Bioethanol: Production, Use & Trade

Alfred Szwarc
Brazilian Sugarcane Industry Association 33rd IAEE Conference Rio de Janeiro June 8, 2010

ABOUT UNICA
The Brazilian Sugarcane Industry Association (UNICA) is the leading sugarcane industry association in Brazil. Its more than 120 member companies, voluntarily engaged, represent over 50% of the ethanol and 60% of the sugar produced in Brazil. UNICA has around 50 staff and its expertise covers key areas including the environment, energy, technology, international trade, corporate social responsibility, sustainability, regulation, economics and communications It has offices in five locations: So Paulo (headquarters), Ribeiro Preto (in the heart of the sugarcane producing region), Braslia (Brazilian capital), Washington and Brussels

KEY NUMBERS OF BRAZILIAN SUGARCANE SECTOR

Annual gross earnings Foreign revenue Direct investments

US$ 23 billion (08/09) US$ 9.8 billion (2009) > US$ 20 bln (2006-2009)

Sugarcane plants
Sugarcane growers People directly employed

438 nationwide (2010)

70,000 845,000

Share in Brazilian energy matrix

Avoided CO2 emissions
Prepared by UNICA. Note: data refers to the 2009/10 crop year (*) avoided emissions refer to ethanol use by flex fuel vehicles

16.4%, ahead of hydroelectricity

approx. 90 mln tons since 2003*

BREAKDOWN OF SUGARCANES ENERGY

Energy equivalent of 1 ton of sugarcane = 1.2 oil barrel

Alcochemical
Bio-plastic

Source: UNICA

SUGARCANE PRODUCING REGIONS IN BRAZIL

Sugarcane for ethanol production occupies 1.5% of Brazils arable land

87% of sugarcane production

Source: NIPE-Unicamp, IBGE and CTC

LAND USE IN BRAZIL

Millions of hectares
BRAZIL TOTAL ARABLE LAND 851.48 329.94
% of Brazil % of Arable Land

1. Crop Land - Total

Soybean Corn Sugarcane Sugarcane for ethanol 2. Pasture Land 3. Protected Areas and Native Vegetation

59.84
21.57 14.44 8.14 4.88 158.75 495.61

7.0%
2.5% 1.7% 0.9% 0.6% 18.6% 58.2%

18.1%
6.4% 4.4% 2.5% 1.5% 48.1% -

APP, UC e TI
Other Native Vegetation 4. Available Area 5. Other Uses

277.53
218.08 111.34 25.92

32.6%
25.6% 13.1% 3.0% 33.7%

Note: Arable Land (Censo IBGE 2006) 1) Temporary and Permanent crop land (Censo IBGE 2006); Soybean, Corn and Sugarcane values (IBGE 2008) 2) Pasture land (Censo IBGE 2006 3) Protected areas and native vegetation (Gerd Spavorek 2009, not published yet) APP = Permanent Preservation Land; UC = Conservation Units and TI = Indigenous land 4) Area available = Arable Land Crop Land Pasture Land . Sources: ICONE and UNICA. Prepared by UNICA.

A TYPICAL SUGARCANE INDUSTRIAL PLANT IN BRAZIL: SUGAR, BIOELETRICITY AND BIOENERGY (ETHANOL AND MORE TO COME)
Cellulose ethanol

Ethanol storage tanks

Biohydrocarbon fuels

Distillery

Sugar plant Bagasse

Sugar cane field Straw (tops & leaves)

EVOLUTION OF SUGARCANE, SUGAR AND ETHANOL IN BRAZIL: WHO CALLS THE SHOTS HERE?
Prolcool program
35
30
Sugar (million tons) Ethanol (billion liters)

FFV
Sugar

700
Sugarcane (million tons)

600

25 20
15 10 Ethanol Sugarcane

500 400
300 200

5
0
09/10* 75/76 79/80 83/84 87/88 91/92 01/02 05/06
77/78 81/82 85/86 89/90 93/94 95/96 97/98 99/00 03/04 07/08

100
0

Sugarcane: 121%
Growth rate in the last decade Sugar: 91% Ethanol: 160%

Source: UNICA and MAPA. Note: 2009/10* - estimated data. Production growth is calculated by 2008/09 over 2000/01.

