DC pres 15April08 - belfercenter.org · de Alencar Júnior (Banco do Nordeste do Brasil) ... 25%...
Transcript of DC pres 15April08 - belfercenter.org · de Alencar Júnior (Banco do Nordeste do Brasil) ... 25%...
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Sustainable biofuels, rural developmentand private sector engagement: What can we learn from Brazil?
Daniele CesanoSustainability Science Fellow 2007/08
15th of April 2008
Center for International Development Kennedy School of Government Harvard University
Acknowledgments• Sustainability Science program
– Prof William Clark and Dr Nancy Dickson• Italian Ministry of the Environment• Supervisors
– Prof Henry Lee– Prof John Holdren– Prof Calestous Juma
• SSP Fellows– Prof Marcel Bursztyn
• Luciano Rodriguez (UNICA)• Marcelo Leal (COOPERBIO)• Werner Fuchs and Valtair Fernandes Júnior (COOPERBIO Brasil)• Marcos Falcao Gonçalves, Airton Saboya Valente Junior and José Sydrião
de Alencar Júnior (Banco do Nordeste do Brasil)• Jose’ Roberto Moreira (CENBIO)• Denis Delavi and Jose’ Limana (Limana Poliserviços).
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Agenda
1. Overview on the current biofuel debate2. Ethanol production in Brazil
– Feasibility and sustainability (small vs largescale): COOPERBIO, RGS
3. The Brazilian biodiesel program– Feasibility and sustainability: Quixadá project
4. Discussions
Key issues in biofuel production
• Renewable energy• Sustainability
Economic
Social Environmental
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Environmental sustainability
• Fargione et al (2008)• Searchinger et al (2008)• New expansions create a
carbon debt that must be repaid– Clearing of rainforests or
savannas (cerrado)• Induced land use change
– Food crops must be replaced
• Sugarcane ethanol– Between 4 to 45 years to
repay the carbon debt
Economic sustainability
• Ethanol (2008)– Sugarcane:
~0.7$/gallon– Corn: ~3 $/gal
• Biodiesel– Soy: ~ 5 $/gal– Sunseed: ~ 7 $/gal
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Social sustainability• High commodity price• This can have two
opposite effects on poor/rural communities:
1. Make them worse off • Excluded from the
market• More expensive food
and “food insecurity”2. Make them better off
• Included in the “commodity” market
• Producers and sellers
• How to make this link?
Soybean oil price
$-$200.00$400.00$600.00$800.00
$1,000.00$1,200.00$1,400.00$1,600.00
1980
M1
1981
M7
1983
M1
1984
M7
1986
M1
1987
M7
1989
M1
1990
M7
1992
M1
1993
M7
1995
M1
1996
M7
1998
M1
1999
M7
2001
M1
2002
M7
2004
M1
2005
M7
2007
M1
Soybean oil,Chicago(2007$/ton)
Research question
• Is it possible to havea model that is trulysustainable? – Focus on the social
and economicsustainability
– Biofuel as a ruraldevelopment policy
Economic
Social Environmental
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Biofuels and the Brazilian experience
• Over 30 years experience with biofuels– Sugarcane ethanol is cost-competitive with gasoline
• Second largest producer of ethanol• Large number of projects• Innovative policies
– Biodiesel program is promoting “socially responsible”biofuels
• Availability of different feedstock– Biodiesel
• Large number of small farmers (80%)– Interesting from a rural development perspective
Sugarcane ethanol
Anhydrous ethanol• >99,3º GL• Mixed with gasoline• 22% (law n. 8.723/93)
– Mixture changes in relation tomarket price and volume (20%-25%)
– Today: 25%
Hydrous ethanol• ~93º GL• Used pure in “flex-fuel” cars• About 50% of the ethanol
produced
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Trends
R$ 0
R$ 20
R$ 40
R$ 60
R$ 80
R$ 100
R$ 120
Jan-
76
Jan-
78
Jan-
80
Jan-
82
Jan-
84
Jan-
86
Jan-
88
Jan-
90
Jan-
92
Jan-
94
Jan-
96
Jan-
98
Jan-
00
Jan-
02
Jan-
04
Jan-
06
R$/
ton
(Nov
200
7)
Sugarcane price: 1976-2007 (Nov 2007 R$)
Sugarcane yield
0102030405060708090
1960
1970
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
ton/
ha Brazil
Trends
