As one of the country’s well-recognized industries, the future importance of Brazil’s biofuels sector cannot be understated particularly with regards to the ever-increasing need for global environmental protection; the depletion of fossil fuels as well as an increased need for business leaders and investors to make ethical and sustainable decisions.
This is an interview with José Clovis Lemes from the Candex organization, a biochemist with over 30 years of global experience in various renewable energy sectors. He discusses the history of the industry, production processes, its importance in relation to Brazil’s economic growth, future prospects and international trade amongst other topics…
Can you explain a little bit about your experience in the renewable energy sector in Brazil?
I have been a qualified biological scientist and, over the years, have worked for various governments across the world including the USA, Canada and England as well as Brazil. My current focus is on the international development / proliferation of the Brazilian biofuels industry and I am presently involved in various private and public agencies/organizations throughout the country.
Our specific focus is the biofuels sector in Brazil – can you give a short history into its development?
Brazil’s biofuels industry’s main focus has always been around the one raw material of which the country has an incredible abundance of: sugarcane. After World War 2, Brazil started implementing small programs to create an ethanol burning process which was mainly used for the automobile industry – this was done, initially, as a research project throughout the most prominent universities.
In the 1970s, the automobile industry gradually picked up on this research and observed that it could genuinely be a fuel of the future. At the time, there was also a severe petroleum crisis throughout the world and it was viewed that the potential problem that Brazil would have was the acquisition of fossil fuels, which therefore became an issue of national security.
The ethanol program was therefore instilled by the military government of the time as a means of risk aversion as well as to develop the Petrobras organization’s future role in the economy, which was and still is an entirely nationalised company.
The ‘Pro-alcohol’ program was subsequently developed in the 1980s and 1990s as a means of further encouraging the biofuels sector – particularly in the face of growing global petroleum supply issues as well as a means to decrease the national carbon footprint.
The concept of flex-fuel automobiles was developed by GM and grew rapidly over the following decades. Added to this was the fact that the cost of ethanol as a fuel is considerably less than that of petroleum, which therefore generally led to its growth as a cost-effective alternative to petroleum.
Sugarcane was initially developed in the state of São Paulo and along the coast of the Northeast of Brazil – and the mills were often powered mechanically by animals. It was the Italian sugarcane business leaders in Brazil that began to move to the interior of São Paulo to develop more advanced technological production. This is where the majority of the prominent private and public organizations remain today.
The interesting facet about the renewable energy sector in Brazil is that it has always included social inclusion as well as economic benefits – this is something that it will be of extreme importance and value for our future presence in the global energy sector.
How important is the industry in Brazil today? How has it helped the economy?
Very important – from a political point of view, in 2002, when President Lula was elected into power several of his policies were centered on environmental reform. The Programa de Aceleração do Crescimento (Growth Acceleration Program, also known as PAC), for example, has directed US$ 980 billion solely around the energy sector in various forms with a significant proportion to be allocated to the renewable sector.
This funding allocation will certainly mean that the expansion of the biofuels industry is looking very promising. At the same time, however, lots of people have also begun questioning the Brazilian government with regards to the major oil findings off the southeast coast and whether this will eventually outdo the well established industry.
Are these oil findings a major threat to the industry?
The economics of sugarcane is very interesting. Looking at the production of ethanol as it stands today, the industry is undergoing extensive and solid expansion and I believe it is fair to say that Brazil possesses the most technologically advanced processes in the world.
We have therefore, over the years, been able to benefit from streamlining, cost-saving and other related techniques which will put the industry in a comparatively solid global position moving forward. In terms of the production of petroleum, the windfall that oil will bring to the country as a result of the massive finding off the southeast coast is undoubtedly to be welcomed but it should be remembered that the findings are deeply located in the Atlantic ocean; drilling will be a very expensive process and risk will need to be managed in detail – the recent events of the BP spill off the Mexican coast are a testament to this.
Previously, when oil was first discovered in the country, the government abandoned many of its ethanol related projects and some harsh lessons were learnt in terms of the realities of managing petroleum wealth and I would imagine that whichever government that comes into power in October will appreciate this.