RECENT EVOLUTION OF THE BRAZILIAN SUGARCANE SECTOR

The growth of Brazils ethanol production is currently driven by two main factors:

DOMESTIC MARKET:
Increase of the flex-fuel vehicles market

INTERNATIONAL MARKET:
Rising global interest in ethanol Environmental concerns (global warming, local emissions) Energy security f (dependence on foreign oil) Rural development

More than 35,000 fuel stations sell E100

E100 more competitive than E25

Prices in So Paulo State

FLEX FUEL VEHICLES (FFV) IN BRAZIL

Through special electronic sensors, the on-board computer recognizes the fuel and properly adjusts the engine combustion parameters, without any interference from the driver
Brazilian light vehicles sales by fuel (Otto Cycle)

Introduced in the Brazilian market in March 2003

These vehicles are designed to be fueled with gas, ethanol, or any blend of gas and ethanol (today from E25 to E100) Currently, 90% of all new-car sales are FFVs

Source: ANFAVEA e Unica

2.400 2.000

Gasoline

Million liters

1.600 1.200 800

Ethanol and gasoline consumption in Brazil

Ethanol
400 0

Jan. 2000
90 75 60

Mar. 2010

Number of flex fuel models in Brazil

45 30 15 0

Mar. 2003

Mar. 2010

Sources: ANFAVEA and ANP. Elaboration: UNICA.

March 2009: First Flex Fuel Motorcycle in the World Honda CG Titan 150 Mix

GASOLINE

ETHANOL

ETHANOL USE: NOT LIMITED TO CARS

Ethanol-powered buses (E95) - a pilot project in Brazil Small boilers

Agricultural equipment Brazilian-made crop dusting planes operating on ethanol

Biobutanol

Production of diesel (jet fuel?) from sugarcane at commercial scale

 AND IT IS NOT JUST FOR FUEL EITHER

Sugarcane is now being used to replace fossil

fuel inputs in the petrochemical industry Various companies have begun to produce

and market plastics from sugarcane ethanol

Source: Braskem, Johnson & Johnson, The Coca-Cola Company, Tetra-Pak, and The Graduate (1967)

BIOELECTRICITY: POTENTIAL IN BRAZIL

16 14
Market potential Theoretical potential

000 average MW

12

10 8
6

4
2 0

2008/09

2012/13

2014/15

2016/17

Notes: 1 ton of sugarcane produces 250 kg of bagasse and 204 kg of straw, 1 ton of sugarcane (bagasse + straw) generates 199,9 KWh for exporting; the straw inferior calorific value = 1,7 bagasse inferior calorific value; capacity factor = 0,5 (Koblitz). It is assumed that 75% of the bagasse is used for cogeneration. The percentage of straw use starts at 5% (2008) going up to 70% (2015) . Until 2010 the potential market prediction consider the regulated energy auctioning; for 2011 an increase of 1600 MW is assumed, for subsequent years a 2000 MW increase per year is assumed. Source: Cogen, UNICA.

2018/19

2009/10

2013/14

2015/16

2017/18

2010/11

2011/12

2008 / 09 HARVEST AND PROJECTIONS FOR THE BRAZILIAN SUGARCANE INDUSTRY

2008/09
Sugarcane production (million t) Sugar (million t)

2015/16

2020/21

569 31 10.2 20.8 27.5 22.8 4.7

829 41.3 11.4 29.9 46.9 34.6 12.3

1,038 45.0 12.1 32.9 65.3 49.6 15.7

Internal market and stocks

Surplus Export Ethanol (billion l) Internal market and stocks Surplus Export

Bioelectricity (MW average)

Bioelectricity in Brazilian energy matrix (%)

1.800 3%

8.158 11%

13.158 14%

Note: e = estimated data; potential generation of surplus electricity has been calculated based on the utilization of 75% of the available bagasse and 50% of the available straw, and considering the sugarcane production during most recent harvest, Sources UNICA, Copersucar, Koblitz and Cogen.

