1. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 The Brazil Ethanol Experience Rick Sellers RIO, Inc. Rick.Sellers@cegetel.net +33 6 1841 2676

2. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Source: Luiz Carlos Corrêa Carvalho

3. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 ProAlcool - The Brazilian Alcohol Program Key points:  Started in 1975 by Federal Government.  Objective was energy security: replacing petroleum imports with domestic resources.  Started as fuel additive in gasoline vehicles, replacing lead and/or MTBE <10%.  Stimulated production of ethanol only cars, more recently flex-fuel cars.  4,000,000 cars running on pure (Hydrated) ethanol in Brazil  680,000 flex-fuel vehicles (both ethanol and gasoline, any blend)  All gasoline now 20 to 26% of ethanol in volume basis – gasohol  Ethanol economically competitive to gasoline at >$30-35/bbl Source: Suani Teixeira Coelho

4. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Source: Sérgio Antônio MONTEIRO FONTES

5. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Over 70% of cars sold in 2006 are expected to be FFV

6. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Production Advances Productivity gains from improved species, advanced distilling technology, and increased use of waste (bagasse) in processing.

7. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Ethanol international competitiveness Source: Nastari, 2005

8. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Social benefits of biofuels  Significant increase in employment opportunities, mainly in rural areas.  2004, Brazil: 700,000 direct jobs and about 3.5 million indirect jobs (production of 350 million tonnes of cane)  Ethanol: job rate in ethanol industry higher than in fossil industry  Different estimates at 20:1 up to 150:1

9. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Economic Cost/Benefit  Total incentives for ProAlcool program: US$ 12 billion.  Over the last 22 years, hard currency savings amounted to 1.8 billion US $/year or ~US $ 40 billion.  Incentives now phased out; program is revenue positive for government through taxes.

10. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Positive Industry Environmental Impacts Brazil: Net CO 2 Emissions Due to Sugarcane Production and Use, 1990-91 Mtons C/Year Ethanol Substitution for Gasoline* *Including blending 22% of ethanol with gasoline and 4.2 million pure ethanol-fired cars - 7.41 Bagasse Substitution for Fuel Oil Burning as Heat Source in Other Industries - 3.24 Fossil Fuel Utilization in Sugarcane Industry+ 1.20 Net Contribution (uptake)- 9.45 Source: Macedo, 1992

11. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Positive Urban Environmental Impacts  Lead: dropped from 1,4 ug/m 3 in 1977 to less than 0,10 ug/m 3 in 1991.  Sulfur: dropped from 50 ug/m 3 in 1984 to 15 ug/m 3 in 2003.  Particulate Matter: dropped from 90 ug/m 3 in 1986 to 50 ug/m 3 in 2003.

12. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Negative Environmental Impacts  Local air pollution during harvesting season (burning required for manual harvest)  Burning sugar cane bagasse in the boilers not always best (low pollution) technology.  Slightly higher NOx emissions with gasahol than either gasoline or ethanol-only.

13. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Lesson from Brazil – Think long term 1.Promote demand 1.Mandate targets (replacement of oxygenates at 5% to start) 2.Provide incentives to fuel companies to accomplish target 3.Promote imports if insufficient existing production 4.Mandate flex fuel auto sales to begin transforming fleet 2.Stimulate agro-industrial capacities (industry/private sector was responsible for recovery of Brazilian ethanol sector) 3.Establish “best practices” certification of production 4.Provide incentives for use of new technologies 5.Inform consumers (ethanol is compatible with current vehicles, environmental and social benefits, etc.) 6.Establish trading capabilities to improve liquidity of market 7.BE PATIENT!

14. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Oil and Biofuels Trade Oil Trade Based on WEO 2004 2002 2030

15. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Conclusions  Brazil showed patience, determination, and excellent timing.  Energy security, employment, rural development, and environmental benefits are substantial and fundamental to success.  Ethanol programs based on sugar cane probably economic at oil prices over US$ 35/barrel.  At oil prices below ~ US$ 35/barrel, ethanol program may still be justified on energy security and social benefits basis, as well as a hedge against future price volatility.

16. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Thank you! Rick Sellers RIO, Inc. Rick.sellers@cegetel.net

17. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Additional Slides for Reference

18. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Brazil Alcohol Statistics* *Except where noted, data apply to the 2003/2004 season. Land use45,000 km² in 2000 Labour1 million jobs (50% farming, 50% processing) Sugarcane344 million metric tonnes (50% sugar, 50% alcohol) Sugar23 million tonnes (30% is exported) Ethanol14 million m³ (7.5 anhydrous, 6.5 hydrated; 2.4% is exported) Dry bagasse50 million tonnes Electricity1350 MW (1200 for self use, 150 sold to utilities) in 2001

19. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 10 Myths about Ethanol 1.Brazilian experience is unique 2.incompatible with existing fleets; 3.low energy balances of biofuels 4.high pollutant emissions (cleaner fossil fuels preferable) 5.complex logistics 6.competition with food for land, unsustainable practices, deforestation 7.should only be produced domestically by developed countries 8.only subsidized production is possible 9.imports destroy local agriculture of developed countries 10.energy efficiency alone will preserve oil resources and fulfill Kyoto targets Source: Suani Teixeira Coelho

20. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Typical Ethanol Production Factors  economic cost of production: US$0.18–0.25 per liter of gasoline-equivalent  average export price of ethanol (2001-2003): US$ 0.23 per liter  Price paid per tonne of sugarcane: US$11.4 (UNICA, 2005)  plant lifetime of 25 years  feedstock cost of US$ 0.143 per liter of ethanol  investment cost around US$ 0.017 per liter of ethanol.

21. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Technological Advances  Brazilian car production in 2002: 1.5 million  ethanol share  3.16% (48 thousand)  2002  5.5 billion liters used in a 22 to 25% blend with gasoline  2003  3 million vehicles powered by hydrated alcohol  4.9 billion liters/year  2003: Launching of “Flexfuel” cars in the market

22. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Technology Advances All energy needs in sugarcane mills are provided without any external energy source; Cogeneration process: production of steam and electric/mechanical energy to the process from sugarcane bagasse. Presently up to 80 kWh/tonnes of cane can be sold to the grid 1975 – 2000: low-pressure boilers (22 bar- 20 kWh/ tonnes of cane) Since 2000: high pressure ones (up to 80 bar). Outputs of 120kWh/tonne  better technology and recovery of sugarcane by-products (green cane harvesting). Gasification technology (under development): 300 kWh/tonne of cane.

23. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Ethanol Energy Balance Source: Macedo, I et alli, 2004

24. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Energy balances of feedstocks Sources: Macedo et alii, 2004; UK DTI, 2003 and USDA, 1995

25. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 competition with land for food Source: Brazilian Statistics Bureau, several years

26. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Quality of Jobs and Other Socioeconomic Issues Source: Goldemberg, 2002

27. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 62% of the total sugarcane 76 % of the C/S region (sugar) 71 % of the C/S region (ethanol) São Paulo North - Northeast Region 15% of the total production Crop: October to March 85% of the total production Crop: April to December Center -South Region Brazil: Regions and Sugarcane Seasonality Source: Suani Teixeira Coelho

28. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Quality of Jobs and Other Socioeconomic Issues Every 300 million tones of sugarcane produced in Brazil: creation of approximately 700,000 jobs. Formal Jobs: National average (Brazil): 55% Sugarcane sector: 68.5% Sugarcane production is seasonal but many jobs are formal and annual (equipment maintenance during off season).

29. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Compatibility of Existing Fleets with Ethanol-gasoline Blend Ethanol Content in the Fuel Carburetor Fuel Injection Fuel Pump Fuel Pressure Device Fuel Filter Ignition System Evaporative System Fuel Tank Catalytic Converter Basic Engine Motor Oil Intake Manifold Exhaust System Cold Start System ≤ 5% 5 ~ 10% 10 ~ 25% 25 ~ 85% ≥ 85% - - - - - - - - - - - -- - - - - For any vehicle NN - - - - - - - - - - - - - - - - - - - - - - - For relatively new fleets (10 ~ 15 years old) - - NN- - - - - - - - - - - Brazilian Application - PN - - - - - - - - - - - - - - - - - - - - - Brazilian Application PN- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - USA Application PN - - -- - - - - - - - - - - Source: ANFAVEA, 2005 - Not Necessary - Probably Necessary - - - - - - - - NN - - - - - - - - NN-

30. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 GHG emissions from different types of ethanol Sources: Macedo et. alii, 2004, UK DTI, 2003 and USDA, 2004

31. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Environmental Impacts Source: ANFAVEA, 2005 Comparative Raw Exhaust Emission

32. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Source: Luiz Carlos Corrêa Carvalho

33. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006

34. Source: Luiz Carlos Corrêa Carvalho

35. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 International Opportunities

36. Climate Change Mitigation in the Transport Sector Asian Development Bank, Manila, 24-25 May, 2006 Flex-fuel Vehicles in Brazil