28 December, 2010

Are flex fuel engines an obstacle to low carbon mobility in Brazil?

Sergio Abranches

Brazil has been championing biofuels and “flex fuel” engines for some time and for good reasons. Flex fuel engines run on any possible combination of ethanol and gasoline. Since all gasoline in Brazil has 25% of ethanol, flex fuel engines can run on any mix of  ethanol and gasoline, beginning at 25% to 75%, up to 100% ethanol.

Differently from other countries, sugarcane ethanol production in Brazil is very competitive due to the high productivity of sugarcane. The policy of conversion from gasoline to flex fuel engines is an indisputable case of success.

In 2010, 3.3 million light motor vehicles (cars, SUVs and light trucks) were produced in Brazil of which 71,7% carried a flex fuel engine. Only 18.4% had gasoline engines, and slightly less than 10% were diesel vehicles. Every gas station in Brazil has an ethanol pump. Production of flex fuel engines has started in 2003. Five years later, in 2008, 3.2 million motor vehicles were produced, 69.8% of which carrying a flex fuel engine, 19.7% a gasoline engine, and 10.5%, diesel engines. In 2009, 88.2% of licensed cars had a flex fuel engine. In 2010, this percentage was 86.5%, slightly lower due to greater imports, but still impressive. In 2009 it is estimated that 35% of the total fleet of  light vehicles had flex fuel engines. At this pace, flex fuel vehicles will be 78% of the total fleet of light vehicles in 2020.

A broad majority of consumers would prefer a flex fuel car to a gasoline one. Even if, at the pump, they’ll fill their tanks with gasoline. They like to have the option. Consumer behavior continues to be dictated by relative prices though, rather than by relative environmental gains. That is to say: if the price of ethanol is less than 30% lower than the price of gasoline, flex fuel car owners will leave the gas station with a tank full of gasoline. The reason is simple: the engines are less efficient running on ethanol when cold, and only catch up to the level of efficiency one gets from gasoline when fully warmed. Cars running on ethanol will consume more fuel. The difference varies around an average 30%. This makes the flex fuel vehicle a mixed blessing. If sugar prices are seasonally high, or Brazilian sugar and ethanol exports are growing faster than production, prices at the pump for ethanol would be very near gasoline prices or higher. Consumers would move towards gasoline, thus eliminating the emissions advantage of flex fuel engines.

Last week, for instance, ethanol prices were advantageous to consumers in only 6 out of the 27 states, and the Federal District. São Paulo, the larger Brazilian production and consumption center, was among the 7. But the price of a liter of ethanol at the pump in São Paulo was only 31.9% lower than a liter of gasoline. When prices get that close, consumers tend to prefer gasoline to ethanol.

Some environmentalists and environment-minded consumers are very critical of ethanol. They give several reasons to support their view: the spread of sugar cane monoculture carries the risk of destroying biodiversity and dislocating other food crops; every year some sugar cane producers are found guilty of using forced labor; manual harvesting is very bad for workers’ health (unbearably harsh conditions, excessively hard labor) and the environment (burning sugarcane straw before cutting); crops demand excessive use of water, chemical fertilizers, and pesticides. Some are also critical of flex fuel engines, saying that when running on gasoline they are less efficient than gasoline engines. In other words, in all occasions that consumers are led to fill their tanks with gasoline instead of ethanol, their flex fuel vehicle efficiency would be lower than that of a similar vehicle using a gasoline engine. This would mean more consumption and higher emissions.

Government officials and the ethanol lobby are using the flex fuel success case as an argument for vetoing policies to promote hybrid and electric vehicles. Brazil is the only large automotive market where hybrid and electric vehicles (EV) have not yet been introduced. Imports tariffs are prohibitive, and the tax structure eliminates domestic production competitiveness. Hybrids and EVs are heavily taxed while flex fuel engines are subsidized. It is more than a case of lack of incentive. It is an instance of tax, tariff and regulatory barriers to entry.

Hybrid vehicles, especially using biofuels, and electric vehicles would be a natural choice to Brazil. The country has a double advantage in this regard: the competitiveness of its sugarcane ethanol technology, and a cleaner electric power matrix. Electricity production in Brazil still comes mostly from hydro-plants. Some reservoirs do have high levels of greenhouse gases (GHG) emissions because of the amount of flooded organic matter, and growth of CO2 emitting algae. Studies show that in a few cases they emit more than comparable coal fired thermal-plants. But it is fair to say that on average Brazilian hydro-power plants emit significantly less GHG/kW.

The country’s largest remaining hydraulic potential, however, is in the Amazon region, where rivers have far more organic sediments, thus leading to higher methane emissions from reservoirs. The environmental impact of projected plants is incomparably higher. They lack any economic advantage: their cost is extremely high; actual energy yields are low relative to size due to water flow seasonality; rates of return on investment are very low; operation and maintenance costs are very high. Immense and costly transmission lines would have to be built to transport electricity to the larger consumption markets, crossing hundreds of kilometers of pristine forest.  Transmission losses and costs are estimated to be very high.

Brazil has the answer to the exhaustion of clean and economical hydro-power sources: an immense and yet untapped onshore and offshore wind-power potential, a huge and unexplored solar-power potential, not to mention biomass. With such a clean electricity potential, why not enter the EV race?

For the same reason Brazil does not explore its wind and solar power potential. Wind-power participation in the country’s electricity matrix is very modest. Solar is not used at all. Neither photovoltaic or concentrated solar power plants have ever been built in the country. There is a powerful policy blockage from a coalition of public sector technocrats, contractors, and segments of the manufacturing industry that prevents any change in energy policies. They block incentives to new sources of clean electricity because wind and solar power belong to a different professional and economic paradigm than the one they control. The paradigm that supports large hydro, nuclear and thermal power plants has quite different engineering, economic, and environmental foundations. Another coalition obstructs the adoption of hybrid and electric vehicles. It is also trying to prevent a paradigm shift in vehicle design, construction, and use of energy.

It is, however, striking that the whole political elite would fall hostage to these veto coalitions. Their leverage regarding electoral finance is huge. But there are new emerging interests already visible in the Brazilian society to which the whole political elite seem to remain aloof. It is really surprising that no counter-coalitions are formed to promote the adoption of these alternative energy and mobility solutions. It is surprising because Brazil would be far more competitive in wind and solar power, as well as in hybrid and electric vehicles production and use, than most of its world competitors. These emerging sectors are far better candidates to qualify the country as a winner in 21st century’s global economy.

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