PUBLIC POLICIES FOR ETHANOL - MANDATORY BLEND

E-5 in 2010

EU Directive 10% renewables by 2020

E-10 in10 provinces 3 % - not mandatory

136 bln liters by 2022

RFS
E-10

E-5

E-10

E-5
E-5

E-5 in Feb.2009 and E-10 by 2011

10% in 70% of national territory

25%
E-5 in 2011

Source: JOLLY, Lindsay - Future Trends in World Food Security; WSRO Annual Meeting 2008 ; F.O.Licht and LMC International

Global area needed for 20% of sugarcane ethanol in transportation sector by 2020

Sugarcane is produced in more than 100 countries

N. America Suitable area (mn ha)

Oceania & Polynesia

Asia

Africa

Latin America & Caribbean

Total

7.3

34.3

27.4

50.4

120.4

Area needed for 20% of ethanol in world transportation (mn ha)

37 - 47

Sources: Map - British Sugar, Area Fischer, G., E. Teixeira, H. van Velthuizen Land Use Dynamics and Sugarcane Production, In P. Zuurbier and J. van de Vooren, Sugarcane Ethanol: Contributions to climate change mitigation and the environment , Wageningen Academic publishers, 2008.

THE PARTICIPATION OF GLOBAL ETHANOL EXPORTS IN WORLD ETHANOL PRODUCTION

100.000 90.000
80.000

Exports
10.1% 12.1% 7.7%
8.2% 9.4% 10.3%

7.8% 10.3%

70.000

Million liters

60.000 50.000 40.000 30.000

20.000

8%

7.2%

10.000 0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*

Source: F.O.Licht, Secex, USITC, European Comission, LMC. Elaboration: UNICA. Note: preliminary results

GHG SAVINGS OF BIOFUELS COMPARED TO FOSSIL FUELS

Source: UNEP 2009, based on data from Menichetti/Otto (2008) for bioethanol and biodiesel, IFEU (2007) for sugarcane ethanol, and Liska et al. (2009) for corn ethanol; RFA 2008 for biomethane, bioethanol from residues and FT diesel.

ADVANTAGES OF BRAZILIAN SUGARCANE ETHANOL

Sugarcane (BRAZIL) GHG emissions reduction* Energy Balance Productivity (liters/hectare) 90% 9.3 7,000

Corn (EUA) 35 % 1.4 3,800

Wheat (EU)

Sugar beet (EU) 45 % 2.0 5,500

34 % 2.0 2,500

*Note:GHG emissions avoided replacing gasoline and calculated on a life-cycle basis. Source: Energy Balance: World Watch Institute (2006) and Macedo et al. (2008). Productivity: IEA International Energy Agency (2005), MTEC and UNICA. Greenhouse gases: IEA International Energy Agency (2004) and Macedo, I. de C. et al. (2004 and 2008). Prepared by UNICA

U.S. RENEWABLE FUELS STANDARD (RFS)

L O W E R G H G

Source: EISA of 2008, Dept of Energy, ITC; E-10 Blend Wall Limit based on EIAs projections of gasoline consumption and do not include bottleneck and other infrastructure concerns.

POTENTIAL DEMAND FOR ETHANOL IN EUROPEAN UNION

30%

16 14 12
Billion liters

10 8 6 4 2 0
2009

Source: Eurostat and CERA. Elaboration: UNICA. Note: data from 2008 are projections. Potential demand ethanol calculated based on the gasoline consumption informed by Eurostat and CERA, considering the percentage of ethanol added to gasoline to 4% by volume.

2010

2012

2013

2014

2015

2016

2017

2018

2019

2020

2011

BEST AGRICULTURAL AND ENVIRONMENTAL PRACTICES

Reduced use of pesticides Almost no use of fungicides Biological control of plague Use of vinasse Low levels of soil losses due to semi-perennial nature of sugarcane Increased soil conservation and as result of mechanisation, part of the straw beingleft on the field as organic matters.

Soil Conservation

Less Agrochemicals

Sugarcane

Minimal Water Use

25 % of So Paulo State riparian areas are protected by the sugarcane sector. (Over 250,000 ha, considering only the mills that were visited within the scope of the Green Protocol).