Petrobras is also buying several large mills throughout the country as a means of continuing the government’s investment arm in the sector. For these reasons, I believe that the biofuels industry in Brazil is at a significantly more advanced position than that of the petroleum and will never be a significant threat.
How has Brazilian industry (such as car and airplane manufacturers) capitalised economically and environmentally in the use of biofuels?
There are several examples of this. One is in the bio-chemical industry and the production of plastics using ethanol by-products. Another increasingly important ethanol based product is ‘bagasse’: the stem of the sugarcane (fibers) that was formally used as waste until detailed research proved that it can be used in the generation of electricity via burning.
Bagasse is also being used to produce what has come to be referred to as ‘second generation’ alcohol – where enzymes are added which essentially produces more sugar which is processed – essentially producing a very recyclable commodity in the industry. Bagasse is also being used in some parts of the country for other products including furniture and briquettes for boilers in the industry.
It is worth mentioning the ‘spent’ (also known as “vinasse”) or residual water that is created via the milling of sugarcane and the fermentation of the juice – again, in the past, this was thrown as waste, which was extremely aggressive to the environment but was simply viewed as an industry necessary.
This, again, became to be recognized as an excellent fertilizer and now goes back into the soil whilst also significantly reducing the consumption of water in the production process.
Another further development has been the generation of diesel from sugarcane (there are currently public buses in operation in Brazil that are using ethanol produced from sugarcane). It is also known the fact that aviation companies such as Jet Blue (in Brazil, Azul), is experimenting with this new fuel, developed jointly by an American company and a Brazilian group.
Many Brazilian companies have been touting ‘Jatropha’ as an excellent alternative investment – can you explain what it is and why this could be true?
Concerning biodiesel, soybean will continue to be the main raw material used for biodiesel production in the country for some time, if we do not have investments in Jatropha. The plant known as Jatropha curcas is a tropical plant that can be grown in low to high rainfall areas and can be used to reclaim land.
It grows as a medium-sized tree and can be easily cultivated throughout the country. Brazil does not use Jatropha extensively as other countries, like India, or even Cape Verde, for example, however the potential in this Latin American country is considered excellent, particularly in the northeast part of the country, with dry areas, in which Jatropha grows well.
Cultivation is much easier than other solutions and does not compete with the other seeds such as soybean, which is used for food. The pie, resulting from the oil extraction, contains about 8% of oil, and it is re-extracted with organic solvents, then used as a fertilizer because of its high levels of nitrogen, phosphorus and potassium. This benefits the agriculture, and improves production of animals. It is a very viable fuel form, particularly when mixed with the diesel we have here and I would expect the industry to grow in the future.
On a general level – where do you see the future growth of the industry in the short, medium and long term?
At the current time, there is a significant amount of effort going into the further exploration of utilizations of sugarcane. For example, there are some American companies that are working with Brazilians to develop diesel fuel sources, and we are undoubtedly going to see several developments in this area. Indeed, there are many such biofuels being tested by the aviation and other prominent industries.
Another prominent example is the growth of the production of sweet sorghum, a crop with high sugar content that thrives in warmer and dry conditions, which is widely expected to continue. Indeed, the original pioneer of Brazilian sugarcane production, Professor Romeu Corsini himself proposed back in the 1970s that it would not be a good idea for Brazil to rely solely on sugarcane and developed a process for the proliferation of sweet sorghum, which he imported from Texas, USA.
However, its expansion did not grow as much as initially desired largely due to the dominant military wanting the rapid expansion of the sugar cane industry at all costs. Today, it is widely believed that the employment of sweet sorghum into the production of sugarcane will save a significant amount of energy and efficiency, and will contribute to the manufacturing of second-generation ethanol. A technology that was rejected in the past rather for political reasons can now be employed with success in Brazil.
Although we frequently discuss the production of ethanol mostly with focus on using this as an automobile fuel, one cannot forget the huge potential of the “Alcohol-Chemical Industry”. Although plastics production from ethanol is nothing new, there some modern technologies being developed to produce excellent polymers with this raw material. We will see much more of this in the coming future.
