Is it possible to avoid
bad impacts by using
good fuel ethanol?
report 6331 • february 2010
Is it possible to avoid bad impacts
by using good fuel ethanol?
Authors:
Göran Berndes and David Bryngelsson
Chalmers University of Technology, Gothenburg, Sweden
Gerd Sparovek,
University of Sao Paulo/ESALQ, Piracicaba, SP, Brazil
SWEDISH ENVIRONMENTAL
PROTECTION AGENCY
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The Swedish Environmental Protection Agency
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ISBN 978-91-620-6331-3.pdf
ISSN 0282-7298
© Naturvårdsverket 2010
Digital Publication
Cover photos: Ola Jennersten/N - Naturfotograferna
SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
Preface
Much of the global production of biofuels is considered to be non-sustainable.
Brazilian sugarcane ethanol, on the other hand, is normally judged to be “good”.
Swedes are anxious only to use fuel ethanol with the best climate characteristics in
a life-cycle perspective, and the bulk of ethanol used in Sweden comes from Brazil.
The Swedish Environmental Protection Agency has identified some crucial issues
which often are left out from discussions. These might be of extra importance for
the Swedish ethanol use:
- Might Swedish demand for good ethanol indirectly raise the demand for “bad”
ethanol, such as US maize ethanol with fossil energy input? Or is it possible to
encourage the production of exclusively “good” ethanol by choosing such (certified) ethanol? This depends on how the international market for fuel ethanol works.
- To what extent does increased Swedish, or European, demand encourage the
long-term supply of ethanol? What supply elasticities are there in Brazil and globally? If increased European use only means that we take hold of a fixed supply, the
climate benefit compared to fossil fuels will not occur.
The analyses are further complicated by the fact that there might be land-use competition between fuel, feedstuffs and food. When available land becomes more
limited, increased production might necessitate breaking new soil, which could
lead to emissions of climate-changing gases elsewhere. Consequently it is not only
the fuel market itself that needs to be analysed.
The Swedish Environmental Protection Agency asked the Chalmers University of
Technology in Gothenburg, Sweden to study these issues in a comprehensive context. Chalmers jointly performed the study with researchers in Sao Paulo, Brazil.
Authors are Göran Berndes and David Bryngelsson at Chalmers and Gerd
Sparovek at University of Sao Paulo/ESALQ. The authors alone are responsible for
the contents of the report, which should not be regarded as necessarily reflecting
the views of the Swedish Environmental Protection Agency. The contact at the
Swedish EPA was Mats Björsell.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
Contents
PREFACE
3
1 INTRODUCTION
6
2 THE PRESENT SITUATION FOR ETHANOL AND BIOENERGY IN GENERAL9
3 WILL INCREASED ETHANOL USE IN SWEDEN LEAD TO INCREASED
ETHANOL PRODUCTION IN BRAZIL?
3.1 Aspects influencing the impacts of Swedish ethanol use
11
11
3.1.1 Ethanol consumption and price elasticities
11
3.1.2 Ethanol production costs in different countries/regions
13
3.1.3 Capacity expansion rate constraints
14
3.1.4 Land-use dynamics in Brazil
18
3.1.5 Policy instruments
21
3.1.6 Price links
24
3.1.7 Trade
26
3.2 Connections between ethanol expansion in Brazil and the USA: a useful
example to learn from
28
3.2.1 Land use dynamics: Partial equilibrium models
28
3.2.2 Aspects relevant for Brazilian sugarcane-ethanol
35
3.3 Synthesis: impacts of Swedish ethanol use
43
3.3.1 Price elasticity of supply
43
3.3.2 Relative baseline
45
3.3.3 The larger global context
46
4 EFFECTS OF EXPANDING THE ETHANOL PRODUCTION CAPACITY
IN BRAZIL
4.1 Sugarcane ethanol expansion in Brazil 1996-2006
48
48
4.2 Sugarcane ethanol expansion in Brazil up to about 2020
52
5 AN ALTERNATIVE SUGARCANE ETHANOL EXPANSION MODEL
5.1 Integrating cattle production with sugarcane ethanol production
54
54
5.2 The integration of sugarcane with cattle production in settlements in the Pontal
do Paranapanema region in the State of São Paulo
55
6 PROSPECTS FOR PRODUCTION WITHIN AN INTEGRATED AND
CERTIFIED MARKET: AN ASSESSMENT OF STAKEHOLDER OPINIONS 58
6.1 Methodology
58
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
6.2 Stakeholders that were interviewed
59
6.3 Results
59
6.3.1 Ethanol production and development
60
6.3.2 Economic
60
6.3.3 Social
60
6.3.4 Environment
61
6.3.5 Tenure and land ownership concentration
62
6.3.6 Relation with other sectors
62
6.3.7 Certification
63
6.3.8 Sugarcane and food integration
64
6.3.9 Reaction to the integration proposal
65
6.4 Some concluding remarks
66
7 SUMMARY AND SOME BRIEF REMARKS
68
REFERENCES
73
APPENDIX A: PERSONS AND INTERVIEWED ENTITIES
79
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
1 Introduction
Sweden is anxious to use only “good” fuel ethanol with the best climate performance in a life cycle perspective. A large part of the ethanol used in Sweden has
been imported from Brazil, and Brazilian ethanol is considered to have good such
qualities. Also, Swedish cereal ethanol has a good climate performance compared
to the average for cereal ethanol, thanks to favourable process integration and
location leading to low Greenhouse gas (GHG) emissions from the conversion
process (Börjesson 2008).
However, depending on how the international ethanol and food market functions
Swedish consumption of good ethanol may lead to undesirable so-called indirect
effects. For example, if the USA is the marginal producer on the world ethanol
market; an increased Swedish import demand may indirectly induce increased
maize ethanol production in the USA (with a lower mitigation benefit than Brazilian ethanol), despite that the ethanol imports to Sweden comes from Brazil. Similarly, if more Swedish cereals are channelled to Swedish ethanol plants the volumes lost for the food sector need to be produced somewhere. If this additional
production is achieved based on expanding cropland into forests (or by cultivating
grassland with high soil carbon content) the resulting GHG emissions can be higher
than what is gained from increased Swedish cereal ethanol production.
Thus, how the international market for cereals and for fuel ethanol looks like is of
vital importance for the possibilities to conclude whether the marginal net climate
benefit of expanding the use of domestic and Brazilian ethanol is favourable 1.
This report primarily focuses on the case of Brazilian ethanol, which is the major
source of the Swedish ethanol imports. To assess the GHG emission impact from
Swedish/European use of Brazilian ethanol one needs to understand the properties
of ethanol markets. The implications might be, at the extreme, that when undertaking life cycle assessments it would be relevant to use global average ethanol LCAdata or LCA-data representative for the marginal supplier to the world market,
instead of LCA-data for the sugarcane ethanol actually used.
The report contains a description of the international ethanol fuel supply characteristics. The description is given for the present situation but also includes a discussion of possible developments using 2020 as time horizon. Based on this description the report discusses possible effects of Swedish ethanol use and specifically
our import and use of Brazilian ethanol.
1
It is also crucial to come further in the discussion about responsibility of individual biofuel producers
for indirect emissions taking place – one alternative could be to place the responsibility on those that
actually cause the emissions. However, this discussion goes beyond the scope of this report
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
Besides climate performance, many other environmental and socio-economic aspects have been raised as concerns related to biofuels, including Brazilian ethanol.
Therefore, we also present results from investigations of the socioeconomic and
environmental effects of the ethanol expansion in Brazil 1996-2006, with a view on
future development. Linked to this, we outline an alternative expansion model that
might mitigate some of the risks and negative effects connected to conventional
ethanol production in Brazil and we discuss prospects for implementation of such
an expansion model within a certified market.
We also discuss the possibilities for Sweden – being a country with relatively small
transport fuel use compared to many other countries – to influence the Brazilian
ethanol production at large by linking specific requirements on how the ethanol
that Sweden imports should be produced. This discussion is based on ongoing
studies, including stakeholder interviews.
The work has been guided by a number of lead questions, including:
• Could we choose to stimulate production of exclusively 100% “good”
ethanol, when we buy such (certified or not) good ethanol?
• To what extent do we have an international global market, what elements
of “world market” is there today?
• To what extent does an increased European demand stimulate supply?
What are supply-elasticities in Brazil and globally?
• Is the supply curve vertical? If so, an European increased use means that
we “lay hands on” the fixed supply, so that climate advantage does not
occur.
• How are expanding production capacities in Brazil (and other parts of the
world) influenced when Europe very quickly raises the demand for ethanol?
• How is production in Brazil (and other parts of the world) influenced by
demand for certified “good” ethanol? Is there evidence that production
for niche markets can influence the conventional production, and if so,
how?