>1 $/gal4.05 $/gal Anhydrous ethanol, total cost
1,314 $/Ha3,100 $/HaSugarcane, production cost
98%77%Plant efficiency
200 $/gal890 $/galUnit investment cost
$ 50 M$ 28.5 M Investment cost
260,000 gal/day32,000 gal/dayInstalled capacity
AutonomousAutonomousDistillery type
20071979
Distillery data (Nov 2007 $)
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Trends
-38.5Crude oil (MJ/l)
83%32.00Gasoline (MJ/l)
53%20.50Hydrous ethanol (MJ/l)
55%21.27Anhydrous ethanol (MJ/l)
Energy content in relation to oilEnergy contentFuel type
$0
$50$100
$150$200
$250$300
$350
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
$/ B
arre
l oil
eq (N
ov 2
007
$USD
)
Anhydrous eth
Hydrous eth
Crude oil
Gasoline, FOBAmst.Gasoline, Brazil
Scale of production
0%
5%
10%
15%
20%
25%
30%
35%
40%
10 50 250 500 1000 2000 4000 8000 16000 32000 64000
Hectares
97%
1000 ha: 10 sq. km
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Research question
• Is it possible to havea model that is trulysustainable? – Are smaller units more
sustainable?– How smaller?
Economic
Social Environmental
COOPERBIO, Palmeira dasMissões, Rio Grande Do Sul
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Socio-economic context
• Small farmers– 95.1% of farmers own less than 50 hectares of land
• Poverty– 90% of the families in the region live with less than
400 $/month– The region concentrates 36% of the poorest families
in RGS• One of the largest soy-producers of Brazil
– 4.9% of landowners have 43.9% of the land
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Why small scale ethanol?
• Transgenic soy– Highly risky for small
farmers– Concentration of
income• Climate change• High ethanol price
– 2% produced in RGS
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Baseline: soybean yield
2
1
0
500
1000
1500
2000
2500
3000
3500
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
Yiel
d (K
g/H
a)
Brasil
Paraná
Santa Catarina
Rio Grande do Sul
Palmeira dasMissões - RS
Objectives of COOPERBIO
• Cooperative of small farmers– 23,000 small farmers in the region
• Pilot project– Diversify farmer’s production through small-scale
ethanol unit;– Create a new logistical and distribution system for
ethanol;– Integrate food and biofuel production.
• Project sponsor– Petrobras and Electrosul (about 2 M $)
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Project outline
• 9 micro-distilleries– Quality standards (?)
• 1 rectification units– Reach ANP standards– Produce ethanol
(1,200 l/day)
Micro-distilleries
Eucalyptus
Animal feed
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Feedstock production• Negotiated with Bank of Brazil specific credit
conditions for farmers (PRONAF)– 500 $/Ha
• 2% interest rate, 12 years• Seeds or seedlings
– Semi-perennial trees (jatropha, tungue): vegetable oil– Native species: reforestation especially along water course– Energy crops: sugarcane and eucalyptus– Fruits: oranges and apple
– Maximum of 2 Ha per family of sugarcane• Avoid monocultures• Product diversification• Share benefits among families• Borderline effect
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Feasibility analysis: assumptions
Fully operational already from year 1Fully operational already in year 1
All sugarcane (26,638) is planted during the first year
All sugarcane (29.5 hectares) is planted during the first year
Hydrous ethanol is sold to a distributorHydrous ethanol is sold to the final consumers
All production costs keep constant with time, 12 years
All production costs keep constant with time, 12 years
Distillery rents 70% of the land and purchases 30% of the feedstock at market price
Farmers sell sugarcane to the distillery at production cost
The hydrous ethanol will reach the ANP standards
The hydrous ethanol will reach the ANP standards
Some mechanization in harvesting.Manual harvesting
Centralized operator (i.e. investment fund) employing 2,400 workers
Operated by 15 farmersNew project (greenfield)New project (greenfield)