What do you envisage as the main challenges the industry faces?
The only bottleneck we have is the cost per gallon of the ethanol produced – this was caused by the need of the military government in the past requiring the production of the commodity to be undertaken at any cost – in highly inefficient mills, a good number of them until recently struggling under massive debts. At the moment, there is an ever-rising amount of international companies arriving into Brazil and taking these old, inefficient mills to entirely modernize them – so we can expect to see changes in the not-too-distant future.
A point of concern is the ever increasing number of “flex-fuel” cars, using either ethanol or gasoline. It is worth noting that in Brazil, gasoline is essentially “gasohol”, a mixture of dehydrated alcohol in gasoline in the proportion of up to 25% alcohol in the mixture.
Sales of this type of vehicle is on a constant upswing of 80% in Brazil. Brazilians still did not forget that in the past with the increase in sugar prices, mill owners decided to manufacture and export this commodity, and the Pro-alcohol program was dead on the water for a number of years, to be reborn in the late 90’s.
Given the present technology, ethanol becomes economical at the pump, when its price is 70% of that of gasoline. If suddenly the price of ethanol rises, in comparison to gasoline, everybody will feel like jumping into the gasoline bandwagon.
Another issue that has always faced the country is that the academia of Brazil has long been divorced from the actual industry, when compared to other developed countries. What we are now seeing more is academics having more of an integral role in business decisions, seeking funds, developing products with the industries. This is resulting in more patents being granted to Brazilian universities and researches in record numbers. However, this is still a slow pace, given the lack of finance to research, which can be an opportunity for investors in Brazil.
The other major challenge I view is the sheer size of the country – we still have several parts – such as the Northeast that possess huge and unmatched reserves of natural resources which have a massive potential for a range of biomass-related projects.
One interesting fact about the Northeast is that, back in the 1980s, Petrobras undertook some detailed satellite analysis of the hinterlands there and it was discovered that there was more water in this area than in the entire Guanabara basin of Rio de Janeiro – which contradicted many people’s opinions of this vast region being a deserted “no man’s land”, and therefore very important in the future of the country, not only for the biofuels sector.
However, traditionally, the economies of the Northeast have been dominated by land barons – some of their farms, for example, are the size of countries in Europe. Whilst it has recently viewed that an increasing amount of investor groups, particularly from the South of Brazil, are pooling together to explore areas such as Sergipe, Alagoas, Ceará and Pernambuco, unfortunately, it is difficult to say if and when this will change.
The hope is that the current presidency will continue to invest in “sustainable agro-projects” in the Northeast and North (Amazon), with very interesting programs, such as the Electricity for All (Luz para Todos), which presents opportunities in green technologies, including gasification, solar and wind power. Brazil signed recently an important agreement with the USA to joint develop green energy.
In terms of the growth of trade in ethanol in other countries – what should we be expected to see?
It is important to remember that sugarcane really only grows well in sunnier climates and so I would like to demonstrate the map below of solar radiation:
As we can see, the bulk of sunlight travel across most of the underdeveloped or developing world where we find a group of about 40 poorer nations on Earth. Yet, the reports on development of biofuel technologies seem to be restricted to those countries in the developed regions of the globe who are the biggest consumers of energy, mostly in terms of fossil fuels.
It is also interesting to note that fossil fuels for the developed world have mostly come from areas of conflict in the Middle East. Therefore, looking for alternative sources of energy makes all sense in the world!
Whilst many have not agreed with several policies of President Lula, he has created some very important pathways in Brazil’s biofuel expansion in other parts of the world. In Africa, for example, he has led delegation trips to explore the expansion in what would be a hugely valuable commodity in the continent. As well as with the USA, trade with Japan and Scandinavia has also increased and looks highly likely to continue.
With regards to the USA, there currently exists a 54 cent per gallon tariff on imported ethanol, which is impeding matters somewhat. What are the reasons behind this and is any progress being made on the removal of this tariff?
In the United States, the production of ethanol is primarily from corn – the strange thing is that to produce this petroleum based energy must be employed. This, to the Brazilian industry, is crazy as the Americans are effectively using fossil fuels for the production of something that is renewable.
