Brazil today is home to the world’s largest fleet of cars that use ethanol derived from sugarcane as an alternative fuel to fossil fuel based petroleum. Twenty-seven million cars, 73% of the total, can use a mix of ethanol and gasoline. What is more extraordinary than the scale of the transition to ethanol fuel in Brazil is the speed at which it occurred. In only 6 years from when the Brazilian Government introduced the National Alcohol Programme, “Proálcool”, in 1975, 90% of all new vehicles sold in the country could run on ethanol.

This extraordinary rapid transition involved cooperation between sugarcane farmers, ethanol distillers, national and international automobile manufacturers and environmental groups, spurred to action by radical public policy that was initially a response to the oil price shocks of the 1970s, but was extended and expanded for the environmental benefits of transitioning away from petroleum. The Brazilian government succeeded in establishing a greener, cheaper and more reliable fuel for its vehicles. In 2008, a litre of ethanol in Brazil cost half the price of a litre of gasoline.

Proálcool initially promoted the use of neat-ethanol vehicles, which remained popular so long as oil prices were high and ethanol was comparatively cheap. However, in the decades since the Proálcool programme, fluctuations in both oil and ethanol prices at different points led to a rethink in the government strategy. Consumers turned away from ethanol cars in the 1990s when oil prices were low, which led the government to respond from the early 2000s with the active promotion of “flex-fuel vehicles” (FFVs); cars which are capable of running on both ethanol and gasoline – allowing consumers to switch their fuel choice depending on price and convenience. The FFVs have proven incredibly popular since their introduction in 2004, just five years later they made up 90% of new cars bought in Brazil.

Ethanol derived from sugarcane is a comparatively sustainable fuel, with direct emissions up to 90% lower than those of gasoline or diesel. This rapid transition to the widespread use of a more sustainable fuel option in Brazil has interesting lessons across a number of fronts.

An interesting case for rapid transition

Proálcool was a government led initiative that spurred rapid action across multiple stakeholder groups: national and international auto manufacturers, sugarcane farmers, ethanol distillers and Brazilian consumers. This example provides evidence that government subsidies, when targeted and limited, can support sustainable outcomes. In order to establish a stable market, the Proálcool scheme relied upon a mix of voluntary mandates for car manufacturers, loans for sugarcane growers and ethanol distillers and tax breaks for purchasers of ethanol fuelled vehicles. Crucially, however, subsidies were phased out once they had accomplished their goal.

Another important lesson from this example of rapid transition is that flexibility in the policy for both producers and consumers was vital to its sustainability. The Brazilian government set gradually increasing targets for the percentage of ethanol with gasoline – from 4.5 percent in 1977 to 15 percent in 1980 and 27.5 percent in 2018 – which gave producers and consumers time to adapt. As ethanol production was tied to the sugar industry, producers could respond to fluctuating market prices by switching back and forth temporarily between the sugar and ethanol. Having the back-up of sugar production made the risks associated with producing ethanol short-lived and reversible. Flexibility for consumers was also key to the success of the transition. In the 1990s, falling oil prices resulted in consumers favouring gasoline run cars. From 2004, the promotion of flex-fuel vehicles that could run on both ethanol and gasoline provided consumers with the option to switch between the fuels. This innovation boosted the market once again, in the 5 years since FFVs were introduced, FFVs skyrocketed to 90% of the market share.

The transition to an ethanol-based car industry in Brazil also provides evidence of the possibility of just transitions that support economic development and job creation. The ethanol fuel industry in Brazil has favoured large-scale producers to the exclusion of smaller-scale family farmers, however a litre of Brazilian ethanol still produces more than 30 times as many jobs as an equivalent litre of oil, coal, or hydroelectricity. In 2009, sugar mills in Brazil employed close to 4 million workers, and further managed 600 schools, 200 day-care centres, and 300 hospitals. Although the work is strenuous, workers in sugar plantations and ethanol distilleries received wages 80 percent higher than the agricultural-sector average.

On the environmental side, the risk of indirect emissions of sugar-cane production from land-use have to date been tempered by a decree that banned the production of sugarcane in the Amazon biome. However, proposed legislation put forward by the Brazilian government in March 2018 threatens to remove these restrictions, which has been met with outrage from environmental groups and puts in serious jeopardy the environmental sustainability of this rapid transition.

Context

The Proálcool programme was initially established as a response to a double crisis for the Brazilian economy in the 1970s – the oil price shock and the international sugar market crash. The increase in oil prices and its impact on trade was the main incentive for the Brazilian government – guaranteeing energy security was the priority and creating new economic opportunities for the sugarcane industry in Brazil was an additional benefit of the programme. The Brazilian government sought to reduce the country’s reliance on oil imports and boost a national ethanol industry, resulting in substantial macro-economic savings. Before the Proálcool programme, Brazil was dependent on imports for 80% of its oil supply. By 2009, more than 60% of its motor fuel demand was met with ethanol.

From the start of the Proálcool programme through the 1970s and 80s, the environmental benefits from the reduction of carbon emissions was a secondary consideration for policy makers. The sharp fall in oil prices in the 1990s led to the near-collapse of the ethanol market in Brazil, as consumers reverted to buying gasoline fuelled cars. From the early 2000s, the rising price of oil and increasing visibility of environmental issues put ethanol back on the political and economic agenda, as it was reframed and promoted as a “green” fuel alternative through promotion of flex-fuel vehicles.