The report was commissioned by the Swedish Environmental Protection Agency
and has been produced jointly by the authors, using also support from IEA Bioenergy Task 30 and the Swedish Energy Agency. The report is partly based on
earlier and ongoing research and the authors want to acknowledge important contributions to this research from Andrea Egeskog at Dept. of Energy and Environment, Chalmers University of Technology, Sweden; Flavio Luiz Mazzaro de
Freitas and Alberto Barretto at ESALQ, Sao Paulo University, Brazil; Sergio
Martins and Rodrigo Maule at Entropix Engineering, Piracicaba, Brazil; Stina
Gustafsson, formerly at Chalmers and now at the Swedish Environmental protection Agency; and Anders Åhlén, formerly at Chalmers and now at McKinsey,
Stockholm, Sweden.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
Mats Björsell and Nanna Wikholm at the Swedish Environmental Protection
Agency have supported the writing by reviewing and providing constructive feedback on draft reports.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
2 The present situation for
ethanol and bioenergy in
general
Today, biomass (mainly wood) contributes some 10% to the world primary
energy mix, and is still by far the most widely used renewable energy source
(Figure 2.1). While bioenergy represents a mere 3% of primary energy in
industrialized countries, it accounts for 22% of the energy mix in developing
countries, where it contributes largely to domestic heating and cooking, mostly
in simple inefficient stoves.
Figure 2.1. Share of bioenergy in the world primary energy mix. Source: based on IEA (2006) and
IPCC (2007).
Over the last three decades, issues of energy security, increasing prices of fossil
fuels and global warming have triggered a renewed interest in biomass for the production of heat, electricity and transport fuels, with many countries introducing
policies to support bioenergy, also as a means of diversifying the agricultural sector. This has been accompanied by significant developments in conversion processes, with cleaner more efficient technologies being introduced into the market
and several others at the research, development and demonstration stage. The biomass resource base is potentially large, and so are the opportunities for its increased use in different energy segments in industrialized and developing countries.
The bioenergy sector has witnessed significant growth in recent years, in particular
in relation to biofuels for the road transport sector, which has grown considerably
faster than the heat and electricity sectors. While the development of the bioenergy
industry remains very dependent on regional policies, this industry is at the same
time becoming increasingly globalised as a result of an emerging global trade in
biomass products such as pellets and ethanol. The biofuel market is globally
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
dominated by ethanol, but in the EU biodiesel makes up a larger share. 54% of EU27s production of biodiesel takes place in Germany and has been driven by a total
exemption from fuel taxes (Birur, Hertel and Tyner 2007). The German tax exemption has recently been replaced by quotas. The production and consumption of
ethanol is dominated by a few countries with the USA and Brazil in the lead
(Figure 2.2).
The relative importance of drivers for consumption and production of ethanol vary
between countries, since they place different emphasis on the underlying objectives
– with the most common being energy security, climate change mitigation, and
revitalization of the national agricultural sector (FAO 2008) (M. Banse, et al.
2007). Emphasis on such diverse objectives results in a wide variety of policy
driven incentives for both production and consumption of ethanol.
Figure 2.2: Ethanol production and consumption by region during 2008. Source: OECD-FAO
Agricultural Outlook Database.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
3 Will increased ethanol use in
Sweden lead to increased
ethanol production in Brazil?
3.1 Aspects influencing the impacts of
Swedish ethanol use
Many aspects influence the impacts of Swedish ethanol use – not the least the shaping of policies and regulating mechanisms – and it is far from straightforward to
project the effects of Swedish ethanol use on international ethanol production and
trade. Below, aspects judged as important are briefly accounted for with the aim to
provide a basis for proposing features of the international response to increased
Swedish ethanol use.
3.1.1 Ethanol consumption and price elasticities
Varying rationales for countries promoting biofuels such as ethanol have resulted
in a wide variety of policy driven incentives for both production and consumption
of ethanol. The global ethanol market is thus very complicated and heavily distorted due to various market interventions such as fixed mandates, production targets, import tariffs and subsidies. According to FAO, direct support to production
and consumption has the largest distorting effects, while research support is the
least distorting (FAO 2008).
Birur, Hertel, & Tyner (2007) calculated price elasticities of substitution between
ethanol and oil, based on historical data from 2001 to 2006, and came up with 3.0
for the USA, 2.75 for the EU and 1.0 for Brazil. The price elasticity of demand can
be very elastic in areas where ethanol is just competitive with oil and the technical
limits are not yet reached (M. Banse, et al., 2008b). These technical limits depend
significantly on the infrastructure in the region and the vehicle pool used.
One should be aware though, that these elasticities have been calculated based on
data during a period of great change, where consumption of fuel ethanol in most
places has started from almost zero. There were also other forces at play on the
European and American markets that may not have had so much to do with price
elasticity of demand. The oil price has been constantly increasing since 2001 until
it peaked in mid 2008 and then decreased sharply to a bottom level in December
the same year (Figure 3.1). At the same time there have been a number of political
decisions regarding ethanol for energy security, climate change mitigation etc,
mandating certain blends of ethanol in petrol. The consumption of ethanol has
hence increased at a time when the ethanol price has moved in favour of oil, but the
correlation cannot be fully explained by economic theory of price links.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
The situation is fundamentally different for Brazil, however, which is the only
mature market for fuel ethanol (M. Banse, et al., 2008b) with a long history of
policy support, which has now been phased out. A large share of the car-fleet in
Brazil is full flexibility vehicles (FFV) and the consumers can therefore at every
re-fuelling choose to buy the cheapest fuel blend. This can explain Brazil’s unity
elasticity. The rapid decrease in ethanol consumption in Sweden following the oil
price decrease in the end of 2008 is another illustrative example of close connections between oil prices and ethanol consumption in countries having a substantial
share of ethanol consumption connected to flex fuel vehicles (E85 in the case of
Sweden). In countries where the major part of the ethanol volumes are used in low
level gasoline blends, it is the gasoline producers rather than the fuel consumers
that define the price elasticity of substitution between ethanol and oil. The way
policies are formulated influence elasticities. Strict biofuel obligations, e.g. requiring a minimum level of blending in gasoline and diesel, results in inelastic demand
while financial incentives such as tax exemptions at the pump leads to more elastic
demand.
Since the feedstocks presently used for ethanol production have alternative use in
the food sector, ethanol prices can also be influenced by the food sector development that influences the feedstock costs. This influence of course also goes in the
opposite direction. Demand for ethanol has for instance created a floor price for
sugar and when oil prices are high enough to make sugarcane ethanol competitive
on the energy market sugar prices develop along the same pattern as oil prices.
Figure 3.1: Development of oil prices over time. Peaking in July 2008 the oil price decreased
sharply to a bottom price well below US$40 per barrel in December the same year. Increasing
since then the crude oil price was around US$50 per barrel in April 2009. Source: EIA (2009).
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
3.1.2 Ethanol production costs in different countries/regions
The cost of production varies substantially between different areas and production
systems. Figure 3.2 presents indicative production costs of ethanol and biodiesel
from different crops and from animal fat in the main production regions in 2007.
It is important to keep in mind that biofuel production costs are calculated for specific production and conversion contexts, which vary over time and space. The
production costs are sensitive to feedstock costs as well as capital costs, and development towards larger plants – which has been the trend; the capacity of new
plants is as a rule above 200 million litre per year – reduces total production cost 2.
The level of co-product revenues is another important factor.
Figure 3.2. Indicative production costs of ethanol and biodiesel from different crops and from
animal fat in the main producing regions in 2007. Source: E4tech (2008).
For instance, Goldemberg (2007) reports that Brazilian sugarcane ethanol production costs can be as low as US$0.2 per litre and, similarly, lower production costs
than given in Figure 3.2 can be calculated for cereal or beet ethanol if lower feedstock/capital costs and/or higher co-product revenues are used. CFC (2007) report
ethanol production costs ranging from about US$ 0.40 – 0.50 per litre for maize
2
Feedstock costs account for approximately half of the cost of sugarcane ethanol production, and a
greater share of costs in the case of the other first generation ethanol production pathways, such as
corn ethanol.
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
ethanol in the USA to US$ 0.50 – 0.80 per litre for European ethanol produced
from wheat or sugar beet.
Nevertheless, looking at the ethanol production from a cost effectiveness perspective, the choice of feedstock would be sugarcane and the country of production
would be Brazil, which has the lowest production costs and also potential as well
as near term capacity to expand the ethanol production substantially. The Brazilian
ethanol becomes cost competitive against oil at a crude oil price of about US$3545/bbl (Banse, et al., 2008a) (BNDES; CGEE; 2008), while the oil price needs to
be roughly twice as high for the US maize ethanol and up to three times higher for
European ethanol to compete with oil 3.
From a purely economic perspective, Brazil should supply the market until the
marginal cost of expansion in Brazil reaches that of another region, e.g. ethanol
based on cassava from Thailand, which becomes cost competitive at an oil price of
US$ 45/bbl (Schmidhuber 2007). Production in the USA or EU would not begin
until all cheaper options were exhausted and marginal expansion could be done at
the lowest cost in these regions.
However, in addition to the market price of oil the competitiveness of ethanol on
the market crucially depends on which policy instruments are in place. The present
ethanol production in “high cost” regions such as EU and USA exists due to governments introducing trade barriers and market distortions, motivated by other than
purely economic considerations. Taking USA as an example, existing mandates
and trade barriers induce a continued increase in domestic production of maize
based ethanol despite that it is much more costly than ethanol from possible import
sources (Birur, Hertel and Tyner 2007). Several other countries/regions (e.g., EU,
Canada, Australia and China) have also set targets for renewable fuels in the transportation sector and many of them also have trade barriers.
