Biofuels in Perspective

Bio-Ethanol Development(s) in Brazil 61
the production be shifted to more sugar if necessary, allowing the producer to maximize
its earnings. Currently, the share of anhydrous ethanol in the fuel blend is 25 %.
Moreover, consumers have been stimulated to buy neat-ethanol cars through lower taxes
regarding those applied over gasoline vehicles. In addition, due to the control over fuel
prices that existed until the mid 1990s, it was imposed that ethanol prices to consumers
would be close to 65 % of the price of gasoline (volume basis). The fleet of neat-ethanol
vehicles had reached 4.5–5 million in the mid 1990s.
In Brazil, taxes have a strong impact over the fuel price to consumers. Currently, six
different taxes and contributions have been applied over automotive fuels, being just one
equivalent to the value-added tax (VAT). In 2005 the average taxation over gasoline C
in Brazil was estimated as 47 %, while the average taxation over hydrated ethanol was
evaluated as 34 %. In addition, in São Paulo state (the largest producer and consumer of
ethanol in Brazil), the taxation on hydrated ethanol was close to 20 % in the same year. 16
Also, in the state of São Paulo an additional advantage is the lower value of the annual
license paid by owners of neat-ethanol vehicles (including FFVs).
Direct subsidies were completely eliminated with the deregulation process that finished
in the early 2000s. However, a tax exemption policy is in place and part of the benefits
received by ethanol consumers is due to lower taxes applied to ethanol regarding those paid
by gasoline consumers. Anyhow, it should be noticed that in Brazil the taxation applied to
diesel oil is even lower than the correspondent applied to ethanol (about 27 % in 2005, on
average). 16
4.5 Cost Reductions
Brazil has the lowest production cost of ethanol in the world and is so far the only country
where biofuels are strictly competitive vis-à-vis oil derivatives. Figures about production
costs of ethanol in Brazil vary due to the set of mills considered and also according to the
exchange ratio used; the exchange ratio of Brazilian currency (Real) vis-à-vis the main
foreign currencies has declined during the last years and thus, so have the ethanol costs
expressed in Euro or American dollars, for instance.
Ethanol production costs fell on average 3.2 % per year in the South–South region since
1975 and about 1.9 % per year in the Northeastern region. 17 In 2001 it was estimated
that the production cost of hydrated ethanol in a mill with good performance was around
R$ 0.45, 18 or about US$ 0.18 per liter, considering the exchange rate at that time. In a
comparative study published in 2004 19 it was evaluated that the average production cost of
anhydrous ethanol in Brazil at that time was 0.145 Euro per liter, or US$ 0.18–0.19/litre.
Production cost of anhydrous ethanol is about 5–10 % higher than the cost of hydrated
ethanol.
Table 4.1 compares production costs of anhydrous ethanol in Brazil to the costs in
USA and Germany. It can be seen that comparing production costs per se, i.e. without
subsidies, the average cost in USA is more than twice higher than in Brazil, while the
production cost in Germany is more than three times higher. The same conclusion was
presented by Worldwatch Institute 20 regarding relative costs, based on information from
the International Energy Agency and the US Department of Energy: 14–20 Euro/m 3 of