U.S. is underdeveloped country in the biofuel industry

By Sara Wyant

I've never been to Brazil. But I'm told that everyone who visits there is struck by two things relative to energy production: the major progress they've made in building their alternative fuels industry and secondly, how the U.S. appears to be so far behind in comparison.

Israel Klabin, who serves as president of the Brazilian Foundation for Sustainable Development, drove that point home recently during the World Agricultural Forum, held in St. Louis, Mo. Klabin explained how, in the aftermath of the 1970s oil crisis, his country launched a national initiative on agricultural based fuels and remains committed to energy self-sufficiency.

Brazil's reliance on foreign oil imports plummeted from 85 percent of its energy consumption in 1978 to about 10 percent in 2002, according to that country's National Petroleum Agency. By the end of this decade, the country is expected to be a net exporter of crude oil. That's right: net exporter.

What do they know that we don't?

Both Brazilians and Americans were hit by the same "Arab Oil Embargo" in the early 1970s, but the outcomes look much different almost 30 years later. In the U.S., gas prices skyrocketed from 25 cents per gallon to over one dollar within just a few weeks. The American Automobile Association recorded that up to 20 percent of the country's gas stations had no fuel for at least one week during the crisis, creating long lines and lots of distress. To ease the pain, the Nixon administration launched a series of conservation measures, lowered speed limits, pushed for alternative energy sources and created the Energy Department--just to name a few of many initiatives.

President Jimmy Carter would later call the oil situation in the 70s, "the moral equivalent of war" and certainly one of the defining issues of his presidency. But as oil prices eventually began to ease, American interest in energy self-sufficiency waned and the perception of a "crisis" fell by the wayside. Despite steady growth in alternative energy sources, renewables fuel less than five percent of the U.S. energy supply.

Crisis mentality

Perhaps the crisis just seemed that much more severe south of the border. Brazil's government was already burdened by huge debts to the International Monetary Fund (IMF) and higher oil prices further complicated recovery efforts. Although the military-controlled government controlled domestic oil production through state oil giant Petrobrás, it was unable to keep up with demand, fight inflation and deal with growing political tensions.

In response to the oil crisis, government leaders launched Programa Nacional do Alcohol (Pro-Alcohol program) to take advantage of Brazil's massive sugar cane production while providing inexpensive fuel to Brazilians. The move toward greater self-sufficiency was a source of great national pride, explained Klabin.

"Brazil decided as a national policy they would not be subject to imported oil and mandated that every filling station would have alcohol fuels. The government stepped in to make that happen," says Rick Tolman, CEO of the National Corn Growers Association who participated in the WAF panel with Klabin. He said Brazil saved an estimated $53 billion because nearly 80 percent of the country's energy needs are produced domestically.

Alcohol ups and downs

Brazil's initial program was a big success for consumers and lowered the country's dependence on foreign oil imports. But there were a few bumps along the road to energy independence. For example, many car engines had trouble starting on the ethanol-mixed gasoline. Brazil started pouring more money into research, and began producing ethanol-only cars. By 1985, more than 90 percent of the cars produced in Brazil ran on alcohol.

However, the cost to subsidize the alcohol program added to the country's debt repayment problems and pressured government leaders to make more changes in their energy strategy. The price of crude oil fell and the state-owned oil monopoly, Petrobrás, wanted to sell gasoline to domestic markets, rather than exporting barrels at a loss.

Alcohol shortages in 1989 and 1990 further undermined the popularity of alcohol fuels as demand for the highly popular fuels outstripped supplies. By 1995, sales of alcohol-powered cars plummeted to less than 5 percent of total vehicle sales.

Bifuel cars spur rebirth

The successful launch of bifuel or "total flex" vehicles by Volkswagen and General Motors in 2003, coupled with rising global petroleum prices, is once again spurring growth in Brazil's alcohol fuels industry. The Brazilian automotive industry is manufacturing cars that run on 100 percent gasoline, 100 percent alcohol or a mix of the two--and maintaining the same level of vehicle performance.

Today, nearly 20 percent of Brazil's cars run on ethanol only, in addition to the 50 percent of new cars that have "mix-fuel" ethanol-and-oil engines. And Brazil is beginning to produce and use biodiesel--diesel made out of vegetable oils--for its trucks and buses.

Can we catch up?

The World Agricultural Forum provided a great opportunity to point out that the U.S. is really an "underdeveloped country" in terms of what Brazil has done, adds Tolman. One way the United States can catch up with what Brazil is doing is to have an renewable fuels standard (RFS) enacted into law, says Tolman. An RFS would be a floor under the renewable fuels industry that would go out to year 2012 and allows an investment horizon. Tolman also said it would give farmers and the industry the opportunity to go out and attract finance capital and commitment to investing in the ethanol industry so it can grow in a rational way. Several Midwestern senators hope to include an 8 billion gallon RFS in the Senate's Energy Bill that's likely to be considered before Memorial Day.

Other legislation could make it easier for U.S. consumers to use a wide variety of alcohol fuels. Sen. Mark Dayton, D-MN, introduced a bill, S. 587, that would require all motor vehicles sold in the United Stated to be "flexible fuel"--capable of using conventional gasoline, E85 (85 percent ethanol) or any mixture of the two.

President Bush's leadership is also crucial. The president made his first visit to a biodiesel plant in Virginia recently and gave his strongest endorsement to date for renewable energy. He pointed out how the biodiesel industry grew from about 500,000 gallons in 1999 to 30 million gallons last year--a sixty fold increase in five years.

The president also took time to promote ethanol and its ability to help communities meet clean air standards. "Together, ethanol and biodiesel present a tremendous opportunity to diversify our supply of fuel for cars and buses and trucks and heavy-duty vehicles." A recent study by Oak Ridge National Laboratory projected that biofuels, such as ethanol and biodiesel, could provide about a fifth of America's transportation fuel within 25 years. "And that would be good for our kids and our grandkids," emphasized the president.

Editor's note: Columnist Sara Wyant is president of Agri-Pulse Communications, Inc. and publishes a bi-weekly newsletter, Agri-Pulse, on food and farm policy. For more information, you can e-mail her at Agripulse@aol.com.

Date: 5/26/05

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