1. Low Carbon Innovation Systems in a Natural Resources Rich Developing Country: The case of Brazil André Furtado Department of Science and Technology Policy Institute of Geosciences University of Campinas - UNICAMP Globelics Seminar: Learning, Innovation and Low Carbon Development Copenhagen, April 4-5, 2013

2. Outline 1.Introduction 2.Biomass in the Brazilian Economy 3.Brazilian Sugarcane Innovation System 4.Problems with the Brazilian Sectoral Innovation System 5.Why the Brazilian sugarcane production is lagging 6.Final Comments

3. Introduction Transition to low carbon economics means in part transition to renewables sources of energy Developing countries are expanding their energy consumption based on fossil fuels Renewables sources of energy are part of the solution to these countries Few developing countries have presence in renewables: – China and India (photovoltaic and wind); – Brazil (modern biomass) Question: what are the conditions of a natural resource rich developing country to become a world leader in biomass?

4. Biomass in the Brazilian Economy Brazil has a very dynamic biomass productive system: 2000/2001 2012/2013 – Grains : 100 MT 186 MT – Sugarcane: 254 MT 580MT 2000 2010 – Cellulose Pulp: 7.4 MT 14.1 MT Brazil Energy Matrix has 44% of renewables – 28% Biomass – 20% Modern Biomass – 4.6% domestic electricity from biomass Brazil has very favorable conditions to expand its commercial biomass without harming natural ecosystems

5. Brazilian Sugarcane Innovation System Dynamic trajectory starts with the shift of sugarcane from Northeast to São Paulo In São Paulo, sugarcane was surrounded by capital goods industry and research institutions (IAC and Esalq) Federal Government regulated the sector since the 30’s  creation of IAA In the 60’s IAA created Planalsucar for the modernization of the agro-industry In 1975 Proalcohol program was created  promotion of the supply and demand of ethanol

6. Crisis of Alcohol Program The system suffered several shocks: Middle of the 80’s – Decline of the oil prices – Decrease of government funded investments Beginning of 90s – Closure of IAA and Planalsucar – Lack of ethanol supply  collapse of pure ethanol cars demand

7. Reaction of the Sugarcane Innovation System Research Level – Planalsucar was assumed by Ridesa (University Network) with private funds – CTC (private organization) assumed the leadership of research – IAC started Procana program for genetic improvement Sugarcane production directed to sugar Anhydrous ethanol mixed with gasoline (E25) expanded during the 90s When in 2000 the oil prices raised again, sugarcane agro industry was prepared to respond to the new demand expansion In 2003, car industry introduced flex fuel cars solving the demand problem of pure ethanol

8. New Challenges to the Brazilian Sugarcane Innovation System Transition from the 1 st Generation to 2 nd Generation Biofuels: – Competition with food production of 1 st Generation Introduction of genetic engineering in the genetic improvement: – Need to shorten the new variety time development (around 12 years)

9. Government Policies to Face the Technological Discontinuity Federal Government created CTBE (Center of Bioethanol Technologies), a research oriented center for the development of new technologies Federal Government created new funding instruments for innovation – Finep economic subvention program  non reimbursable funds for firms – BNDES funded new mills expansion (requiring the use of co-generation facilities) – In 2011, PAISS program was launched joining FINEP and BNDES  funding innovation to the industrial level Fapesp (Sao Paulo S&T Agency) created industrial partnerships (Braskem, ETH, Oxiteno, Dedini)

10. Industry Weakness There are of 2 different subsystems innovation: Agriculture Innovation Subsystem  STI mode (Jensen et al. 2007) – Close relation between Genetic improvement programs and academic research – Programs could incorporate new biotech methodologies – Fapesp Sugarcane helped the upgrade of the Brazilian research (creation of Alellix and Canavialli start-ups) However: – With the 2008 crisis Monsanto bought the 2 start-ups – Increasing private logic: CTC forbidden the access of IAC to its own sugarcane genetic bank

11. Industrial Innovation Subsystem Capital Goods industry (new mills and agriculture machines) Subsystem guided by DIU (Doing, Using and Interacting) mode of innovation – Incremental innovations induced by demand – Very little R&D – Poor contacts with Academic research Challenge of the transition from 1 st to 2 nd Generation Biofuels – Dedini: main player abandoned HDR (fast acid hydrolysis) project – Few Brazilian firms received PAISS Program funds (Petrobras and CTC), while numerous multinationals are present (Abengoa, Amyris, Bunge, Dow, Dupont, Mascoma, Novozymes, Solazymes) Increasing foreign capital in the sugar and ethanol mills – Cosan associated with Shell  Raizen – About 40% of the mills have foreign control

12. Why Sugarcane Production is lagging? Crisis in the sector – In 2 last years sugarcane production decreased from 624 MT  585 MT – Ethanol production peaked in 2008 and after decreased Reasons: – Lack of an Appropriate policy: no guarantee of prices and demand since the end of Proalcohol – Competition of ethanol with sugar market – Challenges of the geographic expansion of the sugarcane culture from 4.8 M ha (2000) to 9.1 M ha (2010)  new conditions of soil and climate (Cerrados) – Harvest mechanization is decreasing productivity – Climate Change

13. Final Remarks The transition to a Low Carbon Economy is accelerating the displacement of the technological frontier for the renewable energies Countries like Brazil established their position in a mix of rich resources with incremental learning The Brazilian subsystems are reacting differently: – Agriculture subsystem which follows a STI mode have been more able to catch-up with biotech technologies – Industrial subsystem is loosing space and is not being able to jump in the 2 nd generation biofuels However there is an increasing foreign control: national system is loosing coherence