1. Ministério de Minas e Energia G-15 TRAINING WORKSHOP: BEST PRACTICES ON RENEWABLE ENERGIES BRAZILIAN EXPERIENCE ON BIOFUELS Marlon Arraes Jardim General Coordinator - Renewable Fuels Department marlon.arraes@mme.gov.br Dakar, November 5 th, 2012

2. Ministério de Minas e Energia Brazilian Energy Mix – 2010/2020 (%)

3. Ministério de Minas e Energia Brazilian Energy Mix Evolution Renewable Energy (2010): 45.5% 14.0% Hydro 17.8% Sugarcane Products 9.7% Firewood and Charcoal 4.0% Others

4. Ministério de Minas e Energia Brazilian Electricity Supply by Source

5. Ministério de Minas e Energia Fuel Mix - 2011 and Recent Evolution Source: MME (2012) Highlights: 1.Biodiesel growth; 2.Ethanol shortening.

6. Ministério de Minas e Energia Let’s Take a Look in History… 1 0 2 3 4 5 6 T0 = First Oil Shock T1 = Proalcool is launched T2 = Second Oil Shock; E100 begins in Brazil T3 = Ethanol Crisis T4 = End of Ethanol Subsidies T5 = Government begins to study biodiesel policies T6 = Biodiesel Program is launched

7. Ministério de Minas e Energia The Deregulation of Fuel Market and the Ethanol Fuel 1993 1995 1999 Liberalization of Hydrated Alcohol prices at the producer with the subsidy reduction (Feb/99) End of subsidies for Hydrated Alcohol (Nov/99) Constitutional Amendment Nº 09: petroleum monopoly made flexible (Nov/05) 2002 Complete Liberalization of Fuel Prices (Jan/02) Free prices in the whole chain of production and commercialization Mandatory blending of ethanol and gasoline introduced by Law 1975 National Alcohol Program (Proalcool) goals: 1.To introduce in the market the mixture gasoline-ethanol 2.To stimulate the development of pure ethanol motors Two types of ethanol used, produced and tested in Brazil: anhydrous hydrated Mixed with pure gasoline (20 to 25%) Directly used in Otto-cycle motors (100%) 1979

8. Ministério de Minas e Energia... Brazil World 2011 Data (Source: BP / MME) Middle and Light Destilates: Diesel, Gasoline e Jet Kerosene 0,11 x 10 12 liters/year 3,5 x 10 12 liters/year 79 x 10 9 liters/year 24 x 10 9 liters/year Biofuels x Fossil Fuels Fossil Fuels Biofuels Fossil Fuels Biofuels

9. Ministério de Minas e Energia Brazil: 2011 Data (Source: MME) Other Countries: 2010 Data (Source: multiple) Obs: Size of the country is total energy demand Share of Renewables in Different Countries % Renewables

10. Ministério de Minas e Energia Retailers Gas Stations (37.243) TRR (471) Airports and Aviation Gas Stations (90) Lubricant distributers Retailers of LPG (31.800) Source: MME–ANP–MAPA June/2012 Diesel Biodiesel Gasoline C Ethanol Querosene QAV Oil Fuels. Lubricants LPG Solvents Asphalt Final Consumers Freight and Passengers Transport Companies Aviation Companies Industries General Consumers Petrochemicals(4) Ethanol Producers (427) Refineries (13) Importers (216) Biodiesel Producers (64) E&P Distribution (207) Agriculture Producers Distribution Bases (570) Market Players

11. Ministério de Minas e Energia Observation: GASOLINE “A” = Pure Gasoline, without ethanol, not commercialized to final consumer GASOLINE “C” = With ethanol, commercialized in the whole country. GASOLINE “C” (GAS “A” + Anhydrous) GAS STATION GASOLINE “A” (*) RETAILER OIL REFINERY ANHYDROUS ETHANOL SUGAR MILL Mixture Consumer GASOLINE “C” (GAS “A” + Anhydrous) GASOLINE “A”: TAXATION CIDE- PIS & COFINS R$ 0,26/ liter. IVA25% a 31% Anhydrous Taxation CIDE-- PIS & COFINS R$ 8,57 + R$ 12,86 IVADiffered to GAS “A” No Taxation Here Commercialization of Ethanol for Blending Anhydrous Taxation CIDE-- PIS & COFINS R$ 39,43 + R$ 59,14 IVADiffered to GASOLINE “A”

