Monday, January 09, 2006


Brazil to become energy independent in 2006?

So says today's Wall Street Journal (subscription only):
After nearly three decades of work, Brazil has succeeded where much of the industrialized world has failed: It has developed a cost-effective alternative to gasoline. Along with new offshore oil discoveries, that's a big reason Brazil expects to become energy independent this year.

To see how, take a look at Gildo Ferreira, a 39-year-old real-estate executive, who pulled his VW Fox into a filling station one recent afternoon. Instead of reaching for the gasoline, he spent $29 to fill up his car on ethanol made from sugar cane, an option that's available at 29,000 gas stations from Rio to the Amazon. A comparable tank of gasoline would have cost him $36. "It's cheaper and it's made here in Brazil," Mr. Ferreira says of ethanol. If the price of oil stays at current levels, he can expect to save about $350 a year.

At current prices, Brazil can make ethanol for about $1 a gallon, according to the World Bank. That compares with the international price of gasoline of about $1.50 a gallon. Even though ethanol gets less mileage than gasoline, in Brazil it's still cheaper per mile driven. As a result, ethanol now accounts for as much as 20% of Brazil's transport fuel market. The country's use of gasoline has actually declined since the late 1970s. The use of alternative fuels in the rest of the world is a scant 1%.
How was this possible?
Military and civilian leaders laid the groundwork by mandating ethanol use and dictating production levels. They bankrolled technology projects costing billions of dollars, despite criticism they were wasting money. Brazil ended most government support for its sugar industry in the late 1990s, forcing sugar producers to become more efficient and helping lower the cost of ethanol's raw material. That's something Western countries are loath to do, preferring to support domestic farmers.

With government support, sugar companies and auto makers' local units delivered cost-saving breakthroughs. "Flexible fuel" cars running ethanol, gasoline or a mixture of both, have become a hit. Car buyers no longer have to worry about fluctuating prices for either fuel because flex-fuel cars allow them to hedge their bets at the pump. Seven out of every 10 new cars sold in Brazil are flex-fuel.
What does this mean for Ohio?

The state is potentially a key area for biofuels and biomass products. Some academics are actively trying to promote this as an economic growth strategy for Ohio. Admittedly, there are some key differences between Ohio and Brazil not the least of which is the climate. Besides longer growing seasons, Brazil also has the climate to grow scads of sugar cane, which, if one picks the right strains, can be the most efficient ethanol producing plant. And, admittedly, we have no way of knowing what environmental strains have been put on Brazil in order to achieve this breakthrough.

But, having said that, we think this story 1) shows the energy independence is not necessarily decades away, and 2) illustrates the type of strategic initiatives that the Third Frontier should spearhead - but unfortunately never will - under this administration.


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