Ethanol’s Mid-Life Crisis – The Economist

The Economist really loves Brazil, they keep writing about it. A sign of the times, perhaps?

“IT IS what passes for a winter’s day in upstate São Paulo. The sun is blazing from a blue sky feathered lightly with cirrus cloud. In a large, sloping field overlooking the city of Piracicaba, a mechanical harvester chomps through a stand of three-metre-high sugar cane, fat and juicy from months of sunshine. The harvester slices the cane into 20cm chunks and regurgitates them into a 30-tonne trailer moving alongside that will lug them a few kilometres to the Costa Pinto mill (pictured). There the cane is weighed, washed, tipped onto a conveyor belt, crushed and then, depending on market conditions, crystallised into sugar or distilled into ethanol. The woody residue—the bagaço—is burned in two high-pressure boilers that, according to the flickering needle in the control room, are supplying around 50 megawatts (MW) of electricity to the local grid—enough to power half of Piracicaba.

Sugar has been grown in Brazil for 500 years, and the country is by far the world’s biggest exporter of it. But sugar now also forms the nucleus of a new agro-industrial and renewable-energy complex. Biofuels, mainly derived from sugar, are Brazil’s most important source of energy after oil. For a unit of energy, the production and use of sugar-based ethanol generates only two-fifths of the carbon emissions of petrol, and half those of corn-based ethanol, according to the United States Environmental Protection Agency. And bioplastics made from sugar cane are poised to move from the laboratory to the corner store, with the launch of soft-drink bottles.

Yet the industry is struggling to turn all these economic and environmental benefits into reliable revenues. For that it largely blames the government and is duly arguing for a more favourable regulatory regime. But it should watch out. The government, in turn, accuses the industry of wanting to have the best of both the agricultural and energy worlds. It could yet make the industry’s life harder.

Since Brazil relaxed price and production controls on sugar cane two decades ago, its crop has increased by two and a half times. Nearly all the growth has come from large, mechanised farms in the south-central region—hundreds of miles away from the Amazon rainforest. Ethanol output has more than doubled since 2002, thanks to the development of flex-fuel engines for cars, capable of running on either petrol or ethanol indistinguishably. More than half the cars in Brazil now have flex-fuel engines, and that figure should rise to 90% by 2017, according to Marcos Jank of UNICA, the sugar-industry association in São Paulo. In addition, Brazil’s government requires petrol to be sold in a blend of three or four parts to one of ethanol.

Given its environmental benefits, sugar-based ethanol has the potential to be a global industry. That is why Royal Dutch Shell has set up a $12 billion joint venture with Cosan, Brazil’s biggest sugar and ethanol producer. The new venture, signed on August 25th, combines the two companies’ service stations in Brazil, totalling 4,500. Shell is also contributing $1.6 billion in cash and its stakes in biofuel-research companies, while Cosan is putting in its 23 sugar mills, including Costa Pinto.” – Source (more here)

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