Large-scaleSmall-scale
Feasibility analysis: cash flow
0.751.50Selling price, ethanol (R$/l)-1.89Local price, hydrous ethanol RGS (R$/l)
35 (30% purchased at 35 R$/ton)
7.00Feedstock cost, average 5 years (R$/ton)470470Sugarcane production cost, year 2-5 (R$/Ha)
1,9201,920Sugarcane production cost, year 1 (R$/Ha)2020Depreciation (years)70100Debt (%)125Loan period (years)122Interest rate (%)-10,766Investment per farmer (R$)
240015Total number of farmers or workers105248Unit investment (R$/l)
105,389,000161,500Total investment – turn key (R$)1,000,000650Installed Capacity (l/day)
Large-scaleSmall-scale
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Feasibility analysis: technical input
97%75%Production efficiency, milling (%)
2424Operating hours
180180Operating days/year
1,000,000650Installed Capacity (l/day)
8766Sugarcane yield (ton/Ha)
25,86230Area required (Ha)
LargeSmall
Results
R$ 0.00
R$ 0.20
R$ 0.40
R$ 0.60
R$ 0.80
R$ 1.00
R$ 1.20
R$ 1.40
1 2 3 4 5 6 7 8 9 10 11 12
Years
R$/l
Production cost,large scale (R$/l)
Production costs,micro-distillery(R$/l)
• Small scale: more expensive• 0.73 R$/l equivalent to:
• 96 $/barrel oil eq or• 2.11 $/gallon of gasoline
• Large scale: less expensive• 0.47 R$/l equivalent to:
• 61 $/barrel oil eq or• 1.35 $/gallon of gasoline
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Economic sustainability: payback
-R$ 400,000
-R$ 200,000
R$ 0
R$ 200,000
R$ 400,000
R$ 600,000
R$ 800,000
R$ 1,000,000
R$ 1,200,000
1 2 3 4 5 6 7 8 9 10 11 12 13
Years
R$
-R$ 200,000,000
-R$ 100,000,000
R$ 0R$ 100,000,000
R$ 200,000,000
R$ 300,000,000
R$ 400,000,000
R$ 500,000,000R$ 600,000,000
R$ 700,000,000
R$ 800,000,000
0 1 2 3 4 5 6 7 8 9 10 11 12
Small
Large
Social sustainability: income
Minimum salary: 415 R$/month
R$ 0.00
R$ 500.00
R$ 1,000.00
R$ 1,500.00
R$ 2,000.00
R$ 2,500.00
R$ 3,000.00
R$ 3,500.00
Inco
me
(R$)
Small producer, ethanol (R$/Ha)
Small producer, sugarcane(R$/Ha)
Sugarcane cutter (R$/month)
0.00
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
Small producer, ethanolSmall producer, sugarcaneSugarcane cutter
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Sustainability: other factors• Job created/$ invested
– 1980’s: $ 23,000/direct job (nominal) – 1991: $ 41,000/job in 35 leading sectors– 2007
• Large scale: 44,285 $/job created• Small scale: 27,726 $/job created (*)
• Job quality• Number of jobs
– 44,800 in the 5,600 municipalities (a new Petrobras)• Food security • Environmental impacts
– New crops: displace food crop and induced Amazon or “cerrado”deforestation
• Roundtable on sustainable biofuels (labor rights, food security, poverty alleviation, land rights)
* Including subsidies
Key issues• Commercialization
– Auto-production and consumption– Niche market
• New ANP resolution (through Petrobras) where microdistilleries up to 5,000 l/day can have own retailers
• “Socially responsible ethanol” (certification or fair trade product)• Avoid “dumping” effect
– Airplanes used in agriculture• Quality standards (ANP)
– Achivable if there will be a market• Financing
– Currently, too risky– New financing mechanisms there will be a niche
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Job quality• “Blitz in Alagoas gives freedom
to over 550 workers in a sugarcane distillery”– “…terrible working conditions”
• “several people living in one room”
• “no windows”• “workers felt humiliated and
treated like slaves”– “The auditor that was in
charge of the operations said that it will be very difficult to export ethanol under these [working] conditions”
March 2008
Conclusions• Microdistilleries are viable and sustainable
– The can occupy a portion (i.e. 5 %) of the market share
• Several socio-economic benefits compared to large scale
• However their dissemination is fully dependent on the creation of a protected niche market– There are the conditions that this will happen
• Can some of these features be scaled-up to larger plants?
