulation of
sugarcane industry. The positive results started to be noticed in 2001, when due to a larger
price difference between ethanol and gasoline, sales of neat ethanol cars increased.
More recently, since the launch of FFVs (March 2003) there is a boom on sales of vehicles
able to run powered by ethanol. In mid-2007, the sales of FFVs have surpassed 85 % of
the total sales of new automobiles (cars and light vehicles). Currently all car manufacturers
based in Brazil have at least one FFV model available and some manufacturers have
decided that some models are exclusively FFV. Regarding neat ethanol vehicles, the main
advantage of the FFVs is that these engines can operate with any fuel mix between regular
gasoline (in Brazil, E20-E25, i.e. 20–25 % of anhydrous ethanol in the fuel blend) and pure
hydrated ethanol (E100).
The ethanol market in Brazil has started a new momentum due to the success of FFVs.
Close to the ethanol production regions, and during most of the year, the price of hydrated
ethanol at service stations is much lower than the price of gasoline C (the blend of pure
gasoline and anhydrous ethanol). Figure 4.1 shows the price ratio between gasoline C
and hydrated ethanol in the city of São Paulo, from February 1999 (beginning of full
deregulation at the fuel’s market) to December 2006. For FFVs the breakeven ratio varies
depending on the car model and on the traffic conditions but, in general, it is economic to
run with hydrated ethanol if its price is lower than 70 % of the price of gasoline C (volume
basis).
Figure 4.2 shows the evolution of ethanol production in Brazil from 1970 to 2006.
Figure 4.3 shows the share of the energy consumption (cars and light vehicles) covered
by different fuels in the period 1970–2005. In Brazil cars and light vehicles cannot use
diesel oil. Natural gas consumption by automobiles has been deployed since late 1990s,
especially in cabs and companies’ vehicles, as a way to accelerate the return on investments
in the Bolivia–Brazil pipeline. Due to constraints on natural gas supply, this market will
not grow in the years to come. In mid 1980s ethanol covered more than 50 % of the energy
consumption of automobiles in Brazil and currently covers slightly more than 30 % of the
fuel consumption.
The technology of FFVs and the relative low price of ethanol vis-à-vis gasoline are
the reasons why it is predicted that the domestic market shall reach 28–30 Gl by 2013
and possibly 45–50 Gl by 2030. 9,10 As of 2006 Brazil had 335 industrial units producing