12. Ministério de Minas e Energia Government and Private Associations Ethanol Governance includes : CNPE (Energy Policy National Council) CIMA (Interministerial Council): 1.Ministry of Agriculture, Livestock and Food Supply; 2.Ministry of Mines and Energy 3.Ministry of Finance 4.Ministry of Development, Industry and Foreign Trade. Staff Office of the Presidency and the MFA (Ministry of Foreign Affairs) ANP (Regulatory Agency for Oil, Natural Gas and Biofuels) National Sucroenergetic Forum (Association of Producers) UNICA (Center-South region Association of Producers) Agriculture Sector Chamber SINDICOM (Union of Distributors and Fuel Retailers) BNDES (National Development Bank) Biodiesel Governance also includes: Staff Office of the Presidency - CEIB (Interministerial Council) Ministry of Mines and Energy – Grupo Gestor (Program Manager) Brazilian Biodiesel Union (UBRABIO), Brazilian Association of Vegetable Oil Industries (ABIOVE) and Brazilian Biodiesel Producers Association (APROBIO)

13. Ministério de Minas e Energia The General Policies for Biofuels The law of Brazilian energy policy includes as one of the objectives: to increase the share of biofuels in the national energy mix. The main general instruments include: Mandatory mix: ethanol (E18-25) and biodiesel (B5). Tax differentiation regime in federal level. Line of credit for ethanol strategic buffer stocks (conceived to improve off-season supply conditions). Public auctions for biodiesel market supply. Research funding (CT-Petro, created in 1999 and CT-Energ, created in 2000). Agro-ecological zoning that orients and guarantees that raw-material production will take place only in suitable areas. The Brazilian government managed to conclude the sugarcane (2009) and palm oil (2010).

14. Ministério de Minas e Energia Recent Modifications on Biofuels Regulation Biofuels are now treated as fuels and not only as an agriculture product inserted in the Brazilian energy mix. This understanding is boosted by the growing ethanol utilization of ethanol and biodiesel, both in Brazil and abroad, that demonstrates the extraordinary role and potential of biofuels. Biofuels have an uniform treatment regarding their role in National Energy Policy. That includes both ethanol and biodiesel, as well as any other new biofuel that eventually will be produced in commercial scale in the future. The National Energy Policy Council (CNPE) has, from now on, authority to establish the directions for biofuels imports and exports in the same way that it already has for all oil derivatives such as gasoline, diesel and jet fuel.

15. Ministério de Minas e Energia Ethanol Savings and Benefits for Brazil 1.5 billion barrels of oil displaced

16. Ministério de Minas e Energia +53% [Jan-Jun(12)]/[Jan-Jun(06)] (E25) (E100) Light-Vehicles Fuel Demand in Brazil: Trends million m³ (Gasoline Equivalent)

17. Ministério de Minas e Energia Why Ethanol Decreased Its Share in 2011? Conjunction of different but interconnected factors: 1.International financial crisis in 2008; 2.Climate event (excess of rainfalls) in 2009/2010 season; 3.Climate event (lack of rainfalls) in 2010/2011 season; 4.Higher sugar prices, since 2009; 5.Fuel demand (internal market) skyrocketed! Why Biodiesel Increased Its Share in 2011? Main factors: 1.Mandatory mixture was raised from B3 (1 st half 2009) and B4 (2 nd half of 2009) to B5 (since Jan/2010); 2.Brazilian economy growth.

18. Ministério de Minas e Energia What the Government is Doing for Ethanol? Highlights: 1.Finishing the necessary regulatory instruments by ANP after the recent Biofuels’ Law (Law 12.490/2011) approved; 2.Public policy design is being conducted by Government officials considering next ten years scenarios for ethanol demand; 3.Incentives package for production expansion investments; 4.The strengthening of future market contracts as a tool for ethanol commercialization; 5.Permanent dialogue with the private sector representatives of the whole chain of production and commercialization.

19. Ministério de Minas e Energia million m³ Ethanol for Internal Fuel Market PDE 2021 is under public consultancy until Oct. 31 st Contribution must be sent to pde2021@mme.gov.br pde2021@mme.gov.br PDE 2021 is under public consultancy until Oct. 31 st Contribution must be sent to pde2021@mme.gov.br pde2021@mme.gov.br Ethanol: What the Government plan is showing? Source: PDE 2021 (Public Consultancy Version) 1.Internal Market will remain as main driver (flex-fuel car sales) 2.Neverending quest between sugar prices and ethanol prices 3.Not to mention the new products from sugarcane...