3.1.3 Capacity expansion rate constraints
A comparison of Figure 2.2 with Figure 3.3 gives an indication of the expected
development of ethanol production and consumption in some major ethanol markets during the period up to 2017. As can be seen, Brazil is expected to expand its
ethanol production substantially and despite USA producing more ethanol, Brazil
is expected to further establish its position as the main ethanol exporter on the
world market. The projected ethanol production in Brazil up to 2018 – according to
OECD-FAO Agricultural Outlook 2009 - 2018 (OECD-FAO 2009) – is shown in
Figure 3.4, depicting a steady increase during the whole period.
3
Also, as will be discussed further below, the oil price influences the production costs for especially the
presently available biofuels where feedstock costs make up a major part of the total biofuel cost: higher
oil prices means higher costs for diesel, nitrogen fertilizers (since natural gas prices follow oil prices)
and other inputs required for the feedstock production.
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
The planned expansion of the Brazilian ethanol production for the coming decade
(further discussed later in this report) implies that Brazil plans for meeting both the
expected increase in domestic ethanol demand and a significant part of the future
international ethanol demand based on substantially increasing its own ethanol
production. The development in sugarcane production since year 2000 is shown in
Figure 3.5 – Figure 3.7. A comparison of the growth in sugarcane production
shown in Figure 3.5 with the projected ethanol production increase up to 2018
shown in Figure 3.4 reveals that the historic and projected future growth rates are
similar.
Figure 3.3. Ethanol production and consumption by region for 2017. Source: OECD-FAO Agricultural Outlook Database (OECD-FAO 2009).
Figure 3.4: Estimated production of fuel-ethanol from sugarcane in Brazil for 2008 to 2018.
Source: OECD-FAO Agricultural Outlook Database (OECD-FAO 2009).
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
While short periods of high demand (and prices) for agricultural commodities
mainly induces an extended cultivation, longer periods of steady growth of ethanol
production, in response to anticipated demand growth, will likely be characterized
by both increases in cultivation area and increases in yields through agronomic
development, including plant breeding. As agronomic advancements leading to
higher sugarcane yields, technology development leading to increased ethanol
conversion efficiency at the ethanol plant reduces the area expansion requirement
for a given increase in ethanol demand by contributing to improving the ethanol
output per hectare. The ethanol conversion efficiency has increased about 3.8% per
year during the period 1975 to 2004 (ESMAP 2005).
Based on that the projected expansion rate for Brazilian ethanol is not dramatically
different from historic expansion rates it can be considered likely that the increased
ethanol production will be accomplished by both increasing agricultural output
(extended and intensified sugarcane production) and increasing conversion efficiency at the ethanol plants – possibly by introducing technologies for converting
part of the cellulosic residue bagasse into ethanol. To the extent that increased
ethanol supply will be based on expansion of the sugarcane area experience from
the recent period of sugarcane expansion (Sparovek, et al. 2009) as well as studies
including Brazilian scenarios for future sugarcane expansion (Zuurbier and van de
Vooren 2008) indicate that sugarcane will mainly replace agricultural land in established agricultural regions and cause little direct deforestation. A large part can be
expected to become established on pastures used for extensive cattle production.
Productivity increases – especially in pasture production – is projected to mitigate
the land expansion pressure arising from sugarcane replacing other agricultural
land use, but this can lead to other undesired indirect effects such as increased
cattle feed demand leading to higher deforestation pressure of soybean in the
Amazon and other preserved biomes (further discussed below).
If demand in some countries/regions grows significantly faster than projected or
the production in some other countries/regions grows much slower – the expansion
of production capacity in Brazil may reach higher rates, stimulated by high ethanol
demand and high prices. However, there are lead times for capacity addition and
the maximum rate of capacity addition during the coming decade or so is limited
by the number of environmental permits that have been granted to different investors. Thus, even though Brazil has the potential to supply a large share of the global
demand for ethanol, the country cannot expand the production at an unlimited pace.
With the current economic crisis and relatively low oil prices this upper limit is
unlikely to be reached by market forces alone. During phases of high demanddriven growth in ethanol production (e.g. during the peaking oil prices in 2008),
capacity expansion restrictions can limit the supply and drive up ethanol prices.
Higher prices call for expansion of production in other regions with higher marginal production costs than Brazil. The demand for fuel ethanol is currently
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
(spring 2009) much lower than at the peak in 2008 and production expansion is
instead limited by reduced profitability 4 .
EU and USA have relatively high ethanol production costs and production cost
considerations point to mainly other tropical countries as marginal ethanol suppliers after Brazil. However, as already mentioned, in addition to the market price of
oil, the competitiveness of ethanol on the market crucially depends on which policy
instruments are in place. Various market disrupting instruments may lead to ethanol production still taking place in high cost countries.
Another factor in favour of increased ethanol production in high-cost countries is
the uncertain investment climate in some tropical countries identified as promising
from the perspective of biophysical potential and production cost. For instance,
several countries in Sub-Saharan Africa have large biophysical production potentials and there is presently much interest among various international companies
and investors. At the same time, lack of knowledge and infrastructure and also
limited domestic institutional capacity to support a sound near term large-scale
establishment, can make production capacity growth slow in this region 5.
Figure 3.5: Production of sugarcane in Brazil from 2000 to 2007 in tonnes. (FAOSTAT u.d.)
4
www.cepea.esalq.usp.br/english/
5
Slow growth may also be a prerequisite for avoiding negative socioeconomic and environmental
impacts in tropical countries that lack capacity to guide the development according to carefully
developed guidelines.
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Figure 3.6. The area under sugarcane cultivation in Brazil. (FAOSTAT u.d.)
Figure 3.7: Expansion of area for sugarcane cultivation in Brazil. (FAOSTAT u.d.)
3.1.4 Land-use dynamics in Brazil
Brazil is a land rich country with vast areas of suitable soils, regular rainfalls and
strong insulation. The land is only partly exploited and the production on this land
is very dynamic with constant expansion, intensification and changes in crops and
in production systems.
Some qualitative patterns have been more or less the same since the colonization;
e.g. that land prices are linked to the proximity to urban centres and infrastructure
and these prices strongly influence the type of crops or other land-use in each area.
The agricultural frontier, which makes up the border between the untouched natural
land and the already claimed land, is typically situated far away from any urban
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centres and the infrastructure is poor and sparse. The main use of such land takes
the form of low-intensity systems like cattle ranching based on grazing with very
low input and low output.
As urban centres emerge and infrastructure improves, land prices go up and extensive cattle production gets displaced by high-input-high-output land-uses like crop
production, e.g. soybeans or orange trees, and the agricultural frontier with cattle
production shifts further into the previously untouched land (Sparovek, et al. 2007).
In some areas also this crop production gets displaced by other land-uses with even
higher profits, sugarcane production being a prominent example. This displacement
is part of an important interaction between different types of land-uses in Brazil
and no crop's environmental impact can be correctly evaluated without considering
such inter-land-use interactions (Sparovek, et al. 2007).
The majority of the sugarcane in Brazil is grown in the south-central region of the
country with the state of São Paulo as the centre of production, with 58% of the
total sugarcane area (Fischer, et al. 2008, p. 40). Sugarcane has been produced in
this region for centuries; it started shortly after the Portuguese colonization
(Fischer, et al. 2008, p. 40) together with livestock ranching and food crop production.
The south-central region with São Paulo in the centre is among the most developed
areas in Brazil and there is little pristine forest or other untouched land left; it is
generally below the legal limit of 20% naturally forested land for every landholding.
An increase in production of any crop has to come from either increases in yields
or from expansion in cropping area, an expansion which in this highly developed
area has to come at the expense of other land uses. Increases in yields can be
achieved through intensification with more inputs into the system, e.g., irrigation
and increased fertilization; changing breeds/varieties; or through development of
the breeds/varieties currently in use.
The environmental conditions are also optimal for sugarcane production regarding
temperature, radiation, precipitation and soil characteristics (Fischer, et al. 2008, p.
40). For sugarcane, the long history of cultivation has resulted in improved varieties and production systems, resulting in increasing yields over time. Development
of sugarcane varieties for further yield increases is a continuous process; new varieties are brought to the market every year to adapt to management change (e.g.
mechanical harvesting), new climates (e.g. the more Northern part of Brazil), insects or disease. In general, rather slow increases in crop productivity can be expected for any since-long domesticated plant, be it sugarcane or corn. Short-term
increase in total production can only be obtained by increasing the area under cultivation. Availability of 2nd generation conversion technologies might change the
prospects for sugarcane yield increases though: sugarcane breeding would then be
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driven by a new set of target indicators making it possible to achieve higher productivity growth in terms of ethanol feedstock per hectare.
The sugarcane industry in the South-Central region is well developed with welldefined roles for the actors involved; the main actor is the processing industry
which owns the mills and also areas dedicated to sugarcane production (some industries own very little land and some own large land areas). When there is a demand for increased production of ethanol, the industry applies for an environmental
permission to build a new sugarcane mill, at the same time as they have dialogues
with farmers and landowners in the area to get acceptance and secure a supply of
sugarcane.