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Biodiesel
Biodiesel• It is a renewable energy
source that can be used for:– Transport (when blended
with diesel – B5; B20; B100)– Energy generation
• It comes from the transesterification of vegetable oils or animal fats
1. Seeds that have oil2. Press them to get the oil out3. Refinery: add methanol or
ethanol + catalyst (NaOH)– Biodiesel– Glycerol
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• Introduced in 2004– 2% blend by 2008; and – 5% blend by 2013
• Brazil imports ~9% of its diesel– About 3 Billion US$
• Keep leadership in biofuel
• Link poverty reduction to biofuel– President Lula’s social
policy
National Biodiesel Program (PNPB)
The Social Fuel Certification
• Tax incentives to biodiesel producers that buy feedstock from small farmers– Small farmers and
water scarcity 70%30%South70%30%Southeast90%10%Center-west
50%50%Northeast and semi-arid
90%10%North
Participation of intensive agriculture (%)
Participation of family agriculture (%)
Geographical region
67.90%67.90%67.90%67.90%67.90%Any raw material
30.50%100%30.50%100%Palm tree
30.50%100%30.50%100%Castor seed
Small farmers
Small farmers
Small farmers
OtherSmall farmers
OtherSmall farmers
SouthSouth East
Center-west
Northeast and semi-arid region
North region
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Research question
• Is it possible to havea model that is trulysustainable? – Can an “energy
production” policy help reducing poverty?
Economic
Social Environmental
Quixadá biodiesel plant, Ceará
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Quixadá biodiesel plant, Ceará• Developed by Petrobras
– Model for other 4 plants• Capacity: 50 Million l/year• About 45 M$ • Located in the semi-arid
region of Brazil– Poorest– Potential for some oil
seeds• Castor• Jatropha• Cotton• Palm
Project outline
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Incentives to farmers
• Minimum price for the seeds– 0.35 to 0.5 $/kg
• Cash (75 $/Ha)• Free seeds• Technical assistance (EMATERCE and BNB)• 50% of the cost for chemical stabilization of land
• BNB (regional development bank) helps in setting up the financial structure of the project
Project outline• Multiple feedstock vsquality standards
• Community based management
• Type of feedstock
• Capacity building andorganization
• Drying
• Storage facilities
• Transport
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Social benefits: assumptions• Baseline: minimum
salary (200 $/month)• Production cost, any
oilseed (300 $/Ha)• Yield
– Castor– Sunflower– Cotton
• Transport cost• No pressing cost
• Price to producers: seeds
• Price to producers: oil
• Price to producers: cake/protein meal
Preliminary results
1.82.20.811.30.40.3Sunflower (R$/Ha)
---1.31.71.31.7Castor
bean, BRS En (R$/Ha)
---0.40.70.40.7Castor
bean, NE (R$/Ha)
2.12.41.30.81.21.41.8Cotton (R$/Ha)
1111111Baseline (R$/Ha)
Without incentives
With incentives
Without incentives
With incentives
Without incentive
With incentive
D - Selling oil and mealC - Selling meal
B - Selling oilA - Selling seeds
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General considerations• Still work on progress
– Weekly changes– Why castor bean?
• Crop modifications may increase yield
• Conflict of interests between small farmers and biodiesel producers– The largest biodiesel producer
did not pay what agreed with the farmers
• Net losses of 20 M$ in 2007 (0.1 $/l)
• Smaller “local scale” units or larger “regional” ones?– Pressing units and biodiesel– Start from a “social”
perspective
0
0.2
0.4
0.6
0.8
1
1.2
diesel vegetable oil
2008 priceR$/l
Micro-entrepreneurship
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Final considerations• It is possible to link poverty and rural
development to the commodity market– Quiet a lot of work needs to be done
• Next steps– Ethanol
• Understand the carbon balance• Can some of the features that characterize small scale plants
be scaled up?– Biodiesel
• Refine a business model that is viable at a local and national level
• Work with the private sector to look at all the different components
Thanks