Riverside Woods Protection

No irrigation in Centre-South Decrease in water use in industrial processing

GREEN PROTOCOL
Signed between the So Paulo state government (State Environment Secretariat) and UNICA on June 04, 2007

Protocol Guidelines
Protection of existing wooded areas and recovery alongside bodies of water (APPs) Technical plans for soil conservation and water resources Measures to reduce emissions
20% 30% 40% 50% 60%

Anticipation of the legal deadline for the elimination of the practice of sugar cane straw burning

11.241/02 Law

70%
80% 90% 100%

Green Protocol

2006

2010

2011

2014

2016

2021

MECHANIZED HARVEST IN THE STATE OF SO PAULO

60%
% of harvest area without burning

55,8% 46,6% 34,2% 49,1%

50% 40% 30% 20% 10% 0%

2006/2007

2007/2008

2008/2009

2009/2010*

Source: INPE, UNICA and SMA. Note: 2009/2010* - preliminary.

SUGARCANE NATIONAL AGRO-ECOLOGICAL ZONING

1. It is forbidden to:
plant sugarcane in the most sensitive biomes - Amazonia, Pantanal and BAP. expand sugarcane production on any type of native vegetation (cerrado, grasslands...) 2. Authorized areas for sugarcane expansion: 64.7 million hectares, equivalent to 7.5% of the Brazilian territory (currently 0.9% of the area is used for sugarcane)

SOCIAL AND ENVIRONMENTAL RESPONSIBILITY

National agreement of voluntary participation and continuous improvement, which prioritize better work practices on sugarcane by creating market instruments and which recognize it as an example for other companies to adopt Train and requalify 7,000 workers and community members per year for jobs in sugar mills and ethanol plants and to work in other sectors, as a response to the process of mechanizing the sugarcane harvest to eliminate burning

Requalification Program for Sugarcane Rural Workers

SUSTAINABILITY INITIATIVES FOR BIOFUELS: A UNIVERSE IN CONSTANT EXPANSION

SUSTAINABLE BIOFUELS
REGIONAL INITIATIVES NATIONAL INITIATIVES INTERNATIONAL BODIES INITIATIVES MULTISTAKEHOLDER INITIATIVES NATIONAL GLOBAL

EU DIRECTIVE
G8+5

FAO

OECD

IDB

IEA

IFC

UNEP

ISO

CRAMER

RTFO

ISCC

SEI

RFS
Renewable Fuel Standard

Cramer Renewable Transport Stockholm Biofuel Quota LawCommission Fuel Obligation Ordinance for sustainability Environment Institute requirements

Sugarcane Zoning Green Ethanol

GBEP

Task 39

Liquid Biofuels Global Bioenergy from Biomass Partnership

Equator Principles

RSB
Round Table on Sustainable Biofuels

PC 248

CEN
European Committee for Standardization

Green Energy

LCFS VSE
Verified Sustainable Ethanol Low Carbon Fuel Standard

National Commitment

Scorecard

Rainforest
Rainforest Alliance

Low CVP Fuels

BEFSCI
Bioenergy and Food Security Criteria and Indicators

PBCB

Brazilian Biofuels Certification Program

National Commitment for the Improvement of Labor Conditions in Sugarcane

CSBP
Council on Sustainable Biomass Production

Sistema de Better Sugarcane Roundtable on Roundtable on Verificao. da Sugarcane Initiative Sustainable Palm Oil Responsible Soy Atividade Discussion Group Agropecuria

SDG

IB

BSI

RSPO

RTRS

Prepared by UNICA. VERSION 4 (February 2010)

Main constrains to increase supply & demand

Long-term subsidies, tariffs and trade-distorting measures Public policies for biofuels remain limited and inconsistent Common standards must be adopted to avoid the distortive non-tariff barriers. The proliferation of sustainability criteria should requirements from between firms and countries). be avoided (different

What needs to be done?

An extensive work of communication must be done to inform about ethanol benefits to mitigate climate change and other benefits (biodegradable etc) Third countries: technical and scientific cooperation, investments. Trade: complementing production/consumption policies, elimination of distorting support mechanisms.

Thank you

www.unica.com.br