There are three separate types of suppliers of sugarcane to a mill: The industry
itself, which buys land surrounding the mill and produces its own sugarcane; farmers who stop or move their current farming activity and instead rent out their land
to the industry; and farmers who decide to switch production from their current
activities into sugarcane production and sell sugarcane to the mill. Common for
these three distinct ownership and administrative structures is that they all expand
on former agricultural land – mainly grazing land – and thus directly displace
mainly meet production, but also dairy and to some degree food crops and soybeans.
Income is the main driver for choice of activity for the farmers, but they generally
do not want to sell their land. The family farmers rather keep their land, but either
choose to switch between cattle ranching and sugarcane production in accordance
with changes in relative incomes, or they rent out their land to the sugarcane industry if they do not want (or do not have the capacity) to invest in and produce sugarcane themselves. The industry itself on the other hand buys and sells land according to an economically rational behaviour. Many of the large areas owned by industrial farms were bought in the past, as it is getting increasingly difficult to buy
large areas of land, which instead have to be bought piece by piece. In the midwest it is much easier to buy large areas of land, some farmers sell their land in São
Paulo and buy three to four and sometimes even up to ten times larger plots of land
there; a process that was more common in the past than these days as land prices
are increasing also in the mid-west.
When the sugarcane industry rent land from farmers, they normally write contracts
for 5 + 1 years, which corresponds to one sugarcane cycle. The producer thus
plants the sugarcane and harvests for five seasons and if the quality of the sugarcane is good enough for yet another year without replanting, they have the right to
do so. Roads, fences and other infrastructure normally has to be left intact and the
land must be left bare (no sugarcane still on it) when the contract period ends; if
they do not decide on extending the contract for another cycle. Prices are negotiated for each plot independently and depends on the soil quality and distance to the
mill; the prices per hectare are set so that they correspond to the value of a
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Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
predetermined amount of sugarcane, normally between 10 and 40 tonnes sugarcane
per hectare in São Paulo (total harvest in São Paulo is above 80 tonnes per hectare).
The value given to the landowner then depends on the value of each tonne of sugarcane when it is delivered to the plant 6, which is a function of the total recoverable
sugars obtained per ton of cane (ATR in Portuguese). The price decided on a yearly
basis by an organization called Consecana. Consecana is based on two main institutions, one that represents the mills, Unica; and one that represents the growers,
Orplana 7. The president of Consecana is changed every year; every second year the
president is from Unica and the vice president from Orplana and every second year
it is the other way around. The price of sugarcane is the same for everyone, but
based on the ATR. The volume projections are based on previous years, but ATR
values refer the current year. The latter depends on the market.
Landowners can in the same way rent out land for cattle production or grain production and they then also get paid in the same way, i.e. the value of e predetermined amount of meet, dairy or crops.
3.1.5 Policy instruments
There are several policy instruments at play, affecting the global production and
consumption of biofuels. Tariffs, subsidies and mandates are the most common.
The description below should be considered an attempt to describe the status at the
time of writing (spring 2009) but the reader is cautioned that the situation is very
dynamic.
3.1.5.1 CURRENT POLICIES AND MANDATES
In the USA there is a US$0.143/litre (US$0.54/gallon) tariff on imported ethanol
and a US$135/litre (US$0.51/gallon) subsidy on consumption (de Gorter and Just
2008). The new Energy bill calls for a mandate of 34 billion litres renewable fuel
(ethanol, biodiesel etc) by 2008 (GBEP 2008), about 57 billion litres 2015 (Zuurbier and van de Vooren 2008) and 136 billion litres by 2022 of which about 80
billion litres should be advanced biofuels such as cellulosic (GBEP 2008).
In the EU there are consumption mandates of 5.75% renewable fuels – in essence
biofuels – in the motor fuel consumption by 2010 (EP&C 2003) and also national
targets of 10% biofuels and other types of renewable energy in the transportation
sector by 2020 (EC 2008). There is further an import tariff adding 50% on the price
for ethanol imported to the region (FAO-HLC 2008). See e.g., (Kutas et al. 2007,
Wiesenthal et al. 2009) for an overview of bioenergy and biofuels policies implemented in the EU countries.
6
Each truck with sugarcane arriving at a sugarcane mill gets weighted on its way in and then again on
its way out from the mill, to get the weight of sugarcane. A sample of cane is also taken from each
delivery which is immediately analyzed in a laboratory, by personnel representing both the processing
industry (UNICA) and the growers (Orplana), to determine the ATR of the cane.
Personal communication with Tecnol. Ac. Álcool José Rodolfo Penatti, AFOCAPI/COPLACANA
7
Personal communication with Tecnol. Ac. Álcool José Rodolfo Penatti, AFOCAPI/COPLACANA
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Brazil has a long history of policy support for ethanol use in the transport sector,
but since the late 1990s government policies have little influence on the production
and commercialization of fuel ethanol (IEA Bioenergy 2007). Brazil has a mandatory blending target of 20-25% (GBEP 2008), but market conditions have raised
blending levels above that. Brazil also has import tariffs on ethanol (GBEP 2008).
China has set targets of 15% biofuels in transportation by 2020 and has import
tariffs (GBEP 2008). China’s main drivers for ethanol mandates are improvement
of the local air quality and support for domestic farmers (IEA Bioenergy 2007).
India has no tariffs and a target of 5% ethanol in petrol as of 2007, this target may
be raised to 10% (GBEP 2008). India wants to decrease their dependence on foreign oil (IEA Bioenergy 2007). Japan has a voluntary quantitative target of 500
million litres as converted to crude oil, by 2010 (GBEP 2008). Thailand has set a
target for producing and blending 10% ethanol in transport fuels by 2012 to meet
the growing energy demand and reduce their dependence on imported oil
(Amatayakul och Berndes 2007). There are plans to export ethanol to the Asian
market (Jull, et al. 2007). Russia has neither binding targets, nor subsidies or tariffs
in place (GBEP 2008).
3.1.5.2 EFFECTS FROM POLICIES
A tax exemption allows for the ethanol price to increase above the petrol equivalent price by the amount of the tax and thus transfers money from the taxpayers to
the ethanol producers, i.e. it works as a non-specific and non-discriminatory subsidy to all ethanol producers, domestic as well as foreign (de Gorter and Just 2008).
The extra production of ethanol lowers the fuel price, and the oil price, which in
turn provides incentive for a rebound effect where more fuel is consumed (de
Gorter and Just 2008). There is, however, an increase in ethanol production (and
consumption) and a small decrease in oil consumption.
A mandate increases the ethanol price for both consumers and producers, resulting
in an increased production of ethanol (as mandated) and a somewhat decreased
consumption of transport fuel in aggregate, depending on the consumer price elasticity to rising prices (de Gorter and Just 2008). It does not alter the competition
between domestic and foreign producers and thus promotes the most efficient use
of resources.
A mandate in combination with an import tariff increase domestic prices more than
the international prices and if the import tariff is sufficiently high domestic producers will supply the demand (de Gorter and Just 2008). Domestic consumers thus
pay for expanded production domestically, where the marginal cost of production
is not the lowest internationally, resulting in decline in aggregate fuel consumption
(domestically). International ethanol prices go down somewhat due to the reduced
import demand in the country having the import tariff and there can be slight increase in international fuel consumption, due to price elasticity of demand. The
domestic price effects are stronger than the global.
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The combination of a fixed mandate and a tax exemption result in a subsidy for the
consumers by lowering the fuel costs, but it does not benefit producers directly
since their market is guaranteed from the fixed mandate (FAO-HLC 2008) (de
Gorter and Just 2008). The producers only benefit as a second order effect when
fuel consumption goes up as a result of the lower fuel prices, and maybe not even
then if the mandate is quantitative (number of litres, USA) as compared to relative
(percent of consumption, EU). Export countries like Brazil prefer mandates alone
(de Gorter and Just 2008), while domestic producers prefer tariffs and mandates,
which together work to guarantee their market.
The combination of different policy instruments in different countries results in a
very ineffective allocation and use of resources (FAO-HLC 2008). The production
of maize ethanol in the US would not take place without market interventions and
according to Banse et al. (2007) the global ethanol prices would increase by 22.5%
if the US import tariffs were removed. Such a price increase would greatly enhance
profitability of ethanol production in other areas with relatively more cost competitive production systems than the American.
3.1.5.3 POLICIES – MODEL SCENARIOS
Banse et al. (2008a) modelled the expansion of the global biofuel sector until 2020
with and without binding targets in place. Their results imply that if the (current)
targets are not binding, they will not be met, even though consumption of ethanol
will increase globally and mainly in Brazil, since the oil prices were predicted to
increase more than ethanol prices in the model.
With binding targets in EU and USA the targets would (by definition) be met in
these regions, but at the expense of countries without binding targets. For example
in Brazil the consumption would decrease from the 2001 level of 28% to their
binding target of 25% by 2020. The ethanol consumption would be relatively lower
in non-binding-target countries as a result of ethanol prices getting pushed up to
non-competitive levels compared to oil. This relative decline in ethanol use in other
countries would however be more than compensated by the increased consumption
in the regions with binding targets. The scenario with binding targets also show a
relative decline in global oil prices by 2020, compared to the scenario with nonbinding targets.
