Economy & Energy
Year VIII -No 47:
December 2004  January 2005
ISSN 1518-2932

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e&e No 47

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Petroleum Prices: The Third Shock?

Alcohol as an International Commodity

 Promotion of solar energy for water heating in the Residential Sector

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Luiz Celso Parisi Negrão
Advisot to the STI/MDIC(*)
Maria Lucia De Paula Urban



The evolution of fuels production and use all over the world has followed  the logic of substitution of the sources then used by other ones that are more practical and economical (from firewood to coal, from coal to petroleum) up to the search of new paths where the objective is the energy use sustainability. This summary of the phases from the eighteen century on explains the growth of natural gas production and the present objective discussion on and adoption of renewable energies.

Practically, only from the 1970s on the sustainable development question has been discussed at international meetings. The association of environment and development, in which production and use of renewable energy has fundamental importance, attached value to biomass for this purpose.

The large scale experience in the production and use of ethanol in Brazil is doubtless an example that has been followed and discussed in countries and at international meetings. The local action, with global impact in environmental terms, renders alcohol a very important product for the fast solution that the world must give to the reduction of greenhouse effect emissions.

Besides the environmental focal point, ethanol produces in countries like Brazil significant economic and social impacts, among others, such as improvement of the rural income, the corresponding  distribution effect on the alcohol-sugarcane productive chain, large scale employment generation, reduction of external dependence and improvement of the commercial balance.

 The dissemination of the production and use of ethanol in different countries is the relevant and beneficial way for local and global development. Some points are essential for consolidating this objective, and it should emphasized the importance of turning carburant alcohol into an international environmental commodity.

1) Brazil as pioneer and disseminator of the use of FUEL alcohol

 From the twenties on Brazil has been using fuel alcohol. With the PROÁLCOOL program, implemented in commercial scale at the end of the seventies, the country was a pioneer in the effective substitution of gasoline during the oil price crisis. Since then sugarcane alcohol is used as fuel  in the country in two ways: as hydrated ethyl alcohol fuel (AHEC), in cars 100% fueled by alcohol or as anhydrous alcohol (AEAC) in gasoline fuelled cars to which an average quantity from 20% to 25% is added.

Considered to be a most effective and successful program, it was during some years responsible for more than 66.4% of the total internal production of cars (fuelled by AHEC). This has guaranteed the country not only the large scale production of biomass ethanol but also a more competitive role than that of any other country in the sugarcane world market due to the intense R&D investments.

However, the dynamic support of the Brazilian offer and consumption of fuel alcohol was always under pressure from the international oil price oscillations and trends of the sugarcane commodity that demanded a complex regulation system to guarantee its storage and offer. In this context, the program’s slow down in the nineties represented a significant decrease of the 100% alcohol fuelled cars and the conjuncture destabilization of the model.

In spite of the PROÁLCOOL slow down during the nineties, the ethanol production was kept due to the mixing of  anhydrous ethyl alcohol fuel to gasoline, whose growth compensated the decrease of hydrated alcohol consumption (Graphic 1). The technological progress continues and Brazil nowadays is at the forefront of generation and dissemination of technologies of the sugarcane/alcohol chain. The R&D efforts are increasing in all links of the chain (private enterprises, universities, research institutions and government).

Alcohol Production in Brazil

Graphic 1

SOURCE: DAA/SPC/MAPA (Values on 09/01/04)

New varieties of sugarcane – richer in saccharose, more resistant to diseases - , soil adaptability, research for reducing production costs, improvement of the milling, fermenting and distillation processes have increased the efficiency of the sector and, at the same time, the  introduction of an advanced system of alternative use of sub-products and products of the productive process has contributed to important potential gains.

-      "Vinhoto" and  "vinhaça" (wastes from the alcohol distillation process) are used as fertilizers. There are other products from residues: dextran, xantan, sorbitol, glycerol, refined filter tart wax, anti-fungicides, etc.;

-     Use of hydrolyzed sugarcane bagasse for animal feeding, fabrication of several types of papers, drugs and products such as furfural , with high reactivity, for the synthesis of organic compounds, with large application in the chemical and pharmaceutical industries. 

-      Production of biodegradable plastic using sugarcane    bagasse; and

-     Co-generation of energy from sugarcane bagasse (biomass electric energy), guaranteeing the energy consumed by the plant itself together with marketable surplus.

All these technological progresses have permitted the plants to have lower costs and to operate with better productivity indexes in the fabrication of sugar and alcohol.

So, the technology of sugarcane production and use is now completely controlled by the Brazilian industry and is supported by standards, regulations, specifications, engineering and know-how available to the countries interested in using this renewable and clean alternative energy. Several projects relative to consolidation, improvement and creation of new uses are being carried out by research institutes, universities and enterprises.

