1. BRAZILIAN EXPERIENCE WITH BIOFUELS Ricardo de Gusmão Dornelles Director of the Renewable Fuels Department Ministry of Mines and Energy

2. RENEWABLE SOURCES 45.8 % 238.3 MILLION TOE TOTAL BRAZILIAN ENERGY MATRIX - 2007 Source: Resenha Energética Brasileira – Resultados Preliminares de 2007 (Março/2008) Ministry of Mines and Energy (MME)

3. CURRENT MATRIX OF VEHICLE FUELS - 2007 Gasoline C : Gasoline + Anhydrous Ethanol 23,3 + 8,2 = 31,5% Ethanol (Total) 8,2 + 13,7 = 21,9% Diesel (Total) 50,9 + 0,5 = 51.4%

4. Brazilian Energy Policy Law nº 9.478/1997 Objectives established by Law:  To increase the share of biofuels in the national energy matrix;  To protect the environment;  To promote energy security ;  To protect the consumer best interests through regulation mechanisms and surveillance at the Regulatory Agencies;  To promote free competition.

5. Institutional Roles in Biofuels Promotion 1.NATIONAL COUNCIL OF ENERGY POLICY – CNPE: a)COUNCIL TO ADVISOR THE PRESIDENT AND DRAW GUIDELINES FOR ENERGY POLICY b)ESTABLISHED BY LAW nº 9.478/1997 SPECIALIZED COMMITTEES: 2. INTERMINISTERIAL COUNCIL FOR SUGAR AND ETHANOL – CIMA: a)CREATED BY A PRESIDENTIAL DECREE TO DISCUSS POLICIES RELATED TO SUGARCANE INDUSTRY CONSIDERING THE PROPER SHARE OF SUGARCANE PRODUCTS IN THE BRAZILIAN ENERGY MATRIX. 3.INTERMINISTERIAL EXECUTIVE COMMITTEE (CEI - BIODIESEL) REGULATION: 4.REGULATORY AGENCY: ANP

6. BIOFUELS AND SUPPLY IN THE NATIONAL FUEL MARKET Resellers Filling Stations (35.362) Transporters and Retailers (590) Airports and Aviation (98) Wholesalers and Lubricant Distributors LPG sellers (75.000) Sources: ANP, Sindicom, BR, Liquigás Diesel Biodiesel Gasoline C Alcohol Kerosene Jet Kerosen Fuel Oil Lubricants LPG Solvents Asphalt Final Consumers Cargo and Passengers Tranportation Companies Aviation Companies Industries Consumers in General Petrochemical Plants (4) Alcohol Plants (378) Refineries (13) Importers Biodiesel Producers (38) Exploration and Production DISTRIBUTORS (160)

7. ETHANOL 1925: First tests using ethanol blends with gasoline 2008: Sustainability and environmental benefits

8. The Deregulation of Fuel Market and the Ethanol Fuel 1993 1995 1999 Liberalization of Hydrated Alcohol prices at the producer with the subsidy reduction (Feb/99) End of subsidies for Hydrated Alcohol (Nov/99) Constitutional Amendment Nº 09: petroleum monopoly made flexible (Nov/05) 2002 Complete Liberalization of Fuel Prices (Jan/02) Free prices in the whole chain of production and commercialization Mandatory blending of ethanol and gasoline introduced by Law 1975 National Alcohol Program (Proalcool) goals: 1.To introduce in the market the mixture gasoline-ethanol 2.To stimulate the development of pure ethanol motors Two types of ethanol used, produced and tested in Brazil: anhydrous hydrated Mixed with pure gasoline (20 to 25%) Directly used in Otto-cycle motors (100%) 1979

9. Economic Agents of Sugar Cane Industry Sugar and Alcohol Industrial Phase Fuel Distributors Gas Stations Exports Sugar Cane Agriculture Phase Regulatory Domain: Ministry of Agriculture  1,000,000 jobs in the countryside  367 Industrial Plants  92% of total gas stations in Brazil have an ethanol pump.  Free Prices Market  160 Operating Distributors  Only distributors may blend anhydrous ethanol with motor gasoline  3.53 Billion liters exported in 2007 Source = MAPA – MME – MDIC - 2006 Regulatory Domain: Ministry of Mines and Energy ANP (National Petroleum, Natural Gas and Biofuels Agency)

