1. THE BRAZILIAN EXPERIENCE WITH ETHANOL Ricardo de Gusmão Dornelles Director – Renewable Fuels Department Ministry of Mines and Energy José Nilton de Souza Vieira Deputy Director – Agro-Energy Department Ministry of Agriculture, Livestock and Food Supply Addis Ababa – Ethiopia – July, 2007. International Seminar on Biofuels African Union-Brazil-UNIDO

2. Brazilian Ethanol Experience: Summary 1.Introduction: A Brief Energy Outlook 2.The Brazilian Ethanol Experience 3.Ethanol and the “ Fuel, Food, Feed ” Debate 4.Final Remarks

3. A BRIEF ENERGY OUTLOOK

4. WORLD ENERGY CONSUMPTION Source: BP Statistical Review (June/2006) Energy consumption - Per capita Tonnes oil equivalent (toe)

5. Equator Cancer Tropic Consumo de energia per capita (em toneladas de óleo equivalente) Capricorn Tropic Tropical Area Biofuels The greater consumption per capita is outside the tropics! WORLD ENERGY CONSUMPTION Source: BP Statistical Review (June/2006)

6. WORLD ENERGY CONTEXT  World economy growth  Demand growth  High prices for energy  Refining capacity in the limit  Strong dependency on non-renewable energy sources  Climate change reality  Geopolitical instability and conflict at important energy supplier countries

7. THE CHALLENGE FOR ENERGY POLICY  Long term energy supply security  Cheaper prices for energy sources  Keeping the local energy competitiveness  Dealing with climate change and environmentBIOFUELS

8. Biofuels Energy Policy: Main Objectives To increase biofuels production and consumption To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition To promote a global market for biofuels To protect the environment, regarding food security

9. Main Actions  Solid regulatory framework, considering biofuels in fact as fuels, not only as agriculture goods  Ethanol and Biodiesel Programs  Compatible international specifications and standards and promoting production in other countries  Social and Environmental Certificate To increase biofuels production and consumption To protect the consumer best interests through regulation mechanisms and surveillance from Regulatory Agencies and to promote free competition To promote a global market for biofuels To protect the environment, regarding food security

10. RENEWABLE SOURCES 44.8 % 225.8 MILLION TOE BRAZILIAN ENERGY MIX - 2006 Source: Brazilian Energy Balance (BEN,2007) Ministry of Mines and Energy (MME) RENEWABLE NON-RENEWABLE Brazil 0 20 40 60 80 100 World 14 86 45 55 %

11. CURRENT MATRIX OF VEHICLE FUELS - 2006 54,5% (2005) 2.9% (2005) 8.4% (2005)8.5% (2005) 25.6% (2005) 0% (2005) Gasoline C 27.2 + 7.3 = 34.5% 34.1% (2005) Ethanol (Total) 7.3 + 9.9 = 17.2% 16.9% (2005) VNG 3.2% Diesel 48.9% B2 3.3% 9.9% 7.3% Gasoline A 27.2% Diesel (Total) 48.9 + 3.3 = 52.2% 54.5% (2005) Anhydrous Ethanol Hydrated Ethanol *  * Pure Gasoline – Before blending with ethanol  Diesel blended with 2% of Biodiesel

12. Why ethanol?  It is easy to be produced in large scale;  It has competitive costs, compared to current oil prices;  It can be produced from different raw materials;  It is a way of promoting the economic development in rural areas;  It has promising perspectives in the world market.

13. Why sugar cane?  It allows the highest productivity (liters/hectare);  It has exceptional thermal and environmental balances;  It allows an increase in the competitiveness of the mills (flexibility, higher quality and lower costs of sugar);  It leads to an increase in agricultural yield (industrial residues transformed in fertilizers).

