1. The Brazilian Ethanol Program Lessons Learned and Perspectives Presentation to: Latin America 2007 Texas A&M University Renato T Bertani Thompson & Knight Global Energy Services, LLC

2. The Ethanol Program in Brazil Supply and Demand Perspectives Economic Considerations Land Issues Environmental Impacts Conclusions The Ethanol Program in Brazil Supply and Demand Perspectives Economic Considerations Land Issues Environmental Impacts Conclusions Topics

3. ETHANOL sugarcane switchgrass

4. SUGAR CANE JUICESTALK WINE ETHANOL CRUSHING ENERGY HARVESTING ENERGY POWER PLANT ENERGY FERMENTATION DISTILLATION

5. PROALCOOLDEREGULATIONFLEX FUEL The Ethanol Program in Brazil

6. 1977: BRAZIL IMPORTED 77% OF ITS PETROLEUM CONSUMPTION (OF 750 kb/day) ● Enormous impact in the trade balance ● Vast underutilized agricultural land ● Unemployement ● Migration of people to big cities ● Cheap land and labor ● Traditional sugar exporter The Ethanol Program in Brazil

7. ● Set of regulatory measures aiming at promoting large scale production and demand of ethanol, including fiscal incentives for producers and consumers (differential taxations on vehicles and fuels) ● Agricultural and industrial policies in the 70’s and 80’s ● Ethanol run vehicles ● Massive research program (agriculture, industrial process, ● ethanol engines) ● Social and environmental benefits ● 1980’s OVER 90% NEW VEHICLES RUN ON ETHANOL ● SURPLUS GASOLINE EXPORTS PROALCOOL The Ethanol Program in Brazil

8. PROALCOOLDEREGULATIONFLEX FUEL The Ethanol Program in Brazil

9. ● DEREGULATION ● Period of lower oil prices made ethanol uneconomic ● Petrobras subsidies: the ethanol account ● Tax incentives phased out during 89/99 period ● Industry deregulated ● No more fabrication of cars run on 100% ethanol ● PROALCOOL OVER, BUT... ● Productivity gains in all phases of ethanol chain ● Production infraestructure ● Vehicle technology ● Distribution infraestructure (30,000 stations) ● ETHANOL BECAME MOSTLY AN ADDITIVE TO GASOLINE The Ethanol Program in Brazil

11. PROALCOOLDEREGULATIONFLEX FUEL The Ethanol Program in Brazil

12. THE FLEX FUEL CAR ERA ● SECURITY OF SUPPLY ● FUEL FLEXIBILITY ● PERFORMANCE ETHANOL AS AN ALTERNATIVE SOURCE OF ENERGY IN BRAZIL Road Transportation Energy 13.2% Otto cycle combustion engines 40%

13. SUPPLY & DEMAND PERSPECTIVES ● DRIVERS TO DEMAND ● Oil and gasoline prices ● Energy security and supply diversification ● Legislation and policies ● Environmental requirements (MTBE phase out) ● DRIVERS TO SUPPLY ● Increasing competitiveness ● Production incentives (and protectionism) ● Land and labor availability ● Sugar market

14. SUPPLY & DEMAND PERSPECTIVES

16. Ethanol plants in the USA 114 in operation 78 planned/under construction Ethanol plants in the USA 114 in operation 78 planned/under construction Ethanol plants in Brazil 320 in operation 91 planned/ under construction Ethanol plants in Brazil 320 in operation 91 planned/ under construction

17. ENERGY BALANCE FOR ETHANOL PRODUCTION ENERGY DELIVERED/ENERGY USED BIOMASSBALANCE Wheat1.2 Corn1.3 –1.8 Sugarcane8.9 Ethanol cost in Brazil is about 0.87 USD/gallon, against 1.1 to 1.8 USD/ gallon in other countries ECONOMIC CONSIDERATIONS ProductivitySugarcaneCorn ton/ha8510 g/ha g/acre 1576 640 926 375 g/ton b/ton 20.9 0.48 105 2.5 $/ton13- 15143 3.63/bushel $ of raw/b27-3157

18. 35 $/b 60 $/b ECONOMIC CONSIDERATIONS

19. LAND ISSUES MEETING THE USA TARGET At today’s sugarcane productivity 22 MMha of arable land Not feasible in the USA Crop displacement Increase cost of corn flour CURRENT AGRICULTURE USE: 62 MM ha SUGARCANE: 5.5 MM ha SUGARCANE FOR ETHANOL: 2.6 MM ha PASTURE: 220 MM ha IDLE 101 MM ha PLANNED INVESTMENTS: US$ 7.2 bn in agriculture (duplicate current sugarcane production of 385 mmton by 2013) US$ 12 bn in industrial facilities (91 new plants planned/implemented)

20. COMBUSTION GENERATES WATER, CO2, CO, HEAT ADDITIVES TO IMPROVE COMBUSTION AND ELIMINATE CO EMISSIONS LEAD MTBE ETHANOL ENVIRONMENTAL IMPACTS

22. From Laura Tetti – UNICA, Brazil ENVIRONMENTAL IMPACTS

23. CONCLUSIONS Energy supply is one of the most critical factors for the sustainable development of the world from both the economic and environmental perspectives Security of supply will require policies aiming at: Diversification of energy sources Interdependence, rather than independence Ethanol, and renewables in general, will play an increasingly important role in the energy matrix Biofuels represent an unique opportunity: Developing countries: sustainable economic growth Developed countries: diversification of energy sources, development of, and access to, new markets, increased homeland security Energy supply is one of the most critical factors for the sustainable development of the world from both the economic and environmental perspectives Security of supply will require policies aiming at: Diversification of energy sources Interdependence, rather than independence Ethanol, and renewables in general, will play an increasingly important role in the energy matrix Biofuels represent an unique opportunity: Developing countries: sustainable economic growth Developed countries: diversification of energy sources, development of, and access to, new markets, increased homeland security