Enabling factors

The Proálcool programme evolved under both democratic and authoritarian governments in Brazil, reflecting the nation’s recent history. It was initially introduced in 1975 in the context of the Brazilian military regime, and the transition to democracy in 1985 saw the newly elected government scale back the programme. Looking further back, many of the plantations that provided the sugarcane were themselves the result of a colonial agricultural legacy. Reductions in subsidies coupled with low oil prices from the late 1980s led to a drop in sales of ethanol cars to just 11%. However, policy decisions by subsequent democratically elected governments has supported a boost in cars with ethanol fuel capability – which suggests that the political context at the launch of the programme was not the critical factor in its long-running success.

Technological innovations from the car and sugarcane industries were supported through government subsidies. The government used a voluntary mandate to encourage Brazilian automobile manufacturers to design vehicles to run on 100 percent ethanol. This agreement with all of Brazil’s major domestic manufacturers resulted in the production of 250,000 ethanol-only vehicles by 1980 and 350,000 by 1982. Partnerships were later made with international automobile companies such as Ford, Fiat, and Volkswagen. The government also used soft loans to support the sugarcane industry to rapidly increase the production of sugarcane and build the technological capability to distil ethanol. During this first phase of the Proálcool program, ethanol production increased from 220 million litres (58.1 million gallons) in 1975 to 2.8 billion litres (739.7 million gallons) in 1979.

In terms of economic factors, the Brazilian government was able to maintain favourable prices for ethanol by inflating gasoline prices using its state-owned oil company, Petrobras. The pump price of ethanol was set at 64.5 percent of the price of gasoline and the government introduced higher gasoline taxes to pay for the true differences in price between the two fuels.

Finally, physical environmental factors – such as the relative abundance of land in Brazil – has been critical to the rapid development of the ethanol market in the country, and a potential limiting factor for its transferability to other contexts.

Scope and evidence

  • Before the Proálcool programme was introduced in 1975, Brazil was dependent on imports for 80% of its oil supply. By 2009, more than 60% of its motor fuel demand was met with ethanol.
  • From 1975-2000, the entire ethanol program cost the government about 30 billion USD, but 30 billion USD was saved every 2 years at an average oil price of 50 USD per barrel.
  • It took just 6 years of the Proálcool Programme (from 1975 to 1981) for 90% of all new vehicles sold in Brazil to have ethanol fuel capacity
  • The uptake of flex-fuel vehicles was similarly rapid, in one year from when FFVs entered the Brazilian market in 2004, they accounted for 25% of new car sales. 2 million FFVs were sold in the first five years, reaching 90% of all cars sold in 2009.
  • Since the launch of Proálcool, Brazil has become the second largest producer of ethanol after the US. In 2014 Brazil produced 23.4 billion litres, representing 25% of the world’s total ethanol used as fuel.
  • In 2011, ethanol production for Brazil involved 7 million hectares of planted land, more than 72,000 farmers and sugarcane producers, 390 sugarcane mills, 240 distillery plants, 3.5 million direct and indirect jobs, a harvest of 569 million tons of sugarcane, 106 million tons of bagasse (a by-product used to make electricity), 30 million tons of sugar, and revenues of $20 billion.

 

Lessons for a rapid transition

  1. Bold public policy can drive green transformations that support the economy. A mix of targeted support and public subsidies for the sugarcane industry and car manufacturers switched vehicles from fossil fuel use and fostered a whole new industry in Brazil in just a few years – an industry that stimulated the economy and generated 30 times more jobs than the oil industry.
  2. Energy insecurity can stimulate progressive environmental policy. The oil price shock of the 1970s and resulting energy security concerns was the main driver for the Brazilian Government to develop the ethanol fuel car market, with environmental benefits initially a secondary concern for policy makers.
  3. Flexibility can help keep transitions on track. Flexible policy provisions supported the continued growth of the market over the past four decades. Following fluctuations in both the oil and ethanol markets, the introduction in the early 2000s of Flex-Fuel Vehicles that could run on both fuels has boosted sales, as consumers are able to capitalise on, rather than suffer from, the peaks and troughs of international markets.

References

Brown, Marilyn A., and Benjamin K. Sovacool. 2011. Climate Change and Global Energy Security : Technology and Policy Options, MIT Press. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/suss/detail.action?docID=3339679

Doku, A., and S. Di Falco. 2012. “Biofuels in Developing Countries: Are Comparative Advantages Enough?” Energy Policy 44: 101–17

Flexor, Georges and Kato, Karina. 2017. “Biofuels and inclusive development: the Brazilian experience”, Development in Practice, 27:2, 157-167, DOI: 10.1080/09614524.2017.1284763

The Guardian. 2018. “Brazil senate considers lifting ban on sugarcane production in Amazon”.
https://www.theguardian.com/world/2018/mar/26/brazil-senate-considers-lifting-ban-on-sugarcane-production-in-amazon

Financial Times. 2018. “With Brazilian biofuels on the rise, can we keep ethanol green?” https://www.ft.com/content/16ad268e-05ac-11e8-9650-9c0ad2d7c5b5
Renewable Fuels Association (RFA). 2015. “Going Global – 2015 Ethanol Industry Outlook”

Sovacool, Benjamin K. 2016. “How long will it take? Conceptualizing the temporal dynamics of energy transitions” Energy Research & Social Science 13 202–215 http://dx.doi.org/10.1016/j.erss.2015.12.020