14. Economic Agents of Sugar Cane Industry Sugar and Alcohol Industrial Phase Fuel Distributors Gas Stations Exporters 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 ethanol with motor gasoline  3,42 Billion liters exported in 2006 Source = MAPA – MME – MDIC - 2006 Regulatory Domain: Ministry of Mines and Energy / ANP (National Petroleum Agency)

15. Ethanol in Brazil – Sugar Mills Location - 2007 Source: Ministry of Mines and Energy – Ministry of Agriculture, Livestock and Food Supply - 2007 Production in 2006: 18 billion liters NORTHEAST REGION 79 INDUSTRIAL UNITS:  SUGAR MILLS 8  ETHANOL PLANTS 19  ETHANOL AND SUGAR 52 91% of the ethanol production 9% of the ethanol production Operating Sugarcane Mills Sugarcane Mills under construction  11% (2005) SOUTH-CENTRE REGION 288 INDUSTRIAL UNITS:  SUGAR MILLS 8  ETHANOL PLANTS 59  ETHANOL AND SUGAR 221

16. MAIN QUESTIONS: Soil conservation Soil chemistry Agrochemical inputs Expansion frontiers Harvest practices Labor Agricultural phase...

17. Vinasse  Aerobic treatment  New Technology: development of biodigestion of vinasse  Use of vinasse to yield ferti-irrigation Vinasse production in ethanol plants: 10 ~ 15 liters of vinasse per liter of ethanol

18. Ferti-irrigation Using Vinasse By Conventional Sprinklers or... Source: Centro de Tecnologcia Canavieira - CTC

19. Ferti-irrigation Using Vinasse Source: Centro de Tecnologcia Canavieira - CTC By Canal & Hard Hose or... Trucks & Hard Hose

20. MAIN QUESTIONS: The usage of the water; Indirect usage of the residues; Energy generation using crop residues; New technologies; Carbon market (Kyoto Protocol). The Industrial phase... BAGASSE (SOLID RESIDUE) FILTER RESIDUEVINASSES (LIQUID RESIDUE)

21. Water Uses in Ethanol Plants Estimated mean end use of 21 m 3 /tons of sugar cane (mills having annexed distillery) Source: Centro de Tecnologia Canavieira - CTC

22. Water Consumption in Ethanol Plants  In spite of the high mean end use, volumes of water collection has been decreasing, as a result of rationalizing of water consumption: reuses, circuit closing, reduction of sugar cane washing and other process changes. Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005 Uses (m 3 / tons of sugar cane)199019972005 Collection5,605,071,83

23. Water Consumption in Ethanol Plants TRADITIONAL PROCESS: SUGAR CANE WASHING NEW TECHNOLOGY: DRY CLEANING REDUCES WATER CONSUMPTION

24. Main Goals of Water Use in Ethanol Plants  Collection........................................1,0 m 3 /ton of sugar cane  Mean Consumption........................1,0 m 3 /ton of sugar cane  Effluent released (BOD, COD)....... zero Source: Elia Neto, A. Captação e uso de água no processamento da cana-de-açúcar in: Macedo I.C.et al A Energia da Cana-de-Açúcar UNICA, SP, 2005 STRATEGIES: Rational use (non treated water and water used in process) Reuse of treated effluents and water used in process Self-monitoring of quality and quantity of water collected, used and released Prevent controls of pollution

25. Energy Cogeneration Using Bagasse CANE BAGASSE + HIGH EFFICIENCY BOILER + TURBO GENERATOR ENERGY: AUTO SUFFICENCY AND EXCEDENTS TO EXPORT

26. Amazon Forest Pantanal Atlantic Forest of Brazil Sugarcane Crops CANASAT Project Source: IBGE (Preservation Areas) and CTC (Sugarcane Crops) Center-South Region Crops Location – 2005/2006 A Region that grows sugarcane crops for more than 30 years More than 1,300 miles far from the Amazon Forest boundaries

27. Potential areas for sugar cane in Brazil Million hectares% HIGH82 MEDIUM11432 LOW14941 IMPROPER9125 TOTAL362100 AREA POTENTIAL Production potential without irrigation Million hectares% HIGH3811 MEDIUM9827 LOW16846 IMPROPER5816 TOTAL362100 POTENTIAL AREA Production potential with irrigation Without irrigation systemsWith irrigation systems Source: MCT - CGEE - Unicamp / initial results

28. Source: Ministry of Mines and Energy - Brazilian Energy Balance – 2006 and Laura Tetti – USP – 2002 Ethanol in Brazil: Oil economy and environmental benefits FUEL DEMAND FOR LIGHT VEHICLES IN BRAZIL 0 20 40 60 80 100 120 140 160 180 1970197419781982198619901994199820022006 YEAR 10 6 BEP This curve shows how much gasoline would be necessary to satisfy the fuel demand for light vehicles. Total economy of 813 millions boe or 16 months of the present Brazilian petroleum production. TOTAL DEMAND FOR LIGHT VEHICLES (GNV INCLUDED) GASOLINE PRODUCTION GASOLINE CONSUMPTION TOTAL DEMAND FOR LIGHT VEHICLES (WITHOUT GNV) Accumulated economy of 8 years of pure gasoline national consumption. + US$ 61 billions IN THIS PERIOD, WITH THE ETHANOL USAGE, THE EMISSION OF 675 MILLION TONNES OF CO 2 WAS AVOIDED

