1 Brazil as a Strategic Supplier of Fuel Ethanol January 2005

2 Brazil is the Least Cost Producer of Sugar and Ethanol Index Source:UNICA, F.O.Lichts

3 40,00 45,00 50,00 55,00 60,00 65,00 70,00 75,00 80,00 85, tc/hectare 2,50 3,00 3,50 4,00 4,50 5,00 5,50 6,00 6,50 7,00 7,50 kl/hectare tcane / hectare kl ethanol / hectare Productivity Gains Center-South Region Source: UNICA

4 Brazil has a Record of Expanding Production Million tons Source: Datagro Sucrose is the raw material for sugar and ethanol production Brazil’s Supply of Sucrose (in 000 tons)

5 Ethanol Production in Brazil million kl Source: Ministry of Agriculture, Livestock and Food Supply

6 The Brazilian Ethanol Experience % Ethanol in Gasoline (gasohol) 1977: 4.5% 1979: 15% 1981: 20% 1985: 22% 1998: 24% 1999: 20 to 24% SINCE % to 25% - Brazilian ethanol, gasohol & Flex-Fuel vehicles - Imported gasohol vehicles and engines (including from Japan)

7 Brazil is the Largest Producer & User Fuel ethanol demand represents 40.6% (average for Jan-Jul 2004) of Brazil’s total Otto cycle fuel demand, in gasoline equivalent. In the USA 11.5 million kiloliters of production account for only 2.3% of Otto cycle fuel demand.

8 Brazil’s Ethanol Exports are Rising (in 1000 kl) Source: Ministry of Development, Industry and Foreign Trade (*)January – November *

9 Fuel Ethanol in the World Fuel ethanol production and use is in expansion worldwide. In 2005, production is expected to reach million kl. – 16 million kl from Brazil (42%).

10 Countries with ethanol-gasoline blend programs: –USA (E-10 and for FFV E-85), –Canada (E-10 and for FFV E-85), –Sweden (E-5 and for FFV E-85), –India (E-5), –Australia (E-10), –Thailand (E-10), –China (E-10), –Colombia (E-10), –Peru (E-10), –Paraguay (E-7) and, of course, –Brazil (E-20 / E-25 and for FFV any blend). Ethanol-Gasoline Blend Use FFV: flexible fuel vehicle

11 World Crude Oil Supply & Demand The World is avid for a viable replacement to oil. Concerns are increasing from the explosive rise in energy consumption of so-called emerging economies, in particular the largely populated countries of China and India.

12 Ethanol is Perceived as a Viable Alternative to Oil Shell International: biomass ethanol is the best alternative to partially replace oil derivates in the next decades, considering consumers acceptability and strategic considerations.

13 Reasons for Adoption of Ethanol- Gasoline Blends Effective and environmentally-sound way to complement gasoline supplies; Miscibility with gasoline is good; Durability of gasoline is not affected by ethanol; Vehicle performance is maintained; Vehicle drivability is kept or improved; Good materials compatibility Vehicle durability is maintained.

14 E10 Warranty International car manufacturers provide full warranty coverage for vehicles that use E5 blends in Sweden and E10 blends in the USA and Canada Examples of statements found in the “Owner’s Manual” for 2003 japanese brands (similar to those stated by US, European and other manufacturers): HONDA: “You may use gasoline containing up to 10% ethanol by volume” MAZDA: “The common gasoline blend that can be used with your vehicle is ethanol blended at no more than 10%” MITSUBISHI: “A mixture of 10% ethanol and 90% unleaded gasoline may be used in your vehicle…..” TOYOTA: “If you use gasohol in your Toyota be sure…that it does not contain more than 10% ethanol” Source Downstream Alternatives Inc

15 Positive Impacts Employment million direct and another 0.9 million indirect jobs. Sugar cane ethanol has proven to be one of the few effective sustainable development strategies to: –mitigate poverty in developing countries –address two main problems faced by the developed world: the need to find a viable replacement to oil control urban pollution and mitigate greenhouse gas emissions.

16 Brazil has Capacity to Expand Production million hectares Brazil´s Territory~ Total Arable Land Cultivated - all crops with Sugar Cane for ethanol2.66 Area needed to supply Japan with E30.27 E Source: Ministry of Agriculture, Livestock and Food Supplies

17 SUGAR CANE ~ 60,000 producers C-S (80% land) harvest: april/november N-NE (~20% land) harvest: sept/march Source: UNICA Main Sugar Cane Areas in Brazil

18 Expansion Area in the “Cerrado” Region Brazilian Cerrado (million hectares) Total Area ……………… Area good for agriculture Area in use for cattle raising... (35) Occupied area (forests & plantations) (12) Available Area for expansion Source: Ministry of Agriculture, Livestock and Food Supplies

19 Brazil has Capacity to Expand Production Brazil is ready to help supply ethanol import needs of Japan. Other nations/producers will most likely become ethanol suppliers -- Thailand, Australia, Guatemala, Peru, Argentina, and Paraguay. 2

20 Urban Pollution Studies have found (Australia) that the use of E10: –Decreased CO emission by 32%; –Decreased HC emission by 12% ; –Decreased toxic emissions of 1-3 butadiene (19%), benzene (27%), toluene (30%) and xylene (27%); –Decreased carcinogenic risk by 24%. In the USA, wintertime CO emissions have been reduced by 25% to 30%.

21 Urban Pollution NOx emissions may decrease or increase marginally with low significance to air quality. –1% > in the Australian study; –no increase in ambient NO 2 in California with E6. 2

22 Global Warming IPCC: “ the XXth century has been reported as the hottest in the last 1000 years and the last decade was the warmest of the century ”. During past 20 years, ~25% of man-made CO2 emissions were due to fossil fuel use in transportation. The use of biofuels could reduce CO2 emissions by a factor of five, provided a high proportion of renewable energy is used.

23 Global Warming Anhydrous ethanol use saves 2.7 kg CO2 equivalent/liter of ethanol. Sugar cane yields the best energy balance in production of ethanol. Raw MaterialEnergy Output / Energy Input Wheat1.2 Corn1.3 – 1.8 Sugar Beet1.9 Sugar Cane (under Brazilian production conditions) 8.3 Source: Macedo, I. et alii, F.O. Lichts

24 Ethanol Logistics Brazil has extensive know-how. According to Transpetro / BR :  Most appropriate storage tanks  Fixed Roof.  Ethanol can also be transported through pipelines, sharing or not with oil products.  Estimated investment in the unloading, blending, loading and expedition systems is US$ 360/kl of needed storage capacity.  Most equipment used for oil products are compatible with ethanol.

25 Preparation of ethanol-gasoline blends is simple and recommended to be made during truck loading Gasohol Blend Gasohol Blending & Distribution Scheme Fuel Station Storage Tank ANHYDROUS ETHANOL GASOLINE 75% Automatic in line blending 25%

26 Learning curve Source: Goldemberg, J., et alii, 2004

27 Ethanol is Competitive with Gasoline YearGasolineEthanol Quantity (1000 kl) Average price (US$/kl) Quantity (1000 kl) Average price (US$/kl) 20022, , , , *1, ,191, Brazilian Exports of Gasoline and Ethanol Source: Ministry of Development, Industry and Foreign Trade (*) January – November 2004