Brazil is the world leader in biofuels. The country started switching its cars from gasoline to ethanol nearly forty years ago. Most of the cars sold in Brazil today are “flex fuel” and when they say flex, they mean it, none of this E-85 stuff. Many Brazilian cars can run ENTIRELY on ethanol. Beyond that, Brazilian ethanol production is the most efficient in the world. They use sugar cane as a feedstock, with is several times more efficient than corn. Brazil has been hailed as the first large country with a sustainable biofuel system more or less in place. So what’s the problem?
Cheap oil, or shall we say more expensive sugar, is the challenge. A gallon of ethanol is only worth about 80% of a gallon of gas in terms of energy delivered. Put another way, you will only go about 80% as far on a tank of ethanol as you would on a tank of gasoline, so if/when the price of ethanol creeps up beyond 80% that of gasoline, a person with a flex-fuel car flex fuels over to gasoline, providing he/she can do simple math. This is happening in Brazil now.
In most Brazilian cities, a liter of ethanol currently costs around 85% as much as a liter of gasoline. People can do the math, and the consumption of gasoline has risen by 23% since February. link.
Brazil has everything it needs for a successful biofuel program. Most of its electricity comes from renewable hydro-power. It has the ideal biofuel crop in its sugar cane. The government favored and subsidized the biofuels industry. Brazil has a complete network of stations equipped to sell ethanol, along with a fleet of cars that run on ethanol and consumers with the habit of using it. It even has a uniformly warm climate, which makes a difference, since ethanol can gum up an engine when temperatures go down near freezing. But price still matters.
Analysts worry that it will get worse for the biofuel industry. The price of sugar is high on world markets and so it makes a lot more sense for Brazilian farmers to sell sugar for Frosted Flakes, Hershey bars or sweet tea than it does to turn it into fuel for cars. Beyond that, with the price of other agricultural products rising, maybe it makes more sense to plant soy or corn instead of cane. And if that was not enough, Brazil has recently discovered vast new oil reserves. Experts predict that there could be 80-110 billion barrels of oil in the so-called “pre-sal” deposits. This would give Brazil oil reserves about the size of Kuwait’s or Iraq’s. That’s a lot of oil. The Brazilians initially developed the ethanol program because they didn’t have enough oil of their own. How does this bonanza of the bubbling crude (black gold, Texas tea) affect the equation?
This demonstrates the fundamental weakness of all alternative fuels. Just when we think we reached “peak oil” we find we were just going up one of the foothills. We keep on finding new sources of oil and gas and fossil fuels stay cheap. I know it doesn’t seem like it just now, with gasoline prices hitting record levels (at least in nominal dollars) but the world is awash with fossil fuels. In the medium run (10-20 years), prices for gas and oil fuels will be relatively low (i.e. lower than alternatives) and alternative fuels will have a tough time competing.
The world should watch what happens in Brazil and take notes. For the past thirty years, we have had a laboratory for biofuels. The Brazilians have done everything advocates say should be done to encourage biofuels, as I mentioned above. And when the price of oil was high & the country did not have access to domestic oil supplies, we can called the program a success. What do we say if those conditions change?