29. The only remaining incentive nowadays Incentives established by the Pro-Alcohol in 1975  Alcohol price lower than gasoline price  Guaranteed remuneration to the producer  Tax reduction for hydrous alcohol cars  Loans for alcohol producers to increase their capacity  Gas stations were obligated to sell alcohol  Maintenance of strategical alcohol stocks

30. 9 multinational automotive manufacturers settled in Brazil are producing nearly 100 different models of Total FFV 2006: Total FFV – a Brazilian reality Source: Ministry of Development, Industry and Foreign Trade; Brazilian Association of Automotive Vehicle Manufacturers - 2007  Any mixture of gasoline and ethanol can be used, from 0 to 100%;  In 2006: The domestic flex-fuel vehicle sales represented 78% of all 1,824,266 light vehicles sold in the same period (imports included);  Total domestic flex-fuel vehicle sales (2003-2006): 2.67 million units )

31. FINAL REMARKS

32. ENERGY PRODUCTION X FOOD PRODUCTION GLOBAL CHALLENGEAND

33. BRAZIL CHALLENGE AREA (EXTENSION) PERCENTAGE BRAZIL (TOTAL) 851100% ARABLE AREA 38345% PASTURES 210 25% (55% of arable area) AVAILABLE FOR EXPANSION 91 11% (24% of arable area) SUGARCANE AREA FOR ETHANOL 3 0,35% (0,8% of arable area) OILSEED CROPS FOR B2 and B5 1,7 to 4,0 0,2 a 0,47% (0,4% to 1% of arable area) In millions of hectares Energy and Food Production

34. EVOLUTION OF ETHANOL PRODUCTIVITY

35. 1 ton of sugarcane = 80 liters of alcohol 1 hectare of sugarcane = 6 m 3 of alcohol Sugarcane: Cropped and Preserved Areas due to Technological Improvements Source: CIMA productivity cropped area preserved area Productivity (tons/hectares) Area ( thousand hectares)

36. Some basic statements:  Energy supply is a great challenge to all the Developing Countries and reducing the oil dependence is a need for most of them;  Biofuels can be important to address this problem and it can contribute to reduce food security problems;  Brazil is the lowest cost producer of sugar and ethanol from sugar cane, but we can observe high sugar cane yields in several other countries;  Other countries, which are able to grow sugar cane competitively, could also become low cost producers of sugar and ethanol;  It is possible to combine agricultural aptitude with high technology and management in other countries, besides Brazil.

37. How to start a program of ethanol production?  Identifying potential areas (available raw material);  Considering technical and economic questions;  Developing a local basic equipments industry (or having appropriate technical support);  Finding the technologies more appropriated to each case (specially in terms of scale);  Investing in the best projects;

38. CONCLUSION  Ethanol can be an excellent business for tropical countries, especially for the traditional sugar cane producers;  Producing and blending ethanol with gasoline are simple tasks, if all the process is carefully planned;  Brazil learned with its own mistakes. Other countries don’t have to do the same;  Brazil is interested in sharing its experience because it needs the help of other suppliers to organize the international market.

39.  Information on sugar cane breeding and varieties development: CTC, IAC and RIDESA;  Technical support for sugar cane production: ORPLANA, CANAOESTE and other consultants.  Technical packages for industrial production: APEX and FIESP;  Financing of equipment by Brazilian exporters by: BNDES – Brazilian development bank (Libor + 2%, 12-year loan). How can we help? CONCLUSION

40.  Biofuels do contribute to:  Energy security;  Improvement of environment conditions in urban areas;  Creation of jobs and income in rural areas;  Economic development.  However, in order to achieve this reality, it is required:  Governmental decision with adequate public policies  Global efforts towards creation of biofuels international market Governmental policies do exert strong influence on climate for investment because they can produce immediate impacts over costs, risks and barriers to competition.

41. THANK YOU!