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Economy & Energy
No 35:  Decemberr 2002  January 2003 ISSN 1518-2932

seta.gif (5908 bytes)No 35 Em Português






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e&e No 35

Main Page

Long Term Planning

Energy and Economy in Brazil, 1970-2000

Interest Rates in order to Increase the Internal Saving and Resume Growing

State Petroleum Monopoly Revisited

The Alcohol Polemic: Strayed Planning

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Alcohol Polemic:

 Strayed Planning

Omar Campos Ferreira

Issue 34 of e&e has two articles about alcohol: the first one, by my colleague Genserico Encarnação Júnior, evaluates historically the Alcohol Program and calls attention to the possibility of repeating the errors, should the Program be resumed; the second one, of my responsibility, deals with the technological evolution of the sugar-alcohol industry, analyzed through the farming and industry productivity indexes. Therefore we have two different points of view concerning alcohol. If conveniently adjusted, the two analysis could contribute to improve the understanding of the subjacent economic and technologic questions. Hence this third article about the same subject that examines the technical objections presented by the dear colleague

Going back to the fifties, we find the Country emerging from the Second World War with a small commercial balance accumulated through consumption restrictions in order to satisfy the “war effort” and determined to become an industrialized country. After some political-institutional agitation associated with the end of the Vargas’ dictatorship, the Country got ready to grow “50 years in 5” , stimulated by the charisma of President Juscelino Kubitchek. The development strategy was based on the installation of industries with a high multiplication coefficient, among them the car industry.

The car industry option was the wrong one in my opinion since, according to the Link Report, there was a low probability of finding petroleum inshore in Brazil while the offshore exploration was still incipient. Distributing the production through the vast territory by trucks seemed to be nonsense since there existed a basic railway network and a reasonable coastal traffic navigation. However, since there was no restrictions regarding petroleum imports, few people were aware of the inconvenience or considered that other JK’s initiatives, like the construction of Brasília, would compensate eventual planning mistakes.

The car industry satisfied expectations in the first period since supporting industries were installed, the number of qualified jobs increased and a local version of “Fordism” was made as many car workers could afford to buy their Beetle car. Concurrently, a standard system was created and the quality control was introduced, amplifying the technological basis for  other economic development opportunities. However, petroleum extraction did not immediately follow the consumption increase so that the price crisis launched by OPEC scored a direct hit on Brazil. We reacted in a creative form  by adding alcohol to gasoline and extending the offer of diesel oil with the use of heavier fractions of the distillate.

The projections concerning petroleum prices, elaborated by the petroleum industry itself, were really alarming. In 1984, the projection for 1990 prices were between 35 and 70 dollars, bringing a large incertitude about the future of the world economy. The options for supplying the fleet were therefore very restrictive and decisions were urgently needed. The risk of not having gasoline to which anhydrous alcohol was added was high, as my colleague Genserico points out. The possibility of using hydrated alcohol was not known by the majority of  the specialists of the area. However, Prof. Urbano Ernesto Stumpf, the coordinator of the Engines and Fuels Laboratory of the Aeronautics Technological Center – CTA, had the recipe ready for hydrated-alcohol-fuelled engines and presented it to President Ernesto Geisel when he visited the Center.

Hydrated alcohol has a higher (virtual) octane number than gasoline to which anhydrous alcohol has been added, allowing for the use of more efficient engines. Production of hydrated alcohol is simpler because it eliminates the extractive distillation column and has an energy balance practically identical to that of the anhydrous alcohol. Furthermore, alcohol production from biomass is so predictable as insolation and rainfall, that is, it oscillates but it has never failed along human history. Finally, the efficiency of hydrated alcohol engines exceeds in about 8%the calculated value due to the project compression ratio, a property attributed to the lowering of the fuel mixture temperature during compression, decreasing the generation of entropy along the thermodynamic cycle. This characteristic  of hydrated alcohol has not been conveniently explored as the drop of petroleum prices in 1986 has interrupted the development of biomass fuels technology in Brazil.

In what concerns the supply to distant regions it seems to me that the fundamental mistake is or was the policy of unified prices. Making prices vary according to the region would facilitate the spreading of alcohol production from vegetal biomass (sugarcane, potato, babassu, etc.)  that can be cultivated anywhere in opposition to petroleum that can be extracted only where Nature has put it. The price comparison in the state of Acre, for example, would induce de local production of biomass fuel. It would suffice to unify fuel specifications and delegate to the state organs the necessary inspection what would contribute to the technology dissemination. However, the restructuring of the fuel market due to price variation according to region would affect the revenue of large companies and this might have contributed to inadequate planning.

Due to the mentioned reasons, I think that the hydrated alcohol option was the safest or rather the most sensible. The world economy evolution from the two price shocks on fully approves the option because many industrialized countries have had high production drops circumvented by financial measures that have affected the countries that export primary or semi-manufactured goods [1]. It should be remembered that the interest rates in the United States has reached 20% annually, a historical record.

In what concerns the alcohol production costs, the graphic shown in my article illustrates the expressive drop resulting from the improvement of farming and industrial production [2]. It should be observed that the Pro-Alcohol history has evolved in less than two decades, what emphasizes the meaning of price reduction shown in the graphic. It could be said that fuel alcohol have had no time to “walk using its own legs” as a child who cannot do it before a certain age. In the present conditions, the graphic shows a cost of US$ 200/m3 or about R$0,70/l, while the consumer price is about R$1,30/l. Having a little more patience with a teenager, alcohol could repeat the vegetal coal deed that has advantageously competed with imported coke for more than a half century.

As closing remark, I think that my colleague was very hard on the economic performance of fuel alcohol. As a program adopted by the Government, the Pro-Alcohol lacked political support, maybe due to difficulties regarding integration between public and private companies. When petroleum prices dropped each one minded its own business as if the problem that had united them had been solved for good. The energy problems in the near future are possibly more difficult to be solved even though they will not manifest themselves in an acute form as a supply interruption but in the form of a fierce competition for the remaining fossil fuels. I understand the alarm raised by my colleague concerning the possible repetition of primary mistakes. However, the present conjuncture demands better planning methods that include economical , environmental and social variables as externalities in dynamic, long-term models.

[1]A brief description of the price shocks effects on the Brazilian economy can be found in “Brasil:O Crescimento Possível”, Carlos Feu Alvim et al, Ed. Bertand Brasil, 1996.

[2] The cost shown in the graphic is in dollar corrected by the IPC-Brasil index.

Graphic Edition/Edição Gráfica:
Editoração Eletrônic

Tuesday, 11 November 2008

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