Upon the arrival of President Obama, it is only now that the country is realising that there are some serious flaws in the industry. It was recently announced that the USA has been investing more in production of second-generation biofuels as a substitute to corn, which particularly in comparison to the Brazilian sugar cane-produced ethanol, has been long-proven to be more expensive.
At the same time, the USA desires very much less to rely on Middle Eastern oil exports for obvious reasons. Due to internal political reasons, I do not see this import tariff being lifted in the short term, if it will ever be. The strong lobby that we had with our “old and inefficient mill owners” at the beginning of Brazil’s “Proalcool program” is the biggest roadblock to a full-fledged ethanol program development on the American side.
Do you think the motive of this tariff, therefore, is entirely political?
Yes, very much so, for the reasons I mentioned before. I previously worked for the US government up until the year 2000 and I still collaborate with the Air Force Research Laboratory and more recently with the Pentagon Biofuels Lab. I have noticed that they want to change, but the political lobby behind those “sea of corn” (compared to Brazil’s “green sea of sugar cane”) makes this a tantamount task.
The corn planters and their defenders will not go down easily. I recently flew over the Midwest and saw the huge plantations of corn, which whilst formerly expected to be utilized for the production of corn biofuels, have come to be viewed as being unviable for such purposes. Immense amounts of institutional investments have been made for these projects – particularly from the larger petroleum companies, who, therefore have a vested interest in not wanting to see global trade barriers being removed.
So, it would seem that there are several aspects of contradiction at play here – particularly with regards to the ongoing and hugely important debate over climate change. Surely if Brazil has a well-established sector that is very open to trade, the removal of such a tariff would be sure to be a step in the right direction for global climate change?
Yes, it’s true. I find it amazing the way some prominent business leaders vehemently defend the oil industry even though its growth, in its current form, makes very little economic and indeed logical sense. In defense of the USA, however, it is worth mentioning the extensive amount of research that is currently being undertaken into other forms of environmental protection – for example, I recently have been communicating with teams of researchers exploring electric cars and magnetic trains as well as various forms of hydrogen energies. This research is also increasingly growing in China.
When I look at Brazil’s energy matrix, whilst other alternative methodologies are being developed in our research institutions, the country needs to be careful that it does not put all its eggs in the ‘ethanol’ basket.
President Lula recently had his wake up call on this, and recently I was told by the Brazilian Ministry of Mines and Energy officials that Brazil will be looking at all forms of energy, not only concentrating its efforts in either the “pre-salt oil fields”, or the “green sea of sugar cane”. I hope we have learnt the lesson of the past here, and that other nations will also change, making ethanol a true international commodity.
Where are the main areas of Brazil where biofuels are produced and are there any new areas that are coming to the forefront?
The main states other than São Paulo and the Northeast, which I mentioned earlier, are Minas Gerais. which is currently witnessing huge expansion, Goiás, Tocantins and some of the grasslands of the Pantanal in Mato Grosso do Sul, although in this latter area environmental concerns prohibit sugar cane expansion.
Investors are finding opportunities in the North increasingly attractive due to the lower cost of land although the main point of the industry will always remain in the South of the country where it was born.
The sugar cane industry in that region of the country is picking up the pace rapidly, as modern, genetically improved cane varieties are planted, and more capital from the South/Southeast is poured into the region. It should also be noted that the Amazon is not conducive to sugarcane growth largely due to its damp climate.
Service:
J. Clovis Lemes
Candex do Brasil Ltda
Rua das Palmeiras, 335 – Suite 12
01226-010 – São Paulo – SP
Brazil
Phone: (55-11) 3825-9634
Mobile: (55-11) 9206-2402
E-mail: clovis.lemes@candex.us
Website: www.candex.us
Skype: clovis_lemes
Ruban Selvanayagam is a Brazil real estate and land specialist. For free e-books, state guides, up-to-date statistics, strategies, interviews, articles, weekly broadcasts and more please head to the Brazil Real Estate and Land Investment Guide via the following link:
http://www.brazilinvestmentguide.com/brazil-property-real-estate-land/
