Value Generation

Biofuels: The 35 Years Experience of Brazil

Prof. Dr. Marcos Fava NevesSchool of Business – University of Sao Paulo – Brazil

Markestrat Research Center

Biofuels Debate – IAMA Forum 2009 – BUDAPEST - HUNGARY

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1979 starts the sale of the 100% ethanol cars

Brazilian Experience: 1979

Fonte: MME, 2005

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Addressing Questions1 – Will the world need energy?2 – The Basics of sugar cane and the Company

Network3 – Is it efficient?4 – Is it consumer driven?5 – Where will the market be? 6 – Does it contribute to the environment?7 – Is it destroying the Amazon? Where will it

grow?8 – What is the strategic agenda?

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Important Question

1 – Will the world need energy?

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Elaboração: GV Agro Fonte: BPStatistical Review of World Energy 7

per capitaper capita consumption of energy 2006consumption of energy 2006

TrTróópico de Câncerpico de Câncer

TrTróópico de Capricpico de Capricóórniornio

EquadorEquador

Em toneladas de Em toneladas de óóleo equivalenteleo equivalente

Região Tropical: favorável à produção de cana

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Fonte: The Economist, 16 – 22/09/2006

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9Oil is not only gasoline and diesel

Fonte: Caio Carvalho – Polo Nacional de Biocombustíveis

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Important Question

2 - What are the basics?

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Source: Prof. Marcos Fava Neves

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Source: UNICA

Energy equivalent of 1 tonne of sugarcane = 1.2 oil barrel

BREAKDOWN OF SUGARCANE’S ENERGY

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CIA. ENERGÉTICA SANTA ELISA CIA AÇUCAREIRA VALE DO ROSÁRIO

USINA DE AÇÚCAR E ÁLCOOL MB LTDA USINA MOEMA AÇÚCAR E ÁLCOOL LTDA

400 industrial units in the country

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Source: Prof. Marcos Fava Neves

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The Complex Sugar Cane Energy NetworkInsumos Produção Indústria

Defensivos

Fertilizantes

MáquinasImplementos

Peças

Serviços

Outros

Arrendamento

Parceria

Fornecedores

UsinaFoco

InsumosIndústria

Outras UsinasConcorrentes

Outras EmpresasNão Concorrentes

Produtos + Serviços$ + Informação

Álcool

Açúcar

Bagaço

Outros

Distribuidoras

Indústrias

Traders

Postos

****CONSUMI DOR

F INAL****

Empresas Diversas

Traders

Ind. Alimentos

Ind. Químicas

Ind. Empacotadora

Mercado Global

Mercado Global

Empresas Diversas

Empresas Diversas

Atacado/Varejo

Consumo próprio

Co-geração Energia Distribuidoras

Ind. Fertilizantes

Levedura – Ração Pecuária...

Outros

Agricultura...

Distribuição

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Important Question

3 - Is it efficient in supplying energy?

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Efficiency of Biofuels Feedstocks

Note: Figures represent the amount of energy contained in the listed fuel per unit of fossil fuel input.

Source: Various, compiled by World Watch Institute. IEA – International Energy Agency (2005) and MTEC .

ETHANOL BIODIESEL

Fossil Energy Balances (estimates) Ethanol Yields (liters per hectare)

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1,7

67,8

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70 75 80 85 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08*

milh

ões

de h

a

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100

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milh

ões

de t

onel

adas

Área Preserved **

Área Planted (million ha)

Production (million ton)

6,6 million ha preserved

Sugar Cane Productivity Evolution

Fonte: IBGE (Censo Agropecuário: 1970-1975-1980-1985; PAM (1990 até 2006); e LSPA (2007 e 2008) Elaboração: GV Agro Nota: * Estimativa **Área calculada a partir da produtividade média de 1970

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Important Question

4 - What was our major technological breakthrough?

We gave the power to the consumer!

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Sources: ANP, ANFAVEA & UNICA

Demand is Driven by Consumer Choice

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Gasoline is Now the Alternative Fuel!

Sources:ANP, UNICA

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Recent Numbers on Ethanol

2 million new flex fuel cars entering on the market in 2009…

April retail costs:Gallon of gasoline: US$ 4.0/gallonGallon of ethanol (E100): US$ 1.9/gallonEthanol production cost: US$ 0.98/gallonPrices of ethanol/gasoline: 50-65%Economic benefit till 70-75%Environment and employment benefit?

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Important Question

5 - Where will the market of ethanol be?

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NEW USES FOR ETHANOL IN THE FUTURE

Source:UNICA

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Biofuels Mandatory Blending Targets

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Important Question

6 - Does it contribute to the environment?

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Mata Ciliar• 30 ou 50 metros• Carreador de 6 metros (sem vegetação)• Aceiro de 3 metros (corta cana crua ou inclina a cana no sentido do canavial)

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Represa/lagoaEspelho d’água

Área de nascente/várzea

Mata ciliarRecém plantada

Remanescente florestal

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The “Green Protocol” in São Paulo State

Note: the highlighted dots in the graphic lines show the specific years cited by the Law or in the Protocol. Prepared by: UNICA.