To the productivity efficiency should be added the social-economical and environmental benefits. The sector is responsible for creating a large number of jobs: more than 700.000 with modest investment (US$ 20,000/each); and due to its multiplying effects, it is responsible as well for the economical dynamics of several regions of some Brazilian states.

The energy balance of the sector is also extremely favorable: each energy unit used for producing alcohol yields 9 to 11-fold its value.

The CO2 balance is even better: when all CO2 emissions caused by the equipment and machines used in sugarcane and alcohol production together with emissions from the input used to produce both and the emissions from sugarcane burning or from NO3 are technically measured and subtracted from the CO2 abatement due to gasoline (by ethanol) and fuel oil (by bagasse) substitutions, the final result of the “sugarcane system” is a net 20% abatement of all the CO2 emissions of the petroleum and its product in Brazil.


2) alcohol as an  INTERNATIONAL commodity

The world environmental requirements and the circumstances of the world oil market have led some countries with conditions and tradition of producing alcohol to use ethanol as a renewable fuel source, mirroring themselves in the well succeeded Brazilian experience in the production and use of this fuel.

Alcohol is a fuel with adequate characteristics for fueling internal combustion engines that function according to the Otto Cycle. This type of engine starts ignition through a spark (generated in the spark plug).  Besides ethanol, methanol, gasoline and natural gas have the same mentioned characteristics. Among the mentioned liquid fuel, ethanol is the one that better mixes with gasoline.

On the other hand, the fabrication of vehicles using newer technologies requires gasoline with a larger quantity of oxygenated compounds in order to fulfill the vehicle emissions standards. The satisfaction of these requirements can be attained by large and expensive modifications in the gasoline refining process or by the addition of oxygenated substances and AHEC is acknowledged as the best option 

The ethanol properties (as fuel) have led to the development of alcohol engines and alcohol/gasoline mixture engines in Brazil. Until 1988 these engines have been developed by the automobile industry (GM, Ford, Volkswagen, Fiat) for fuel systems. Presently, they are available to all engines with electronic injection systems.

                The main properties of gasoline and alcohol are presented in Table 1.

Table 1: Properties and characteristics of fuels





Specific heat (kJ/kg)



Octane number (RON/MON)*



Vaporization latent heat  (kJ/kg)

376 ~ 502


Ignition temperature (ºC)



Stoichiometric air/fuel ratio



RON - research octane number      MON - motor octane number

Source: Goldemberg, J. e Macedo, I,1994 - "The Brazilian Alcohol Program - An Overview", Energy for Sustainable Development, Vol. 1, no 1, pp. 17-22

The introduction of the gasoline/alcohol mixture in Brazil  had an immediate positive impact on the air quality in large cities, particularly São Paulo. Initially, additives (like lead) were reduced along with the increase of alcohol in the gasoline and they were completely eliminated in 1991. The aromatic hydrocarbons (such as benzene) present in the gasoline and that are particularly toxic were eliminated and the sulfur content in gasoline was reduced.

In cars fueled solely by pure ethanol, the sulfur emission was eliminated and it had a double dividend. Without these actions, cars equipped with catalysts would have difficulties. Due to the high level of sulfur in the Brazilian gasoline, the catalysts would be rapidly contaminated. As a consequence, the use of ethanol made possible, in an indirect form , the introduction of catalysts in Brazil.

Besides that, the emissions of carbon monoxide were drastically reduced: before 1980, when gasoline was the only fuel in use, CO2 emissions were higher than 50 g/km – they were reduced to 0,07 g/km in 2000 (Table 2)


Table 2: Emissions from light vehicles in Brazil




(grams per kilometer)





Before 1980







Gasoline and ethanol mixture











Gasoline and ethanol mixture











Gasoline and ethanol mixture











Gasoline and ethanol mixture











(*)Weighted averages of each year-model by the production volume

Therefore, much further than the discussions about the finitude of oil, the policy of the producing countries and the corporative interests of petroleum industry power in the world, the use of alcohol has been considered as a decisive factor for redefining the energy matrix in the ambit of the economical perspective of renewable fuels and clean environment.

The growing importance of ethanol in the fuels production structure and in consumption emerges in the international scenery because the environmental effects due to the fossil hydrocarbon combustion has given origin to a series of negative externalities that are threatening the environment due to the planet warming caused by this combustion.

There is a mobilization to consolidate alcohol as the first alternative for a clean renewable fuel. This proposition is under discussion in several countries and some of them are interested and have experience in using alcohol in mixtures.

