On December 6th, we launched in Brasilia the ‘More Ethanol’ Movement. The event brought together 200 executives, labor leaders representing sugar-energy industry workers, 35 members of the Senate and Lower House of Congress, representatives from several ministries and government agencies and the media. The Movement has a single specific goal: to promote growth in our industry. We need to consolidate essential public and private policies in order to double sugarcane production in Brazil over the next ten years. We want to surpass the current 555 million tons of cane produced per year, to reach 1.2 billion tons by 2020. From that, we will produce 51 million tons of sugar, 69 billion liters of ethanol and 13 thousand MW of bioelectricity per year.
These ambitious goals are of paramount importance if we are to continue supplying half the fuel for light vehicles in Brazil (hydrous ethanol for flex-fuel cars and anhydrous ethanol blended with gasoline) and half of all the sugar traded in the world. These production levels were achieved after a decade of investments, in which the sugar-energy industry grew in excess of 10% per year. Unfortunately, the 2008 financial crisis slowed things down dramatically, shifting investments to mergers and acquisitions of troubled mills. Severe weather problems, increased production costs and the loss of competitiveness for ethanol compared to gasoline were also decisive factors.
The investment pace that prevailed until 2008 must now be recovered. Brazil has unmatched conditions for growth: fertile lands (today the industry only occupies 2.9% of the country’s arable lands), ideal weather conditions, skilled professionals and the latest technology. The sugar-energy industry needs R$ 156 billion (about US$ 90 billion) in investments, R$ 110 billion (about $ 63 billion) of that to expand industrial capacity – including constructing 120 new ‘greenfields’ – and R$ 46 billion (about $ 26 billion) on agricultural aspects.
If the industry can expand at this rate, GDP will almost double, from the current US$ 48 billion to US$ 90 billion, and exports will jump from US$ 15 billion to US$ 26 billion.
Harvest mechanization already covers 63% of the sugarcane planted area in the state of São Paulo, and all new mills are mechanized from day one. Expansion as projected means 11 thousand new tractors and harvesters and 10 thousand new trucks will be purchased by the sugar-energy industry. The impact on job creation will be significant: 350 thousand new positions and 700 thousand indirect jobs would be created. The industry will also train 20 to 25 thousand workers per year, of which one third will be former sugarcane cutters.
Currently, ethanol use and bioelectricity generation combine to reduce CO2 emissions by 46 million tons per year in Brazil. Expansion as projected will push that total to 112 million tons of CO2 equivalents by 2020. The additional reduction of 66 million tons of CO2 alone represents 35% of the CO2 reduction goals established for the energy sector in Brazil’s National Policy on Climate Change. Expansion would also bring huge gains in terms of economic development and accelerated demand for technology, machinery and implements provided by what is essentially a domestic industry. Studies show there would be significant impacts on public health as well, with a drop in the number of hospitalizations and deaths caused by respiratory and cardiovascular ailments because of increased use of ethanol in urban areas instead of fossil fuels.
On the technology front, the development of new technologies that can break down cellulose into simple sugars can finally lead to the production of second-generation or cellulosic ethanol. This means the 7 thousand liter per hectare threshold would be surpassed, with production levels reaching the 12 thousand liter per hectare mark, as the industry begins to produce ethanol not only from sugarcane juice but also from bagasse – the fibrous residue that remains after cane is crushed, and straw, which is removed from the cane before mechanical harvesting. Together, the bagasse and the straw account for two thirds of the energy contained in the plant. Achieving this would fulfill the lifelong aspiration of growing “vertically,” without the need to expand the planted area.
To complete this leap, the sugarcane industry is in urgent need of stable and consistent public policies, which would allow the industry to regain competitiveness. Almost 40% of the sugarcane we intend to produce by 2020 will be directed to the production of hydrous ethanol – the type that is sold at the pump for flex-fuel vehicles and competes directly with gasoline. In recent years, the government has kept gasoline prices artificially stable at the pump.
Recently, the government cut gasoline taxes to allow state-controlled Petrobras to increase the price at the refinery without affecting prices at the consumer level. With that, the tax load on gasoline in Brazil stands at around 35% of the price at the pump, down from 47% in 2002. On average, the tax load on ethanol adds up to 31%, while diesel totals 22% of the pump price. That means the tax load on gasoline is only about four percentage points above ethanol, a difference that disappears if the 30% difference in energy content between gasoline and ethanol is considered. In other words, in terms of taxation per kilometer, ethanol is currently taxed at about the same level as gasoline in most of Brazil. The state of São Paulo is the most notable exception, because its ICMS (state tax) is about half of what is charged in most other states.
It’s important to highlight that we are not advocating for an increase in the price of gasoline, but we are calling for policies that more closely resemble what happens around the world, as the positive impacts of biofuels are recognized. That would bring about the competitiveness that is essential if the sugar-energy industry is to resume accelerated growth. The industry supports the elimination of the PIS-Cofins levy (federal taxes on gross receipts) on ethanol, increased funding for cane field replanting and the construction of new mills, as well as incentives for bioelectricity auctions dedicated to biomass and to facilitate the connection between mills and the distribution grid.
From our end, we will make the necessary investments to increase productivity, reduce costs, expand existing mills and build greenfields, which will keep the sugar-energy industry as protagonists of what is recognized as the most successful project to replace fossil fuels with renewable energy on the planet.
Article originally published in the daily O Estado de S. Paulo on December 14th, 2011