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Ethanol And Brazil: The New Global Energy Brand?
By: Daniel Yergin
When it comes to energy, Brazil is on its way to becoming a "global brand." Although the United States recently outpaced Brazil in
ethanol production, Brazil is by far the leader in sugar-based ethanol. Its exports are growing, and it could become a major energy
supplier to the world. But what Brazil is particularly known for is its grand conversion-moving almost 40 percent of its automotive
fuel from gasoline to ethanol.
Ethanol in Brazil is used in two ways: either blended, in a mix of 75 percent gasoline and 25 percent ethanol, or as pure ethanol
pumped directly into a car's fuel tank. On any given day, motorists across Brazil can stand in front of a pump and decide, based on
price, whether they want to put ethanol or gasoline into their "flex fuel" car engine or whether they want to blend them.
Brazil has now achieved energy self-sufficiency. Ethanol is a part of the explanation, but it would be an error to think that it is the
only one. There has been great success from drilling in Brazil's offshore waters, and domestic oil output has increased by 40 percent
since 2000-from 1.2 million barrels per day (mbd) to 1.7 mbd in 2006. This 500,000 barrel per day increase compares to 240,000
barrels per day of ethanol consumption.
How did ethanol achieve its prominent role in Brazil? It has been made possible by a series of factors: strong government support,
especially after the 1973 oil shock; continual adoption of new technologies over more than a quarter century; and the cheapest
production costs in the world.
The Brazilian government made a strong commitment to ethanol in the mid-1970s, in response to the first oil crisis. At that time,
Brazil was importing more than 80 percent of its oil. The first oil shock had a highly detrimental effect on Brazil's economy,
influencing a significant drop in the country's GDP growth, from almost 14 percent in 1973 to five percent in 1975. A program to
stimulate domes