20. Ministério de Minas e Energia Biodiesel Main Policies Mandatory mix (5%) Social Fuel Certificate (SFC) Granted to biodiesel producer who stimulates feedstock supply from household agriculture SFC ensures preferential biodiesel market access Lower taxation Public Auctions promoted by ANP Trade rule between biodiesel producers (suppliers) and diesel producers (buyers)

21. Ministério de Minas e Energia Social Fuel Certificate 1. Minimum feedstock's purchase from household agriculture 15% at Mid West or North 30% at Southeast or Northeast 35% at South (40% from 2013/14 season on) 2. Diversifying, regionalization and cooperatives The multipliers concept: 2x for non-soya oilseeds 2x for Northeast and Semiarid 1.2x for Household Cooperatives Cumulative Situations -> (2 x 2 x 1.2 = 4.8)

22. Ministério de Minas e Energia Biodiesel Production in Brazil Key to Symbols: WITH SFC* WITHOUT SFC* 1,000 m³/Year (*) Social Fuel Certificate

23. Ministério de Minas e Energia Biodiesel Families US$ / Family per Year Total Biodiesel Production Total Income of the Families due to Biodiesel Higher levels of income since the mandate period confirms the policy Source: MDA, MME (2011) m³

24. Ministério de Minas e Energia Biodiesel: Positive Impacts Already obtained with B5… Brazil is one of the top3 world biodiesel consumers (USA and Germany) GDP: US$ 3,6 billions/year Investments: US$ 2 billion on biodiesel plants (B5) International trade: US$ 6.5 billion savings of diesel imports Employment: 86 thousand new jobs Household agriculture: 104,000 small farm’s units Estimated environmental and health benefits: - 57% CO2 emissions - 13,000 hospitals’ admissions - 1,800 deaths due to emissions

25. Ministério de Minas e Energia Land Use in Brazil * Total AreaNative VegetationArable Land Available Pasture Agriculture Sugarcane Others 15 2% * 2009 Data Source: ICONE, ESALQ and IBGE. Elaboration: COSAN and UNICA

26. Ministério de Minas e Energia Sugarcane Expansion with Agroecological Requirements Agrozoning for Soy, Sunflower, Castor, Palm, Cotton Seed etc. Maximum allowed: 65 million ha or 7,5% (green areas) Agricultural zoning as a guarantee for public and private investments and a recommendation of suitable areas for harvest North Region Focus = arc of deforestation Northeast Region Focus = coast areas

27. Ministério de Minas e Energia New Uses in Other Sectors (P&D) The BNDES launched PAISS (Joint Programme of Technological and Innovation Support for Sugarcane Sector), were selected from 25 companies that submitted 35 business plans, which will generate investments of about R$ 3 billion.  The PAISS fosters research and development of cellulosic ethanol. If made ​​ viable economically, the cellulosic ethanol could increase the productivity of the sector in more than 40%. Among the entities who study the processes of production of ethanol from lignocellulose in Brazil, stand out: CENPES-PetrobrasCTBE; Centro de Tecnologia Canavieira – CTC Dow & DSM Embrapa Agroenergia ETH Bioenergy Dedini S/A Indústrias de Base Graal Bio AmyrisLS9

28. Ministério de Minas e Energia Bioenergy International Cooperation * Includes MoUs, partnerships and other agreements signed directly by any Federal Government Department or Agency or Public Enterprise. It was considered bilateral agreements, cooperation in third countries and agreements signed with economic or regional blocks. Map of International Agreements on Bioenergy sign by Brazilian Representatives 77 countries Nearly 1/3 of the whole nations

29. Ministério de Minas e Energia Renewable energy source Energy security Better CO2 and pollutants emissions Income improvement at rural areas Bioenergy industry helps to deconcentrate energy markets It is much lower capital intensive than oil industry Bioenergy can be produced in a sustainable way worldwide while oil is concentrated in a few countries (many of them with political instability) Some Bioenergy Externalities…

30. Ministério de Minas e Energia  Maintain the best environment for investments with a clear regulatory framework  Articulate the different interests involved  Assure the proper incentives to best practices  Pursue the most sustainable path to expand the industry and promote development  Give ways to assure and respect contracts  Induce and facilitate the international trade  Correct market distortions that might lead in long term to imbalances in economic activity The Government Role (as we see)

31. Ministério de Minas e Energia Thank You! Marlon Arraes Jardim marlon.arraes@mme.gov.br