The global net mitigation benefit of this scenario – whether countries with binding
targets would reduce their transport sector GHG emissions more than other countries would increase their transport sector GHG emissions due to their lower biofuel use compared to the case where no countries have binding targets – is uncertain. It depends on both the mitigation benefits of biofuel production and use in
individual countries and also on other effects such as land price increases leading
to more costly biomass use in the stationary energy system.
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Most of the increased production would come from South and Central America in
these scenarios and the agricultural trade balance deteriorate in the importing regions. There would further be a global increase in prices for agricultural products,
which negatively affects poor net food consumers but can be beneficial for net
suppliers and stimulate productivity growth in agriculture. There is also a significant risk for loss of biodiversity as the land abundant regions of South and Central
America are biodiversity hot spots (Banse, et al., 2008a).
These results are based on a land-supply curve where the marginal cost of expansion is low in South and Central America, as well as in the NAFTA (North American Free Trade Agreement) region, and the marginal cost of expansion is very high
in Europe and Asia (Banse, et al., 2008b). Estimations of real world supply curves
are very difficult make and may be altered as results of new policies to protect land
or promote bioenergy production.
3.1.6 Price links
There are several important price links between agricultural commodities and energy. One direct link is the increased production costs for agriculture as a result of
increased input prices for diesel and fertilizers used in the production. There are
however several other links, some of which will be described in this section.
3.1.6.1 THEORY
Agricultural markets are small compared to energy markets, leading to the energy
markets creating a floor price on agricultural products that can be used as bioenergy feedstock (Schmidhuber 2007). A floor price means that the agricultural
commodity prices do not fall below a certain minimum level, which is set by the
energy price. This floor price, which is an effect of scarcity of land and the opportunity cost of producing one crop in favour of another, becomes established when
energy prices surpass the level corresponding to the crop’s break-even price, i.e.
the energy price at which bioenergy from the particular crop becomes competitive
(Schmidhuber 2007).
The connections between the agricultural output prices and energy prices depend
on the adaptation capabilities and the integration of the producers of feedstock, the
industry converting the feedstock into commercial products and consumers representing the markets. For the case of Brazilian ethanol the a priori expectation is
that sugar responds to oil prices in a successive manner through ethanol prices 8
(Schmidhuber 2007): dominance of consumers with full flexibility vehicles (FFV)
that can use the ethanol/petrol blend that allows for the best fuel economy (ensuring the linkage between ethanol and oil prices), combines with the sugarcane industry consisting mainly of plants that can switch between 40/60 and 60/40 ratios
8
(Rapsomanikis and Hallam 2006) challenge this thesis by reporting that the long run behavior of
sugar prices was found to be determined by oil prices and not ethanol prices. Nevertheless, they confirmed that the oil price influence the ethanol price, thus providing support for the thesis that energy
markets influence agricultural commodity markets.
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in the output of sugar and ethanol to accommodate relative price changes (ensuring
the linkage between ethanol and sugar prices), to build the link between oil and
sugar prices that goes over ethanol prices.
The floor price created for sugar in Brazil at a parity price of US$ 35/bbl means
that sugar producers will not sell sugar for a price leading to lower profits than
obtainable from selling ethanol at US$ 35/bbl. This in turn affects the sugar exports
and in extension the global sugar price (Schmidhuber 2007). These higher international sugar prices may in turn provide incentives for farmers in other parts of the
world to produce sugar for the international, or domestic, market and hence displace other crop production, or virgin land, – giving rise to possible negative effects (see section 3.2 for a discussion on indirect effects).
There is also an opposite effect of this close link between the agricultural market
and the energy market, namely the price ceiling effect: agricultural prices cannot
rise faster than energy prices in the long turn, as doing so raises the parity price for
the crop/system in question, which therefore prices itself out from the energy market and looses its competitiveness as an energy feedstock. Short-term supply variations may however allow for short-term price movements that are faster (and with a
higher amplitude) than the energy market’s (Schmidhuber 2007).
The above-mentioned price links will not necessarily all move in the same direction and absolutely not by the same amount. Only crops that are cost-competitive
as feedstock are affected by the floor and ceiling prices and by varying amounts
depending on their parity prices (Schmidhuber 2007). A side effect of an increased
demand for some feedstock is that increased availability of protein-rich co-products
suitable as animal feed will lead to reduced prices of other protein sources, not only
in relative terms, but possibly also in absolute terms.
3.1.6.2 EXAMPLES
In 2006-2007, the US maize prices increased by 60%, partly as a result of increased
demand from the ethanol industry. An effect of this price increase was the largescale shift from production of soybeans to an increase in maize production, resulting in soybean prices rising even more than 60% (Birur, Hertel and Tyner 2007).
Higher soybean prices gave incentives for soybean producers in e.g. the Amazon
region in Brazil to increase their production (Searchinger, Heimlich, et al. 2008),
which resulted in increased deforestation, negatively impacting biodiversity and
leading to CO2 emissions.
Also illustrative of how price links make the bioenergy system intrinsically complicated is the case of oil palm production in Malaysia, which competes with other
crops like rubber and cacao and thus increases their prices (Schmidhuber 2007). A
higher price for natural rubber raises the demand for synthetic rubber and thus
indirectly the demand for oil, and of course rubber production in other areas. Similarly, rising demand for rape seed as feedstock for biodiesel production in EU may
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lead to increasing prices for vegetable oil, which leads to increased palm oil production in the tropics (and possibly deforestation) to substitute the displaced rape
seed oil in the food sector.
Additional examples are given below, illustrating further that the response to a
change in demand for a given crop is not presented by a single crop supplier or a
single country, but rather by responses from a variety of suppliers of several different crops in several countries ( (Klöverpris, et al. 2008)).
3.1.7 Trade
The fuel ethanol market is not mature and is very dynamic. There is not yet a
global fuel ethanol market with a spot price and free trade. Multiple uses of feedstocks also make trade-flows very difficult to trace (GBEP 2008). Traded ethanol
made up no more than 10% of global production in 2005 and Brazil was by far the
main exporter (IEA Bioenergy 2007). Figure 3 8 below gives an overview over the
main exporters of ethanol in 2005 and Figure 3 9 shows the main importers.
Others; 14%
Ukraine ; 2%
Costa Rica; 2%
Germ any; 2%
Netherlands; 4%
Brazil; 48%
UK; 5%
China; 5%
S. Africa ; 6%
France; 6%
USA; 6%
Saurce: FO Licht (2006)
Figure 3.8: Main exporters of ethanol in 2005. (IEA Bioenergy 2007)
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Figure 3.9: Main importers of ethanol in 2005. (IEA Bioenergy 2007)
The information regarding trade in biofuels should not be regarded as 100% reliable since the system is under development and much statistics are rather informal
(GBEP 2008).
The low level of trade is to a large extent due to high tariffs (International Food &
Agricultural Trade Policy Council 2006). USA imported 653.3 million gallons of
ethanol in 2006, almost exclusively from Brazil and 1/3 of this ethanol was imported through the Caribbean (de Gorter and Just 2008). The United StatesCaribbean Basin Initiative (CBI) allows for duty free imports of biofuels from the
Caribbean region, if at least 50% of the feedstock is locally produced. The treaty is
however limited in that it may only supply up to 7% of the US-market duty free
(GBEP 2008). This limit is far from met and there are several refineries under construction in the region. They import hydrous ethanol from Brazil and refine it for
further distribution to the USA (GBEP 2008).
There is currently no WTO trade agreement in biofuels. Instead they are treated in
the General Agreement on Tariffs and Trade (GATT 1994), which covers trade in
all goods (GBEP 2008). Discussions are ongoing about whether biofuels should be
regarded as agricultural or industrial goods, which is important since governments
have much more room to manoeuvre for agricultural goods than for industrial
goods, due to some exemptions from free trade agreements (GBEP 2008).
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3.2 Connections between ethanol expansion
in Brazil and the USA: a useful example
to learn from
3.2.1 Land use dynamics: Partial equilibrium models
Modelling the global markets for agricultural products and their indirect effects on
biofuels’ mitigation benefit is very complex and results are uncertain (Renewable
Fuels Agency 2008). Searchinger, et al., (2008) – published in the journal Science
and receiving much attention – used a worldwide partial equilibrium agricultural
model to estimate emissions from land-use change and found that maize ethanol,
instead of producing a 20% savings (compared to gasoline), nearly doubles greenhouse emissions over 30 years and increases greenhouse gases for 167 years. The
study is illustrative of the potentially large influence that indirect effects can have
on the mitigation benefits of bioenergy initiatives and therefore deserves specific
consideration in the context of this report.
The Searchinger article also initiated a debate in the academic community regarding indirect land use change (ILUC) and thus the environmental performance of
bioenergy in general. However, it should be noted that it has long been recognized
that the establishment of bioenergy plantations can lead to changes in the biospheric carbon stocks and the land use dynamics and related carbon flows has been
studied earlier (see, e.g., (Leemans, et al. 1996) (Berndes and Börjesson 2002)).
The recent debate on risks of biospheric carbon losses – which is also the focus of
this report – is relevant for the case of conventional food/feed crops expanding into
ecosystems with large carbon stocks. But bioenergy systems can also induce increases in biospheric carbon stocks. Bioenergy production can be integrated with
agriculture in many different ways to deliver environmental services, such as carbon sinks.