10. Ethanol Production Evolution Plants in Operation (398) Plants under Construction (80) 2007 Production: 22,5 billion liters Exports: 3,53 billion liters 6,7 million hectares (sugarcane) Sugarcane Production and Productivity Evolution in Brazil Production Productivity North-Northeast Region: 9% of Production Center-South Region: 91% of Production

11. Ethanol Demand Projection (*) PDE 2017: Decennial Expansion Plan for Energy 2008-2017

12. 30%33% Biofuels in Matrix: Toe – tons of oil equivalent OTHER RENEWABLES (H-BIO & BIODIESEL) SUGARCANE PRODUCTS COAL AND FIREWOODS HYDRO COAL NATURAL GAS OIL 557 million toe (46,6% renovável) 219 million toe (44,5% renewable) BRAZILIAN ENERGY MATRIX – PNE 2030

13. 10 multinational automotive manufacturers settled in Brazil are producing nearly 100 different models of Total FFV Total FFV – a Brazilian reality Source: Ministry of Development, Industry and Foreign Trade; Brazilian Association of Automotive Vehicle Manufacturers - 2008  Any mixture of gasoline and ethanol can be used, from 0 to 100%;  In 2007: The domestic flex-fuel vehicle sales represented 85.6% of all 2,341,032 registered light vehicles in the same period (imports included);  Total domestic registered flex-fuel vehicle (2003-Jun/2008): 6.00 million units

14. Ethanol in Brazil: Oil economy and environmental benefits Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2007 and Macedo – 2006 This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles. Total economy of 854 millions boe or 15 months of the present Brazilian petroleum production. IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 800 MILLION TONNES OF CO 2 WAS AVOIDED Accumulated economy of 8 years of pure gasoline national consumption. + US$ 60 billions TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED) GASOLINE PRODUCTION GASOLINE CONSUMPTION TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV)

15. BIODIESEL Brazil : Raw material diversity for production of Biodiesel Castor Beans, Sunflower, Soy, Palm Oil, Cotton

16. Biodiesel versus Ethanol: Different Reasons  Ethanol (1975): basically economics.  Reasons for biodiesel (today):  Economic: high crude oil prices again, but Brazilian dependence is now very low  Social: needs for jobs and permanent settlement of fathousandies in countryside  Environmental: to introduce another renewable and friendly fuel 1975: Pro-Alcohol is launched Crude Oil Prices 2003: Biodiesel Program

17. Law 11,097/2005: Establishes minimum percentages to mix biodiesel to diesel, besides the monitoring on the introduction of this new fuel into the market. Biodiesel: Regulatory Framework 2005 to 2007 Authorized Potential Market: 840 million Liters/year 2% 2008 to 2012 Mandatory Sound Market: 1 billion Liters/year 2% From 2013 on Mandatory Sound Market: 2.4 billion Liters/year 5% 3% from july(2008) on

18. SOCIAL FUEL CERTIFICATE: How it works? If the biodiesel producer wants to have the Social Fuel Certificate, it must: 1) Buy regularly a minimum amount of raw material that comes from the household agriculture (small farmers, according to previously defined criteria); and … 2) Provide the appropriate technical assistance: certificated seeds, rural technicians, best practices etc.; and … 3) Sign a contract with each small farmers in terms that must be regarded as proper by a rural workers’ union.

19. Biodiesel: Production and Installed Capacity Source: MME (*) Biodiesel Production Total Installed Capacity Installed Capacity with Social Fuel Certificate

20. FINAL REMARKS

21. Biofuels: perspectives in the near future...  World growing fuel demand  More rigorous environmental concerns  Increase in international trade  Improvement on productivity and on energy balance of biofuels:  Biodiesel : new oilseeds (6.000 L/ha) versus traditional crops (600 L/ha)  Ethanol: new production methods - cellulose hydrolysis) The achieve of this technology will bring: Energy Security AND Food Security, not versus!

22. Commodity - it requires a common product negotiated in an international environment Biofuels = Commodity ?  Patterns in a context of international trade Compatible Specifications  Possibility of delivery on due dates settled between buyers and sellers Negotiation with traders  Possibility of storage or sale in standard units of trade litter, barrel, m 3...  Many producers and many consumers Market to be established

23. THANK YOU!