Brazil: The Saudi Arabia of Biofuels?

Transcription

1 Brazil: The Saudi Arabia of Biofuels? Center for Latin American Studies Workshop on Energy and Latin America July 26, 2007 Richard Plevin Energy and Resources Group UC Berkeley 1

2 Talk Outline 1. Biofuels for the Layperson What are biofuels, and how are they produced? 2. Brazil s Role as a Biofuel Producer Past, present, and future 3. International Markets for Biofuels Trade, tariffs Environmental regulations 4. Environmental and Social Impacts of Biofuels Climate change and sustainability Land tenure and food security 2

3 1. Biofuels for the Layperson 3

4 Biofuels: Narrow Definition Liquid fuels produced from plants or animals For use in gasoline or diesel engines Generally used as transportation fuels Also used in stationary applications, e.g. in diesel-powered electricity generation Major categories are alcohols and oils 4

5 Alcohols Ethanol, methanol, butanol Ethanol is by far the dominant biofuel Less energy per gallon than gasoline Generally blended with gasoline (e.g. CA gasoline is 6% ethanol.) Higher blends (> 10% ethanol) require minor vehicle modifications 5

6 Diesel substitutes Oils Biodiesel, renewable diesel, Fischer-Tropsch diesel A wider range of process alternatives Issues with spoilage A wider range of qualities and characteristics Issues with low-temperature operation 6

7 How are biofuels made? 1. Feedstock production Farming (today) Waste collection 2. Feedstock conversion Food processors Dedicated biorefineries 7

8 Biofuel Feedstocks Ethanol from corn in the US Ethanol from sugarcane in Brazil Biodiesel from canola, soy, palm oil,... 8

9 Municipal waste Forest thinnings Agricultural residues Trees & grasses Algae Non-food Feedstocks 9

10 2006 World Ethanol Production 6 Billion gallons World ethanol production: 13 billion gallons World biodiesel production: 1.6 billion gallons. US gasoline use: 140 billion gallons. 1 0 Source: ethanolrfa.org U.S. Brazil China India France Germany Russia Canada Spain South Africa Thailand U.K. 10

11 Potential benefits of biofuels Petroleum substitution Rural development Climate change mitigation 11

12 Life Cycle Global Warming Intensity Includes emissions from production and transport of feedstock, ag inputs, and ethanol Includes soil emissions of greenhouse gases May include a charge for global land use change May include food for workers May include energy to build farm machinery or biorefineries 12

13 GHG Emissions by Pathway % Gasoline Processing Feedstock 70-30% g CO2eq per MJ % -55% % 0-10 Gasoline Coal-fired corn NG-fired corn Biomassfired corn Soy Biodiesel Switchgrass Source: GREET 1.7, modified 13

14 Summary 1. Environmental costs and benefits vary widely by production pathway. 2. Actual impacts will depend on policies. 3. Biofuels are not a silver bullet. 14

15 2. Biofuels in Brazil 15

16 The Saudi Arabia of Biofuels Brasil quer ser Arábia Saudita do biocombustível, diz Lula 24 de março de 2007 Gina de Azevedo Marques ROMA - O presidente Luiz Inácio Lula da Silva destacou o interesse do Brasil em se transformar na "Arábia Saudita" do biocombustível, em entrevista publicada esta semana pela revista italiana Panorama. Source: estadao.com.br 16

17 Summary Brazil is the lowest cost ethanol producer globally Brazil and USA each produced 4.5 to 5 billion gallons of ethanol in 2006 Brazilian gasoline blend is 20-25% ethanol Brazil s biodiesel program is just beginning, but expected to ramp up quickly. 17

18 PROALCOOL Program launched 1975 to mitigate macroeconomic impacts of high price of imported oil Mandatory 10% ethanol blending In 1979, Brazil introduced incentives for dedicated ethanol cars. By 1988 almost 100% of new cars were dedicated ethanol vehicles. In 1980s, oil prices dropped and sugar prices rose, leading to shift from ethanol to sugar production, and fuel shortage for owners of dedicated vehicles. Recent expansion has been propelled by development of flex-fuel vehicles (FFVs). By 2006, 80% of Brazilian car sales were FFVs. 18