In an article in the recently published book Sugarcane ethanol: Contributions to
climate change mitigation and the environment, Nassar, et al., (2008) investigate
the expansion of sugarcane based ethanol production in Brazil, with a focus on
economic; social; as well as environmental effects. They also use a partial equilibrium model but reach fundamentally different conclusions and claim that there is
no LUC or ILUC giving rise to GHG due to expanded ethanol production, mainly
taking place in São Paulo state.
To give some perspective on the methodological approaches used by Searchinger
and Nassar, a critical assessment of the models is given below with an account of
how they differ and what made them reach opposite conclusions.
3.2.1.1 SEARCHINGER’S MODEL STUDY
Searchinger, et al. (2008) used a partial equilibrium model where indirect land use
change (ILUC) and other dynamics are modelled as responses to economic
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incentives. Using 2004 as base year, almost twice the mandates for ethanol for
2016 is added to get an estimate of how much maize would be diverted from its
current use to ethanol production. This increase in diverted maize has two side
effects, domestic maize prices increase and the produced volume of by-products
such as dry distiller grains (DDGS) rise. Rising maize prices create incentives for
farmers to (i) divert suitable land from other uses into maize production; (ii) expand into set aside land (or other land) and (iii) change crop rotations into monocropping maize, at the expanse of mainly soybean and wheat production. DDGS
can be used for the same purposes as soybeans and can thus reduce the demand for
soybeans to some extent. Searchinger, et al. (2008) further assume that there will
be a demand for all the by-products produced from the ethanol industry.
The decreased production of wheat and soybeans leads to increased prices for these
crops, although the increased DDGS supply somewhat mitigates the price increase.
These increased prices reduce the exports of wheat, maize, soybeans, chicken, pork
and dairy, whereas beef exports increase somewhat in the model. Food prices increase in their study – even at the global level – and producers and consumers respond according to their short-term price elasticities (Sylvester-Bradley 2008). On
the consumer side there is a small decline in food consumption, mainly in developing countries, and on the demand side the response is to replace the diverted supply. Higher prices provide incentives for farmers to increase inputs to get higher
yields at the same time as it becomes profitable to produce crops on lower yielding
land. Searchinger, et al. (2008) assume that these effects will be equally large and
average crop yields will remain constant for each country in the study. Figure 3 10
shows an overview over the main steps taken in Searchinger’s approach and how
the different dynamics influence each other.
Crop yields in the USA are relatively high and most other crop producing countries
have lower yields, which imply that the replacement of land is not 1:1 but there
will need to be larger areas dedicated to the compensating crop production than the
initial area diverted in the USA (Searchinger, Heimlich, et al. 2008).
Searchinger, et al. (2008) have further steps where carbon release from the ILUC is
calculated for the different regions. The resulting greenhouse gas emissions are
allocated on the expanded maize ethanol in the USA and the time needed for continued ethanol production before the carbon balance becomes equal to gasoline is
calculated. These last two steps are omitted from Figure 3.10 because they are not
part of the economic dynamic which is in focus here.
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Figure 3.10: The main steps taken in Searchinger's model. The blue boxes symbolize national
dynamics (under direct influence by the US), whereas the green boxes symbolize global dynamics
that are only indirectly influenced by US decisions.
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Some critical considerations.
Searchinger’s model highlighted several important aspects regarding biofuels,
aspects which until then had been overlooked or ignored by scientists as well as
decision makers. These aspects of ILUC initiated a heated debate in the academic
as well as political world and the study has received a lot of critique regarding their
assumptions and methods. There has also been several other studies conducted in
response to Searchinger’s study, some which have reached similar conclusions and
some which have reached fundamentally different conclusions. Below in this section is some of this critique is presented and in section 3.2.1.2 a different model is
presented.
Wang and Haq (2008) criticized the quantitative assumptions made by Searchinger
et al. (2008), e.g. about the use of 30 million gallons of ethanol in 2016 instead of
the mandated 15 million and also the low mitigation benefit of maize ethanol with
no improvements over time and too low feed crop displacement of the DDGS.
They further criticized the low level of carbon leakage from soils; the carbon leakage was also criticized by Dale (2008) in that generalizations regarding soil carbon
levels cannot be made. Wang and Haq (2008) further claimed that the US export
level of maize can be maintained even if the mandate of 15 million gallons will be
reached.
Searchinger (2008) replied to the above raised critique that the absolute amount of
ethanol produced is irrelevant in the study since it looks at the marginal effect of an
extra gallon of ethanol and not the total emissions. He further claimed that the
displacement of DDGS depend on the type of livestock and is very difficult to
estimate. Regarding the export levels Searchinger (2008) replied that the export
levels can be maintained, but at the cost of reduced export of wheat and soybeans.
There has also been critique regarding the qualitative approach, e.g. that trying to
estimate secondary and tertiary effects on the global economy from such a small
perturbation is nothing but speculations (Dale 2008). Dale (2008) further claimed
that the environmental impacts from ethanol differ between production sites and
that local LCA data should be used since American farmers cannot influence foreign decision makers. Another critique made by Wang and Haq (2008) is that a
partial equilibrium model cannot catch all the relevant dynamics from such a complex system and that a general equilibrium model, taking supply and demand of
agricultural products and land into account, must be used. Khosla (2008) meant
that logging is the main driver for deforestation and that bioenergy expansion is
more likely in other regions than in forests. The complexity behind deforestation
commented on by Kline and Dale (2008) where they emphasized that
“…interactions among cultural, technological, biophysical, political, economic,
and demographic forces within a spatial and temporal context rather than by a
single crop market…” should be taken into consideration in order to explain the
dynamics.
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Dale’s (2008) perspective is very different from Searchinger’s when he emphasizes
on energy security and the first order effects. Using local data for LCA does not
take time or scale effects into account, which can be very relevant for an up scaling
of a large system over a long time. Background systems change over time, which
alters the environmental performance and impacts from a system (Börjesson 1996).
Searchinger responded to Kohsla that even though logging takes part in deforestation, the logging is selective and does not clear forests and regrowth of forests
normally occur after logging or fires except when agriculture expands onto the
land. In the response to Wang and Haq (2008) Searchinger (2008) explained that
using a general equilibrium model would not change anything for the marginal
gallon of ethanol, since the only difference would be a shifted baseline. Higher
yields etc. would change the total impact, but not the marginal effect.
Further critique involves the notion that the approach fails to take polices preventing deforestation, as well as trade agreements into consideration (Renewable Fuels
Agency 2008). Searchinger et al. (2008) also receives credits for introducing important aspects but it is also noted that much more research on the topic will be
needed (Sheenan 2008).
3.2.1.2 NASSAR’S MODEL STUDY
To evaluate the environmental performance of sugarcane ethanol Nassar, et al.,
(2008) made a thorough analysis the expansion of sugarcane all over Brazil and
what types of land-uses it displaces in order to evaluate the direct land use change
(LUC). The analysis is performed in three separate ways by using data from remote
sensing satellites, environmental licensing reports and secondary data based on
planted and harvested area (Nassar, et al. 2008, p. 64) to assess the impacts from
historic expansion. They also create a partial equilibrium model with endogenous
demands and prices with which they project the expansion of sugarcane production
as well as expansion or reduction of other affected crops between 2008 and 2018.
They also have a qualitative discussion regarding ILUC.
The results from the analysis of historic expansion indicate that the most of sugarcane expansion has taken place on land previously used for food crop production or
for cattle grazing and only a very small fraction of the expansion was taking place
on virgin land. Carbon losses to the atmosphere due to direct LUC is thus very
small or there can even be a net carbon sequestration since sugarcane can bind as
much or more carbon as some food crops or degraded pasture (Gibbs, et al. 2008).
For projection of future expansion of sugarcane ethanol Nassar, et al. (2008) use a
partial equilibrium model which still is under development by the International
Trade Negotiations (ICONE) (Nassar, et al. 2008, p. 73).The model is based on
demand and supply responses to changes in prices and returns on production. Market clearing prices on national or regional level are achieved when supply and demand prices coincide (Nassar, et al. 2008, 73), there is however no information of
how they calculate the demand and supply curves for the model.
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They use time-steps of one year and a time horizon of 10 years for which they
calculate supply and demand for 11 product categories (sugarcane, soybean, maize,
cotton, rice, dry beans, milk, beef, chicken, eggs and pork). Unlike Searchinger, et
al., (2008) they do not look at global dynamics and the model is confined to Brazil,
which is divided into six regions according to biome.
Prices and demands for the products are exogenous for the model and taken from
the FAPRI (2008) U.S. and World Agricultural Outlook. The area required to meet
these demands for each crop (and sugarcane) is calculated according to yield trends
(Nassar, et al. 2008, p. 74). Brazil thus act as a price-taker for all crops as well as
ethanol in the model and the expected demand for all products are fixed, even
though according to FAPRI (2008, p. 381) the global ethanol price is set mainly by
the production level in Brazil.
According to historic data they define a competition matrix between activities with
elasticity for change, which later shows results in land-use change distribution
between regions depending on the amount of land allocated for each activity
(Nassar, et al. 2008, p. 74).