Elimination of the of sugarcane straw burning State of São Paulo – mechanized areas

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2010 2011 2014 2016 2021

Law 11.241/02

Agro-EnvironmentalProtocol

Per

cep

tual

of h

arve

sted

sug

ar c

ane

with

out

bu

rnin

g p

ract

ice

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ABRIGO/REFEITABRIGO/REFEITÓÓRIO/SANITRIO/SANITÁÁRIO: FR. CARREGAMENTORIO: FR. CARREGAMENTO

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General Motors S 10

Emissão de gases (viagem de 100km percorrida pelo mesmo veículo)

Modelo S 10 cabine

simples S 10 cabine

simples S 10 cabine

simples

Motor 2.8 turbo 2,4 flexpower 2,4 flexpower

Combustível Diesel Gasolina pura Álcool

Rendimento 13,5 km/litro 10,4 km/litro 7,2 km/litro

Potência máxima 140cv 141cv 147cv

Emissão de GEE* (Kg CO2) 29,69 35,1 9,44

Quantidade de litros gastos 7,41 9,62 13,89

Elaborado por: MarkestratFonte: Embrapa *Gases de efeito estufa

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Important Question

7 - Is it destroying the Amazon?

And where will it grow?

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Sources: NIPE-Unicamp, IBGE and CTC

Sugarcane producing regions in Brazil

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Fonte: UNICAMP

Excluídas a Região Amazônica, Pantanal e declividades

superiores a 12%

Soil and climate possibilities for sugar caneSoil and climate possibilities for sugar cane

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Still a lot of Land to be Used in a Sustainable Way

15549

35178

2494190

12602100

840

Million Acres and

247 million acres to be developed for agriculture

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Land Use in Brazil 

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EXPANSION OF PRODUCTION IN SÃO PAULO

Moagem 2009

Moagem 2005

Moagem 2006

Moagem 2007

Moagem 2008

Fonte: UNICA

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RESULT ANALYSIS (Sugar Cane)

Figure 2: Production, Productivity and total area of Brazilian sugar cane from 1975 to 2006. Source: Prepared by the authors based on UDOP.

0,00

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Áre

a / P

rodu

tivid

ade

Prod

ução

Produção (milhões t) Produtividade (t/ha) Área Colhida (milhões ha)Production (x 1,000,000 t) Productivity ( t/ha) Area ( x 1,000,000 ha)

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RESULT ANALYSIS (Corn - SP)

Figure 3: Production and Productivity of corn in the state of São Paulo between 1976 and 2008*.Source: Prepared by the authors based on data from (CONAB, 2008).* Estimate.

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500

1.000

1.500

2.000

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5.000

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(2) P

revi

são -

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1.000,0

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Produção (mil ton.) Área (mil ha) Produtividade (kg/ha)Production (x 1,000 t) Area (x 1,000 ha) Productivity (kg/ha)

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Important Question

8 - What is the strategic agenda?

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My Views of US Ethanol: Win Win Strategy

BENEFITS

Environment (contribution to climate and others)

Employment (a lot of jobs generated)

Empowerment (money moving to inlands)

Energy (another source + diversified)

Exports (trade balance)

Economy (distribution of income)

RECENT EVIDENCEMandates of 15-20%Corn ethanol as additive to gasolineFlex Fuel Cars using E85 when oil prices climbSecond generation ethanol being developed for 2015-2020, more blending and more use as E85Possible imports from Brazil to supply blending needs towards coast states (California. Florida and Texas). Makes sense in logistic terms.

Source: Prof. Marcos Fava Neves

NEW ERAEthanol can bring a reconfiguration of the relationships of the USA with Central and South America

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Ethanol Strategic AgendaInternally

• Taxes reduced to 12% (ICMS) in all states.

• From E 20/25%, to E 18/28%. • Flex Fuel Vehicles Incentives.• Directs sales of ethanol from

industry to gas stations. • Motorcycles flex and larger engines

flex (diesel).• joint-ventures to enter on the

market of wholesaling and retailing.• The Concept of Green Gas

Stations.• City buses moved by ethanol.• Petrobras exporting gasoline

blended with ethanol.• Continuous communication plan

Fonte: Prof. Marcos Fava Neves

Externally

• Fight against protectionism •Stimulate overall production (Africa and Asia)• Stimulate and follow mandates of percentages of added ethanol to gasoline • Work on ethanol myths: Amazon, Land shortage, slaves and others.• Certification and global patterns• Image: differentiation of cane ethanol based on superior energy balance and future potential• global adoption of flex-fuel cars and ethanol retailing system• Joint-ventures with oil companies (BP, Petrobras e Shell).

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Thank you!