For its international use, it is necessary not only to produce it – and to have its specification is fundamental – but also to have the corresponding market mechanisms. That is, it is necessary to have mechanisms that ensure the prices stability and that guarantee the supply. Brazil is the first country among the producing ones to have a stock exchange for ethanol futures contracts which is the essential condition for a price reference as for other commodities[1], such as oil, gasoline, sugar, etc.

The alcohol fuel futures contracts made their debut in great style at the Nybot (New York Board of Trade), on May 7, 2004. A group of Brazilian producers participated in the event and alcohol has now a daily quotation. Business in that stock exchange is for denatured anhydrous alcohol.

Table 3 below presents the international gasoline consumption. The addition of only 10% of anhydrous alcohol as oxygenated compound would lead to an annual consumption of 2.2 million b/day or 131 billion liters/year in a period of 10 years (Brazil and USA together consume today 20 billion liters/year).

Table 3: Gasoline consumption in thousand barrels/day in the world















Middle East







South and Central America







Asia with Japan and China














North America







World less ex-URSS







Source: BP statistical review of world energy , June 2004



3.1  Consolidation of fuel alcohol in the internal market

The private sector has made massive investments concerning technological updating in sugarcane production processes and in alcohol fabrication, and remarkable efficiency gains have been obtained in the sugarcane and alcohol industry complex by using the energy generated by bagasse burning. There is also a solid business structure concerning capital goods offer for the sector and a continuous improvement and development process of new machines and equipment.

It should be also pointed out a trend towards the competitive restructuring of plants by fusion, acquisitions and joint ventures with foreign and national groups aiming at strengthening and consolidating a modern  entrepreneurial structure.

Complementing the effort of the private sector, the government has been actuating in three fronts that it considers as priority: the consolidation and amplification of the potential ethanol consumption, starting the sustained and comprehensive amplification of the international market, summarized in measures for increasing the internal consumption and guaranteeing supply, international cooperation and identification of opportunities.

a) establishment of administrative or legal measures, preferably concerning the acquisition of alcohol-fueled vehicles by different  governmental institutions and by other special consumers such to taxis. These measures are known as stimulation of  the “Green Fleet” increase; 

b) Law 10,438 of April 26, 2002 that established the Program of Incentive to Alternative Sources for Electric Energy (Proinfra), guaranteeing that concessionaries will buy electric energy from co-generation using sugarcane bagasse;

c) Law 4,353 of August 30, 2002 that establishes measures that strengthen the process regarding the storage and acquisition of fuel alcohol regulating stocks and the mechanisms for financing the sugarcane agriculture business;

d) classification, for taxes purposes, of vehicles with flexible fuel (hydrated alcohol X gasoline in any proportion) as if they were fueled by hydrated alcohol.


3.2  International cooperation

Concerning the international cooperation and commitments policy, the provisions are confined to diplomatic negotiations and bilateral agreements. Presently the following initiatives are well under way:

a) carbon credit negotiations referring to the reduced CO2 emission certificates that are being commercialized in the international market as a result of the perspectives concerning the ratification and implementation of the Kyoto Protocol. It is expected a possible institutionalization of this practice by means of the “Clean Development Mechanism”  and valorization of these certificates. The use of alcohol as energy source is acknowledged as eligible to be used as carbon credit since the ethyl alcohol production and use cycle is considered “neutral” in terms of CO2 emissions. That is, the CO2 generated in any part of the cycle will have an equivalent quantity absorbed by the sugarcane during its growth. This mechanism was negotiated with the German government when this country bought Emission Reduction Certificates relative to an induced expansion of the Brazilian hydrated  alcohol–fueled car fleet of 100,000 units/year.;

b) discussion at the international level of the Brazilian proposition that up to the year 2010 all countries should have 10% of their energy generation coming from renewable sources such as biomass and solar energy;

c) memorandum of understanding between Brazil and India relative to technological cooperation regarding ethanol mixtures in transport fuels. This cooperation is based on the perspective of technological dissemination  for motivating the Indian agricultural and industrial modernization in the production and use of renewable energies from ethanol, an united effort aiming at the international market opening;

d) cooperation with China for  the use of ethanol as fuel, in terms of production and technological development;

e) negotiations with Cuba for the supply of technology for ethanol production in order to transform that country into a strong partner in the process of building up an international ethanol market.