19 Brazil s Ethanol Production Produced 25% of world s sugarcane in million tons on 15 million acres Half goes to sugar, half to ethanol 70% of sugarcane is cultivated by 370 sugar and ethanol mills, rest by 70,000 independent farmers Bagasse-fired electricity provides 3% of country total reduces production costs and GHG emissions 19

20 Source: F.O. Lichts (2004) as cited in de Almeida (2007), converted to dollars per gallon. Ethanol Production Costs $3.50 $3.00 $2.50 Dollars per gallon $2.00 $1.50 $1.00 $0.50 Subsidies Byproduct sales Operations Raw material Insurance Labor Equipment Buildings $- $(0.50) $(1.00) USA Corn Germany Wheat Germany Beet Brazil Sugarcane 20

21 Ethanol Net Production Costs $3.50 $3.00 Dollars per gallon $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Germany Beet Germany Wheat USA Corn Source: F.O. Lichts (2004) as cited in de Almeida (2007), converted to dollars per gallon. Brazil Sugarcane 21

22 Expanding Ethanol Production With improved crop yield and conversion efficiency, yield per hectare could increase from 6,000 to 10,000 liters by 2025 This would expand output from 17 billion liters to 100 billion liters by increasing land area for sugarcane from 3 million to 7.2 million hectares. The 4.2 million additional hectares is only 20% of soybean acreage, or 2% of area used for cattle raising. Source: de Almeida, et al

23 PROBIODIESEL National Program for Production and Use of Biodiesel launched in 2004 In 2005, mandated B2 (2% biodiesel) for 2007, and B5 or Two driving factors Fuel supply diversification Social development Social fuel certificate is required to sell biodiesel to the government and gain access to certain subsidies Source: de Almeida, et al

24 Biodiesel Feedstocks Brazilian feedstocks include: soybean, castor beans, palm tree, jatropha, tallow (animal-based). Palm is highest producing, but soybean has the most valuable byproduct (soy meal). Biodiesel is not cost-competitive, even when exempt from taxes. It is, however very profitable. Biodiesel is highly subsidized, but differentially, based on region and type of producer. (Small farmers in some regions are totally exempt from fuel taxes.) Source: de Almeida, et al

25 Expanding Biodiesel Production Brazil still has over 200 million acres of unused, unforested farmland, and nearly 500 million acres dedicated to cattle. If 15 million acres were dedicated to new biodiesel feedstocks, and 20% of existing soybeans were used for biodiesel, production could reach 2.9 billion gallons per year. Brazil could meet domestic demand for B10 while exporting well over one billion gallons. However: soybeans have expanded to recently deforested areas of the Amazon. Castor and Jatropha are grown in more arid zones, with fewer impacts. Source: de Almeida, et al

26 3. International Markets for Biofuels 26

27 Brazil is the top global exporter of ethanol 27

28 Brazil Exports 2006 Netherlands 10% Others 9% Japan 7% South Korea 3% Sweden 6% United States 51% CBI 14% Reproduced from de Almeida, 2007, figure 5 28

29 Caribbean Basin Initiative Established in 1983 to promote a stable political and economic climate in the Caribbean region Grants duty-free status to many products, including ethanol produced from at least 50% local feedstocks, and up to 7% of US ethanol can be met by duty-free CBI imports with no local feedstocks. Brazil ships wet (95% pure) ethanol to CBI countries for dehydration and shipment to US US imported about 600 million gallons of ethanol in 2006, about 200 million gallons indirectly from Brazil through the Caribbean US imposes a $0.54 / gallon tariff on imported ethanol 29

30 Ethanol Imports to the US Million gallons per year Source: Yacobucci, Ethanol Imports and the Caribbean Basin Initiative, CRS Report to Congress, April

31 US & EU Fuel Policies United States EPACT 2005: 7.5 B gallons renewable fuel SOTU 2007: 35 B gallons alternative fuel European Union 5.75% of transport power by 2010 from renewable fuels; 10% by 2020 Targets exceed expected domestic production capacities for biofuels. Southern (tropical) countries likely to make up the difference. 31