The results from the model show that the total production area will increase for all
crops, including sugarcane, but this will be compensated for by a reduction in grazing area (Nassar, et al. 2008, p. 84). They further conclude that future expansion of
sugarcane will follow the same pattern as in the past, which is not very surprising
since they used historic data to calculate their land competition matrix. The use of
historic data for expansion patterns can however be well warranted considering the
large difference in scale between grazing and cropping areas in Brazil, compared to
the ''small perturbation'' from the ethanol industry. Sugarcane expands onto crop
land and pasture and most of the displaced crops in turn expand onto pasture land.
The pasture area is expected to reduce in all regions except for the Amazon Biome
where it expands, but they claim that this expansion takes place without correlation
to the reduction in pasture area in other regions (Nassar, et al. 2008, p. 86).
Nassar, et al., acknowledge the problems with defining and calculating ILUC and
that especially in a case where the production of sugarcane is taking place far away
from the agricultural frontiers and at the same time as the production levels of other
(displaced) crops increase. They point out the difficulty to establish causal chains
in such dynamics and call for the necessity of searching for “arguments and data
supporting the idea that sugarcane expansion is leading to an increase in the land
productivity, rather than promoting incorporation of new land for food production,
as grains and pasture land are displaced” (Nassar, et al. 2008, p. 88).
With numbers showing larger displacement of food crops and pasture by sugarcane
than the expansion of the same in the Amazon and the fact that food crop as well as
meet and dairy production are increasing more than sugarcane, they claim that
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ILUC cannot be quantified and is more than compensated for by yield increases
and higher stocking rate.
3.2.1.3 DISCUSSION: SUITABILITY OF PARTIAL EQUILIBRIUM MODELS
Searchinger’s study concerns important aspects that have been ignored by many.
The focus on the marginal effect of an extra litre of ethanol production in relatively
static surroundings makes the partial equilibrium model appropriate, although the
exact numbers reached can be questioned. It can be discussed whether the study
(including methods used) directs the public attention in the right direction and induce sound processes. For instance, presently developing implementation of energy
and climate policy and regulation in EU and USA calls for quantification and assignment of indirect land use change emissions to specific bioenergy chains, but
this cannot (yet) be done with very high level of confidence due to lack of data and
methodology verified as sufficiently well reflecting reality. Recently, there was
also a decision in California that quantification of ILUC emissions and assignment
of those emissions to the ethanol production system will not be allowed until
knowledge has improved.
There are some fundamental problems with equilibrium models, namely that they
always assume totally homogenous agents and they only include the dynamics the
programmer(s) put into the models. Normally modellers are aware of and consider
the most important dynamics, but there may be some important factors that are
intentionally or unintentionally omitted. Considering how diverse the results can be
from such models (as the two assessed studies above show) one can conclude that
there is far from agreement on how these dynamics work.
Both Searchinger, et al., (2008) and Nassar, et al., (2008) use historic data to construct their land-use-change equations and thus implicitly presume that the future
distribution in land use change will be the same as historically has been. Yet historic data are more likely to be close to the truth than what a random guess would
be, but this approach does not allow for any innovation, changes in behaviour,
newly implemented laws, or paradigm shifts in general.
A partial equilibrium model does not include all dynamics in the world (which of
course would never be practically feasible to achieve) and thus work in a static
surrounding where all else is assumed to be equal. In the current situation with
rapidly growing economies in the most populous countries in the world, such an
assumption is not likely to be valid.
Nevertheless, Searchinger’s study clearly shows that land use change emissions
can drastically reduce the mitigation benefits of biofuels that are based on using
food/feed crops as feedstock (such as maize ethanol in the USA) if policies induce
a large and rapid increase in inelastic biofuel demand leading to cropland extension
into natural ecosystems containing significant carbon stocks. What the model does
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not provide (and Searchinger is clear about that) is the total impact of GHG on the
global level resulting from the increased ethanol production.
In section 3.2.2 parallels are drawn between Searchinger’s model and the Brazilian
case and we look at some possible connections.
3.2.2 Aspects relevant for Brazilian sugarcane-ethanol
How relevant is the information from the US maize ethanol case for the Brazilian
sugarcane-ethanol? There are some fundamental differences, but also similarities
and there may be reinforcing links between expansions of the two systems.
3.2.2.1 LIMITED EXPANSION CAPACITY
One link that is quite straightforward concerns limitations on expansion rate in
Brazil, where immediate global demand exceeds the rate of expansion capacity in
Brazil and in other tropical countries with comparative advantage and low parity
prices. The increased demand might then be supplied by an increased ethanol production in the USA, with possible land use change emissions of magnitude indicated in Searchinger’s study. As noted earlier, the pace of expansion in Brazil is to
a large extent determined by infrastructural development (Schnepf, Dohlman and
Bolling 2001), but such limitations are less likely in the USA.
3.2.2.2 LOCK-IN AND PREMATURE CHOICE OF TECHNOLOGY
A second link between Brazilian sugarcane ethanol and maize ethanol from the
USA is related to the fact that increased production of ethanol incentivizes an increased global infrastructure to handle and consume ethanol which may create a
stronger momentum for an ethanol based system. Without claiming to have the
final answer on whether this is a desirable outcome or a possible lock-in risk, we
briefly describe the mechanisms behind such a development.
The dynamics behind a lock-in
There are three steps involved in the change of a technological system, namely
invention, innovation and diffusion (Sandén and Azar 2005). The first two are quite
straightforward: discover something/getting an idea/make an innovation and then
modifying it to make it applicable as a marketable solution to a problem. But the
third, diffusion, is more complicated and bound with constraints. There are usually
multiple inventions and innovations as possible candidates for solving a given
problem but which one(s) diffuse and contribute largely depends on historical trajectories, since technical change is “sticky and path-dependent” (David, 1985, cited
in Azar & Sandén 2005). This path dependency together with timing is just as
likely as optimality to determine which technology becomes the winning design
(Unruh 2000).
Once a “winner” has been chosen, there is a shake-out of other designs and solutions (Unruh 2000) and the winning – or dominant – design gets advantages from
learning by doing, economies of scale, incremental product development and
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economies of scope. From the user side there are further feed-back systems that
ensure the position of the winning design through decreased uncertainty (people
know that the new technology works for their neighbours), learning by using and
economies of scale in consumption-consumer networks: an ethanol fuelled car is
worth much more if there are filling stations available and the more ethanol cars,
the better the prospects for adding more filling stations, up to some level of course
(Sandén and Azar 2005).
These feed-back loops create advocates for the new technology as people and institutions invest money and time in learning how the system works, crating standards
and ceasing the market opportunities, which eventually leads to what Unruh (2000)
calls a techno-institutional complex (TIC). Such a TIC has strong economic influence at the macro-level and creates persistent incentive structures to maintain the
system, i.e. creating a lock-in which takes decades to escape (Unruh 2000). TICs
are important for creating stability, reliability and predictability and thus benefit the
users of the dominant design (Unruh 2002), all of which are important for improving the usability and economic aspects of the system, but they also create inertia to
change. Diffusion of new technologies without governmental support is unlikely
(Sandén and Azar 2005), but there is a significant risk in choosing the winner at an
early stage since the “wrong” winner may be chosen (Sandén and Azar 2005).
How Brazilian ethanol could create a lock-in in Europe
Biofuels offer one of a very limited range of solutions to reduce CO2 emissions
from the transport sector in the short-term and without fundamental changes and
capital investments (Renewable Fuels Agency 2008). Choosing sugarcane based
ethanol from Brazil is an easy option for picking a solution off the shelf, since it is
already mature and has gone through the diffusion process in Brazil. Political interventions in Europe help creating these feed-back loops for distribution, knowhow and acceptance for ethanol, but as the system expands there will be a greater
demand for ethanol and eventually Brazil will reach its production capacity. In
such a scenario maize ethanol may be demanded disregarding of its poor environmental performance (which on the other hand may improve over time), simply
because the energy is needed and people are used to ethanol as the energy-carrier.
Unruh (2000) describes an important aspect of the fossil fuel’s lock-in that possibly
could apply to ethanol as well, namely that techno-institutional forces create such a
pervasive market that evidence about socio-economic and environmental risks is
not sufficient to stop it. 100 years ago the gasoline fuelled vehicle came as a solution to the contemporary environmental problem, caused by horse droppings on the
streets of the cities, and was thus regarded as the clean alternative. Creating an
ethanol lock-in may not need a lot of investment, since we are already heavily
locked-in to a liquid fuel based system and ethanol fits into that system with relatively small changes to it.
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3.2.2.3 FEEDBACK LOOP FOR BY-PRODUCTS AND SECONDARY EFFECTS
A third and complex link goes via the secondary and tertiary effects of displaced
crops and cattle, increased prices and waste products.
As stated above, the regions where expansion of sugarcane production is most
likely to occur are currently to a large extent occupied by cattle ranchers
(Sparovek, et al. 2007). Many of these ranches are large and low-productive, with
low land prices as a result of abundant land availability and long distance to markets. Improved infrastructure raises the value of the land and the cattle ranchers
profit more from selling or renting out the land to sugarcane producers, than to
continue the ranching, which is the same pattern as has been happening for the last
few years (Sparovek, et al. 2007) (Macedo 2008).
