Ethanol, especially in its purest Brazilian sugarcane form, was supposed to be the route to clean fuel and energy independence. Not so fast. The Financial Times reports that market pressures in Brazil, the 2nd largest producer of biofuels after the U.S., are pushing the price of ethanol above that of gasoline:
In short, drivers generally choose ethanol because it is cheaper, not because they are trying to save the environment.
The government follows a similar logic it seems. Edison Lobão, Brazil’s mining and energy minister, this week reduced the ethanol component in petrol from 25 per cent to 20 per cent….
The reasoning this time is that ethanol has become so expensive recently that it is pushing up the price of ‘petrol’ at the pumps. By reducing the ethanol component, petrol should be a little cheaper. By freeing up ethanol supplies, it should also make pure ethanol cheaper.
Throw in the massive oil discoveries off the Brazilian coast and the price of gasoline relative to ethanol should continue to move downward:
Aside from serving as a mind-boggling case study of supply and demand, the government’s latest decision may also be a glimpse of the future.
Brazil’s state oil company, Petrobras, is currently sitting on an estimated 50bn barrels of oil in the ‘pre-salt’ area recently discovered off the coast of Rio de Janeiro.
When this starts hitting the domestic market, it is hard to believe that ethanol will remain as popular as it is today. Like Brazilian drivers, when the government stops to compares prices, perhaps it will just as easily opt for fossil fuels over the environment.
So far no one has found a silver bullet solution to energy concerns. Ethanol, once touted by greens as just such a solution, presents myriad other problems as Amazon jungle is cleared for cane plantations, fertilizer runoff fouls waterways, and the price of food staples rises dramatically leading to unrest in key countries around the world. Now that the “successful” Brazilian model is unable to compete with gasoline on price despite massive government subsidies, it may be time to rethink the role of renewable biofuels in future energy production.