32 Brazil-US Cooperation President Bush visited Brazil in March 2007 to promote development of ethanol in the Americas and Caribbean to reduce dependence on imported oil Could lead to substantial growth in Brazil s ethanol industry as technology and equipment developed there is exported to other countries in the region Encourages ethanol production in small and poor sugar cane producing countries in the Caribbean and Central America Brazil is interested in encouraging sugar-cane-based ethanol production in Africa, where it has extensive trade and cultural ties, and in Asian nations like Thailand Source: NY Times, March 3,

33 4. Environmental and Social Impacts 33

34 What impacts can we expect? 34

35 Social & Environmental Concerns Agrichemicals damage water quality Converting to cropping erodes soil and reduces biodiversity Removing residues increases soil erosion and agrichemical runoff Land use conversion releases carbon stored in soil and above-ground biomass Competition for land increases food prices and may increase world hunger 35

36 Land Use Conversion Increasing acreage dedicated to a new commodity causes conversion of lands from a natural to a managed state This can be direct or indirect, with effects cascading through markets Released carbon can eliminate climate benefits of biofuels for decades Feed, food, and fuel markets are global, as are climate effects All crop-based biofuels are implicated Currently the cutting edge of biofuels life cycle assessment 36

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39 Opposition to Ethanol Accords Pres. Bush visited Brazil in March 07 to promote accord on biofuels production for export to US Thousands from Brazilian MST and Via Campesina occupied multinational agribusinesses in protest Cargill now owns 63% of Cevasa, Brazil s largest producer of sugarcane Concern that the expanded production of biofuels for export will prevent the redistribution of land to the poor, further increasing the concentration of land ownership in Brazil. 39

40 How Biofuels Could Starve the Poor High oil prices support high ethanol and corn prices. Higher feed (corn) prices drive down returns to farmers for poultry, pork, dairy, and eggs, which in turn will cause declining production and rising prices. As more acres go to corn, less goes to soybean and other crops, and fragile lands pulled into production. Authors suggest using tropical sugarcane instead of corn to produce ethanol until cellulosic is viable. Runge and Senauer, How Biofuels Could Starve the Poor, Foreign Affairs, May/June

41 The Tortilla Story Late 2006, price of tortilla flour doubled. Mexico gets 80% of imports from US, where corn prices rose from $2.80 to $4.20 over several months. Tortillas are made mostly from white corn, which is more nutritious, but industrial users of yellow corn started buying white because it was cheaper. Price surge was exacerbated by speculation and hording (with accusations in Mexico of market manipulation.) January 2007, President Calderón capped the prices of corn products. Runge and Senauer, How Biofuels Could Starve the Poor, Foreign Affairs, May/June

42 International Food/Feed Markets As Chinese diets move up the food chain, more soybeans are needed as animal feed. In 2005, Brazil exported 11 million tons of soybeans to China, an increase of 50% from 2005, and 200% from US soybean production is down due to shift to continuous corn, driven by ethanol market. Source: Barrionuevo, A, To Fortify China, Soybean Harvest Grows in Brazil, NY Times, April 6,

43 Biopact Substitution of 20% of OECD gasoline by 2020 could be met by creating the equivalent of 18 Brazils in the global south over the course of the next decade. The South has the land, climate, and crops. Implement a biopact to ensure that biofuels meet environmental and biodiversity guidelines. Reclassify biofuels in WTO as fuel (not foodstuffs) and wipe out import tariffs in the north. Mathews, J.A., Biofuels: What a Biopact between North and South could achieve, Energy Policy (2007). 43

44 Potential for rain-fed sugarcane Mathews, J.A., Biofuels: What a Biopact between North and South could achieve, Energy Policy (2007), citing FAO Terrasat. 44

45 Summary Brazil is a world leader in biofuels production. Brazil is poised to expand production of both ethanol and biodiesel. US and EU markets are poised to increase imports of low-cost and low-ghg biofuels from the tropics. Environmental and social issues abound, but appear to be on the radar. How this plays out is unclear. Global land use policies will be required to ensure sustainable development of biofuels. Given adequate investment, other tropical countries can follow the Brazilian model. (So the analogy to Saudia Arabia may be only temporary.) 45