20 January, 2012

Brazil to finance cellulosic ethanol

Sergio Abranches

Brazilian state-owned financial institutions will finance research and development of cellulosic ethanol, reports the Brazilian daily newspaper Valor Econômico.

The National Development Bank, BNDES  and FINEP, the science and technology finance agency, will offer about R$ 1,1 billion (US$ 600 million) this year in subsidized loans, grants in aid and equity sharing to companies to develop pilot projects of cellulosic ethanol. There are already 14 business plans under consideration by the two financial agencies.

Brazil has a highly competitive sugarcane ethanol industry, but research on second generation biofuels has lagged behind. Ethanol companies are also facing mounting problems on their supply chain with falling productivity of sugarcane plantations. Extreme climate events have led to recurring harvest losses over the last years. Aging plantations have lower and falling productivity levels. There has been very little investment on plantation renewal over the last five years. Once a net exporter, Brazil has become a large ethanol importer. In 2011, the country imported about 1.1 billion liters of ethanol, mainly from the US, and this year estimates are it will have to import 1.7 to 2.0 billion liters. As crop yields will be around 10% lower in 2012 (they’ve been falling over the last four harvests) Brazil could end up by importing as much ethanol as it exports.

Second generation biofuels will allow greater production without competing with food crops. Brazilian cellulosic ethanol would help to increase production and productivity without demanding new areas for plantation. Brazil has at least two excellent sources for cellulosic ethanol: sugar cane straw, today burnt on the fields and doing severe harm to workers’ health and the environment, and eucalyptus offshoots left on the plantations’ sites after logging. Both have high cellulose content. Cellulosic ethanol production could increase ethanol production by at least 50% using straw and bagasse from existing sugarcane crops. Other agricultural leftovers and residues could also be used productively for cellulosic ethanol production further boosting the volume generated without increasing crop area. This would reduce the need for sugarcane plantations to expand over areas dedicated to other crops, thus becoming an indirect driver for deforestation and food insecurity.

The National Development Bank has also budgeted about R$ 2 billion (US$ 1.1 billion) to finance new biochemical products from sugarcane, and gasification of sugarcane bagasse to generate biofuels and plastics.

It is a good start, although investment on the development of second generation biofuels will demand far greater sums. The Brazilian government and biofuel companies have been neglecting R&D for second generation biofuels. The country is still under the risk of losing competitiveness and leadership on the future global biofuels markets. Brazilian competitive advantages on crop-based biofuel production comes more from the greater efficiency  of sugarcane’s photosynthesis, than from ethanol companies’ technical and managerial virtues. Now, the country will have public policies, public finance, and corporate programs supporting the development of second generation biofuel technology.

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