Luiz Fernando Furlan "Ethanol and Renewable Fuels: The Brazilian Experience" April 20, 2005

Minister Luiz Fernando Furlan speaking in the Lounge of the Women's Faculty Club on April 20.

Ethanol and Renewable Fuels: The Brazilian Experience
By Lavinia Barros de Castro

During the 1970s and 1980s Brazil began to develop the technology to use ethanol as a fuel substitute for oil. By 2003 the country had developed new technology that allowed for affordable fuel mixtures. Today, Luiz Fernando Furlan, Minister of Development, Industry and Foreign Trade since 2002, believes that “ethanol is our life and business.” Minister Furlan has been a vocal proponent of the idea that ethanol offers Brazil a chance to improve the environment while creating new jobs and saving money for consumers.

Brazil’s ethanol industry has already attracted international attention as countries look for ways to meet their emissions targets under the Kyoto Protocol, including through the promotion of sustainable alternatives to oil. At the same time, Brazil has been promoting joint financial ventures to provide the insurance and price equalization necessary to reduce the risks associated with some alternative energy projects. The Brazilian Development Bank (BNDES) is also looking for new financial instruments to provide funds for investment in renewable energy.

Business opportunities may also exist in the U.S., where the use of ethanol is still a mere 3 percent and energy has become an issue of national security as well as well as one of environmental sustainability and supply. Currently, most U.S. ethanol is derived from corn. However, Minister Furlan argued that ethanol produced from sugar cane is more efficient and eliminates the need for subsidies. For example, bagasse, the sugar cane pulp left after pressing, can be burned to generate the energy required in the ethanol production process. Sugar cane is also better environmentally as it returns important nutrients to the soil, reducing the need for expensive inputs such as fertilizer.

In order to promote ethanol conversion and consumption in other areas, the Brazilian government has been sending delegations abroad to discuss the Brazilian experience. In April, Minister Furlan visited Berkeley with a group that included representatives from the Ministries of Agriculture and Technology, the president of Apex, the president of the National Institute of Metrology, Standardization and Industrial Quality (INMETRO) and engineers from Volkswagen and General Motors of Brazil, among others.

Ethanol Consumption in Brazil

Brazil is the biggest consumer of ethanol in the world. Currently, Brazil has six million hectares devoted to ethanol production from sugar cane. However, according to research by Embrapa (The Brazilian state’s Agricultural Research Corporation), there is the potential for up to 90 million hectares of sugar cane to be planted across a much broader geographical area, southern Brazil being the only region unsuitable for ethanol production. Meanwhile, the price of ethanol is currently lower than oil, and it is a cleaner burning fuel.

As a labor-intensive activity, ethanol production can also create jobs and therefore encourage development, particularly in Brazil’s poorest areas. Today, one million people are employed as a result of the sugar cane industry’s activities in Brazil. But the sector, if expanded, could create an additional one million jobs directly and 1.5 million indirectly.

The average size of a sugar cane plantation is 20 thousand hectares, producing around 1.5 million tons of sugar cane per annum. The organization of the firm can vary, from a single large plantation to a farmers’ cooperative. In Brazil, there are about 100,000 independent producers of sugar cane whose crops are used to produce not only ethanol but also Cachaça, Brazil’s national drink, a type of rum. As the Brazilians say: “The best we drink, the rest we burn.”

Difficulties in Distribution of Ethanol

If ethanol is such a promising economic opportunity, why is it so relatively underdeveloped? Why are people still buying other fuels if ethanol is so cheap?
Minister Furlan blamed the ongoing problems on difficulties in distribution. Brazil’s 30,000 ethanol outlets are already pressed to meet existing demand. Distribution problems aside, the flexible technology that allows the use of oil mixtures is still a recent innovation in the auto industry and most models cannot use ethanol mixes. ”It is just a question of time,” said the Minister.

Luiz Fernando Furlan, the Brazilian Minister of Development, Industry and Foreign Trade, gave his CLAS presentation on April, 20, 2005.

Lavinia Barros de Castro is an economist at the Brazilian Development Bank (BNDES) and a visiting scholar at the Center for Latin American Studies.

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Original event announcement

Luiz Fernando Furlan
"Ethanol and Renewable Fuels: The Brazilian Experience"

Luiz Fernando Furlan was appointed Minister of Development, Industry and Foreign
Trade by Brazilian President Luiz Inácio Lula da Silva in 2002. Prior to becoming minister, he was President of the Administration Council of Sadia S.A., one of Brazil’s largest food processing companies. Minister Furlan has held several executive positions including Second Vice-President and Director of Foreign Trade at FIESP/CIESP (Federation of Industries of the State of São Paulo), Vice-President of the Brazilian Foreign Trade Association and President, from 2000 to 2002, of the Entrepreneurial Leaders Forum. He has also served as a member of the Global Corporate Governance Forum and the Private Sector Advisory Group of the World Bank.