What the U.S. Can Learn from Brazil’s Energy Successes
DEVELOPMENTS
With U.S. gas prices rising to record levels over the past year and contributing to fears about the national economy, both presidential candidates are focusing on the need to change U.S. energy policy. A major cornerstone of Barack Obama’s energy policy has been the promotion of alternative energy sources, particularly biofuels. John McCain, on the other hand, has particularly emphasized the need to expand domestic drilling, especially offshore drilling. Both candidates agree, however, on the need to develop energy independence from foreign oil suppliers.
Yet while the U.S. remains nowhere near its goal of energy self-sufficiency, Brazil managed to reach this major milestone in 2006 despite having significantly lower domestic production of both oil and natural gas than the U.S. Moreover, as one of the so-called BRIC countries—a term coined by Morgan Stanley to designate the world’s major emerging economies that also includes Russia, India, and China—Brazil is currently experiencing its strongest period of economic growth since the 1970s. This is due in no small part to rapidly increasing production of ethanol, oil, and other alternative energy sources. Brazil has long supported the platform, now embraced by the candidates, of harnessing technological advances to expand offshore oil drilling and replacing oil with renewable energy sources. It has achieved remarkable success on both fronts. By combining careful long-term infrastructure planning, agriculture & technology advances, selective drilling, and sound government energy policy, Brazil has been able to make the most of its abundant natural resources and reduce dependence on foreign oil. A closer look at the energy situation in both countries can reveal what, if anything, the U.S. can do to replicate Brazil’s successes in achieving energy independence.
BACKGROUND
Both the U.S. and Brazil are amongst the world’s top ten largest countries in terms of economy, population, and landmass. In addition, the U.S. and Brazil are home to two of the largest biofuel industries in the world. While the U.S. biofuel industry is slightly larger, Brazil’s industry is considered more economically honest, since it does not rely on heavy agricultural subsidies or tariffs to protect its domestic industry.
More importantly, Brazil produces its ethanol from sugar, which is more than four times as efficient as the corn-based ethanol used in the U.S. While estimates of the amount of energy produced by corn ethanol vary between 1.25 to 1.5 times the amount of energy required to produce it, Brazilian sugar ethanol produces 8.2 times as much energy as is used in production. Cheaper ethanol prices have helped Brazil surpass the U.S. as the world’s largest ethanol exporter, and domestic use continues to grow rapidly.
The remarkably high rate of ethanol consumption in Brazil is not merely the product of low ethanol prices, it is the result of three decades of investment by the Brazilian government in infrastructure to allow the widespread use of ethanol. Following the first oil shock of the 1970s, the Brazilian government began to promote the consumption of flex fuel vehicles that could run on any combination of gasoline or ethanol. The government appealed to consumers by allowing them to purchase whichever fuel was less expensive based on prevailing oil prices. This required long-term investment in a broad network of flex-fuel stations offering both ethanol and gasoline. As a result of such investment, currently 90% of new Brazilian vehicles have flex-fuel engines, and bio-fuel constitutes 40% of the fuel used by cars in Brazil. As sugar-based ethanol use in vehicles has grown, it has expanded to other areas of energy use. Brazilian ethanol is now poised to provide 15% of the nation’s electricity in the near future and its biodiesel industry is growing quickly as well.
Even if the U.S. were to heavily subsidize flex-fuel cars to expand its domestic consumption, it would be years before it could match Brazil’s flex fuel infrastructure. Moreover, the amount of crop that would be needed to radically expand the use of corn-based ethanol could exacerbate rising global food prices and degrade the environment. Unlike corn, a crucial component in the global food chain, expanding sugar cane production has minimal impact on global food prices. Furthermore, while the destruction of wetlands to create new land for corn farming has been blamed for intensifying recent floods in the U.S. Midwest, agricultural advances in Brazil have permitted virtually all expansion to occur on land that was previously used as pasture or farmland, and significant room remains for future expansion.
ANALYSIS
The U.S. possesses many advantages that Brazil does not in developing its potential for alternate energy and expanding oil drilling. The U.S. has a larger economy, more resources to invest in research and development, and a larger supply of important natural resources such as oil and gas. However, Brazil stands as an example of the feasibility of energy independence. Through careful planning and sound policies, Brazil has shown energy independence can be achieved by making the most of natural resources that it has. Moreover, while Brazil has benefited from increasing offshore drilling by discovering the world’s second largest new oil field in two decades in November 2007, it is not dependent on expanding its domestic oil production to meet its energy needs. Brazil has clearly staked its energy future on continuing to improve the capacity of biofuels to meet an ever-growing proportion of the nation’s energy needs.
The energy self-sufficiency currently enjoyed by Brazil is unlikely to be achieved by the U.S. in the near future. Yet, the U.S. can succeed if it quickly reduces its production of greenhouse gases and its dependence on foreign oil by taking advantage of the expanding production of sugar-based ethanol in Brazil and other countries, as opposed to trying to replicate Brazil’s success from scratch domestically. A necessary first step would be to reduce the heavy tariffs on Brazilian ethanol, which currently stands at 54 cents per gallon.
Some might be concerned that turning to foreign producers for ethanol could replace U.S. dependence on foreign oil with a new dependence on foreign sugar-based ethanol. However, it’s unlikely that increasing the global trade of ethanol could result in the manipulation of ethanol prices in a manner similar to OPEC’s manipulation of oil prices. While there are less than two-dozen countries in the world capable of producing oil, over 100 countries commercially produce sugar cane, including the U.S. The widespread nature of sugar production around the world makes it difficult for any single group of countries to set a world price for sugar-based ethanol, since this would increase incentives for other countries to increase sugar production elsewhere, which would in turn lower the price.
The single biggest factor keeping the price of sugar in the U.S. above global sugar prices is the high tariffs that have been set to protect the domestic sugar industry from foreign competition. Were such tariffs to be removed, the U.S. could much more easily set up its own refineries to produce ethanol-based sugar using the same technological advances that were developed in Brazil. Meanwhile, the U.S. could simultaneously seek to develop the infrastructure necessary to make other forms of renewable and alternative energy sources widely available, while expanding its domestic oil supply as a stopgap measure. The U.S. has far more to gain from working with countries like Brazil that have already heavily invested the time and resources for energy independence through renewable fuels, instead of trying in vain to instantly replicate their successes on its own.
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Adam Benz is Foreign Policy Digest's Regional Editor for The Americas.