3.3 Growth potential in the international market

Different countries envisage mixing alcohol to gasoline and to diesel oil, thus creating large perspectives for the expansion of the international market:

a) India and Thailand are studying the alternative of mixing alcohol to gasoline;

b) Australia intends, not as a compulsory measure, to permit the addition of 2% to 10% alcohol to gasoline. It should be pointed out that this country does not produce alcohol for fuel ends yet, in spite of being the second largest producer of sugar.;

c) the ethanol demand in the United States is steadily increasing along with the prohibition in California and other states regarding the methyl tertiary butyl ether (MBTE) according to the Renewable Fuels Association. From January 2003 on, 3 billion liters/year  were consumed in California and another 3 billion in the East Coast totaling 6 billion liters, equivalent to half of the Brazilian production;

d) Japan has approved a law to be regulated that permits to mix alcohol to gasoline and to diesel oil, with the perspective of using ethanol in thermoelectric power plants;

e) China is interested in using anhydrous ethyl alcohol fuel as a substitute of the anti-detonator additive to gasoline. There are indications of  changes in the Chinese alcohol production matrix - presently based on cereal production - to sugarcane, or other less onerous input  than corn, of which it is the third largest producer with 3.1 billion liters of alcohol/year.

                Even though it is impossible to forecast the size and velocity of the international demand growth of fuel alcohol in the near future, it is possible to evaluate, based on relative numbers, the potential expansion of alcohol use that requires continuous re-organization of production and establishment of effective regulation mechanisms. The viable regulation model for Brazil is based on self-management and aims at alcohol supply in a context of internal fleet increase of hydrated alcohol-fueled cars (vehicles 100% fueled with hydrated alcohol or flexible fuel), its use in new generation cars and surpluses for guaranteeing the regular and increasing supply of the external market.


3.4 Development and absorption of new technologies

The main initiatives in the new technologies area are the following:

a) mixing ethanol to diesel oil: MAD8

                mixing 8% of ethanol to diesel oil reduces the particle emissions from passengers and load transport vehicles that circulate in large centers; the experience is being carried out in Paraná by different research institutions and coordinated by the Federal Government;

b) fuel cell with ethanol reformer

the car’s starting system using electric energy generated from the hydrogen obtained from the alcohol in the vehicle itself. Besides reducing emissions almost to zero, this system uses better the fuel with better yield than the internal combustion engines. Research and tests are in an advanced state abroad, with large investments that could be accelerated by the environmental legislation in each country. The Ministry of Industry and Commerce and the Ministry of Science and Technology are controlling research investments  concerning hydrated alcohol fuel. There are negotiations under way with German industries involved in this type of research.

c) flexible engines

the concept of vehicle with flexible engines appeared at the end of the eighties when several countries became interested in using alcohol (ethanol and methanol) as fuel. Since these countries did not have a supply infrastructure sufficient for promoting a alcohol vehicle market, it was decided to develop a vehicle that could operate both with gasoline and alcohol or any mixture of both. Along the nineties this concept had a considerable evolution and was commercially adopted in the United States and Canada, where circulate more than two million vehicles using this system. This concept was brought to Brazil by car spare parts industries  (Bosch, Magnetti Marelli, Delphi and Visdeon) and the launching of the first flexible engines vehicles occurred in March 2003.  In that year 48,178 units were sold and until September 2004, 218,320 units with flexible engines were commercialized. This system offers to the consuming market the power to chose the fuel to be used (alcohol, gasoline and a mixture of both) and the guarantee of supply for at least one of the fuels, in case the preferred one is not available.



The trend is an economical re-ordering that would promote the commitments to search for clean fuel alternatives. In fact, today in all continents researches and technicians are looking for alternative to petroleum products used as fuel for internal combustion engines.

Ethanol has the capacity of reducing gases emissions, mainly in the case of CO2 balance that notably contributes for it. The use of alcohol instead of fossil fuels leads to its natural choice as an important renewable energy.  The consolidation of alcohol as an international environmental commodity is the goal of all those interested in the matter as the Kyoto Protocol is in force, with the Russian ratification.

                The range of these goals depends on two kinds of measures: on one hand it is necessary to make efforts to promote the use and production of ethanol for fuel purposes that will not be hindered by internal barriers to the market liberalization. On the other hand, it is necessary to create conditions of reliability concerning guarantee of international supply of this fuel.

Regarding guarantees, Brazil is adopting efficient regulating mechanisms based on the private self-management. The objective is to prevent the internal shortage due to internal demand increase and support exportable surpluses in volume and prices that are competitive with the future international market demands.


(*) STI/MIC – Secretariat of Industrial Technology of the Ministry of Development, Industry and External Trade.        


[1] In the financial market commodity is used to indicate a type of product, generally an agricultural or mineral product, of large international economic importance because it is widely negotiated between importers and exporters.  There are specific stock exchanges to negotiate commodities. Some examples are : coffee, cotton, soybean, copper, oil etc.


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