Rising land prices thus displace cattle ranching, which in turn may lower the supply of meat. Lower supply of meat raises the price for the same, which in turn provides incentives for cattle ranchers in other areas to increase their production to
restore the supply of beef and dairy. Increased meat production can be accomplished domestically either through expansion – possibly in the Amazon region –
with new low-productivity systems (Sparovek, et al. 2007, (LEAD-FAO 2006)), or
by establishing less area demanding higher-productivity systems where the animals
to a larger extent are raised based on a diet rich in energy and protein. This high
energy-protein diet can be supplied with supplements of soybean or maize ( (Arora,
Wu and Wang 2008), (LEAD-FAO 2006)).
Increased demand for soybeans is one of the leading drivers for deforestation in the
Amazon (LEAD-FAO 2006) and if sugarcane expansion induces increased use of
soybean as cattle feed it can be claimed that it indirectly leads to deforestation.
Thus, there are two possible routes for indirect deforestation due to sugarcane expansion: displacement of cattle production to the Amazon, or increased use of soybean as cattle feed increasing the deforestation pressure of soybean. Conversely,
Brazilian sugarcane ethanol competing with US maize ethanol would lower the
profitability of maize ethanol and possible shift US land uses towards more soybean – reducing the international soybean price and thus indirectly reducing the
deforestation pressure of soybean in the Amazon region
The soybeans do not only provide fodder for animals, but also oil which can be
used to produce biodiesel. A comparison of calculations of carbon debts 9 for various biofuel expansion cases reveals that it would take many hundred years of soybean biodiesel production to pay back the carbon debt from deforestation due to
soybean expansion while the payback times for ethanol based on sugarcane grown
on grassland or replacing forests are less than 10 years for the former and about 40
– 120 years for the latter (Fargione, et al., 2008) (Gibbs, et al. 2008). According to
Searchinger et al. (2008) the payback time for converting grazing land to sugarcane
9
A concept that might have merits but also drawbacks. See (Fargione, et al., 2008) (Gibbs, et al. 2008).
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production for ethanol is 4 years, but it rises to 45 years if the displaced ranchers
convert rainforest to grazing land for their cattle.
Thus, sugarcane ethanol can also reduce the deforestation pressure from soybean
by taking a larger part of total biofuel supply – if at the expense of soybean biodiesel. If sugarcane ethanol expansion to some extent induces increased soybean
expansion causing deforestation in the Amazon, the net climate effect would still
be favourable (using the carbon debt numbers above) if the alternative way to provide the same volumes of biofuels would be based on biodiesel from soybean
The above cited numbers can be debated – and some sugarcane ethanol systems are
reported to deliver practically immediate climate benefits (Gibbs, et al. 2008) – but
they are useful for the discussion here and it can be concluded that sugarcane ethanol can pay back the same carbon debt in a significantly shorter time than biodiesel
made from soybeans.
So, what is the net effect of sugarcane expansion leading to increased soybean use
for cattle feed but at the same time decreased soybean use for biofuel (since less
soy based biofuels will be required to provide the same volumes of biofuels)?
Clearly, the answer requires consideration of a highly complex and interconnected
systems.
Soybeans or soybean meal are, however, not the only options for protein rich fodder for cattle production. DDGS and WDGS, which are by-products from maize
ethanol production, are also suitable (Arora, Wu and Wang 2008). Since DDGS
and WDGS are by-products from ethanol production in the USA, where not only
market forces determine the production levels, they can be sold on the market at
very competitive prices. If these by-products are assumed to always be sold at
lower prices than soybeans, then they will replace soybean production and thus
prevent some deforestation of the Amazon and at the same time increase the profitability for beef and dairy producers.
There is a potential feed-back loop here between increased production of Brazilian
sugarcane ethanol and increased production of US maize ethanol. The Brazilian
sugarcane ethanol displaces beef and dairy production, which increases the demand
for cattle feed and US ethanol production produces by-products that can be sold at
competitive prices as cattle feed. The Brazilian ethanol expansion thus ensures the
demand for the by-products from the US ethanol production, which becomes more
competitive when the income from the by-products increase and the parity price
thus decreases, see Figure 3 11. The supply of cattle feed from the US can thus
improve the environmental performance of sugarcane ethanol in Brazil, since the
deforestation pressure of soybean decreases. A similar reasoning has been claimed
for European cereal ethanol production where in the same way the DDGS by-flow
can replace soybean imports from Brazil and other countries.
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It should be noted that presently 80% of the cattle meat production in Brazil is for
the internal market, so changes in domestic average income or income distribution
may impact meat production more in Brazil than biofuel development and various
links via the international trade market. Nevertheless, the dynamics described
above illustrates links that might affect the outcome of specific biofuel policies and
it shows how complex the system is.
Ethanol produced from crops that are obtained from yield increases is sometimes
claimed not to lead to the indirect effects described above, but all land use has an
opportunity cost and yield increases can be (and are) used for the supply of food
and feed.
It is clearly a grand challenge to quantify and allocate the induced or avoided indirect emissions linked to land use changes in this very complicated and dynamic
system. Additional indirect effects – so far not considered in attempts to include
indirect effects in LCA studies – include indirect GHG emission related to oil and
gas exploration and to military security, partly avoided if biofuels substitute for
petroleum based fuels (Liska och Perrin 2009).
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Figure 3.11: The dynamics in the US maize ethanol production adopted from Searchinger's approach in blue. The red boxes symbolize possible dynamics from expanded sugarcane ethanol in
Brazil. The grey arrows symbolize possible feedback loops between the systems.
3.2.2.4 MITIGATION OPTIONS
There are expansion models that fundamentally change the dynamics as described
above, by not only avoiding the displacement of other pre-existing land uses, but
even increasing the output from them. Chapter 5 below describes such an expansion model for sugarcane based ethanol in Brazil. The model involves the feeding
of cattle with steam-treated bagasse mixed with molasse, filter-cake, vinasse and
yeast. It increases the production of beef and/or dairy at the same time as sugarcane
can expand on the land, which together greatly can increase the profitability of the
land. Employment opportunities arise from the higher input system, which can
have beneficial socio-economic effects.
The technology for conversion of bagasse into feed with high-pressure steam is
mature and commercially available for large scale introduction in the short term.
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Figure 3.12 shows how the partial equilibrium model described above would
change if the sugarcane expansion is done without displacing beef and dairy production. The use of bagasse for cattle feeding may result in less co-generation of
ethanol and electricity in the ethanol plants; electricity which has good environmental performance since it displaces mainly fossil energy sources. However, the
performance would be less favourable if the bagasse used for electricity indirectly
leads to deforestation of the Amazon.
Figure 3.12: The partial equilibrium model with feedback between USA and Brazil if the expansion
of sugarcane is done without displacement of the livestock production.
3.2.2.5 GLOBAL DYNAMICS
The incentives to increase production of ethanol feedstock or food crops displaced
by ethanol production not only affect the USA and Brazil, but have global impacts.
The potential to expand crop production for bioenergy in Africa is very large and
several African countries are in the process of responding to the rising demand for
bioenergy, mainly ethanol and biodiesel. The socio-economic impacts from such an
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expansion in Africa are however not known and e.g. FAO are currently running
several projects for assessing these impacts, as well as guiding decision makers at
different levels towards making the best choices for reaching their development
goals.
The countries of Japan, Malaysia, Indonesia, India, South Africa, Colombia, and
the Philippines all have programs for expanded production of fuel ethanol (OECDFAO 2008) and it is not clear how they respond to the policy and price incentives
described above.
Case studies performed for the Gallagher review (Renewable Fuels Agency 2008)
claim that only 10% of the arable land in Mozambique is under cultivation leaving
30 million hectares potentially available for biofuel production, and another 55
million hectares are stated to be available in Tanzania. Mozambique has a national
strategy for expansion of bioenergy but Tanzania does not at present and both
countries are listed as low income food deficit countries (LIFDC) by FAO (2008c).
The socio-economic impacts from an increased ethanol production in these countries are difficult to project. There are both risks and opportunities connected with a
prospective biofuel expansion in developing countries and large investments are
planned from foreign companies.
It is not only tropical countries that have a significant potential. For instance, there
is about 13 million hectares in the former Soviet Union that could be brought back
into production without major environmental impacts and many of the CentralEastern European countries that have joined the EU have a significant potential
given that the currently low agricultural productivity is increasing (Renewable
Fuels Agency 2008) (Fischer, et al. 2009).
Increased ethanol production is not the only driver for land-use change. A growing
global population and changing diets towards more meat in emerging economies in
the developing world leads to substantial increases in food commodity demand
(OECD-FAO 2008). OECD-FAO (2008) expects wheat imports to increase substantially in several developing countries as a result of improving economies and
changing diets. Meat production is expected to grow on average 2% annually with
Brazil in the lead: Brazil is estimated to account for 30% of world exports by 2017.
Consumption of meat is predominantly increasing in Asia and in the Pacific region
where demand is expected to grow faster than the production capacity (OECDFAO 2008). The main expansion of agricultural land in the period 2008-2017 is
projected to take place in South and Central America, Sub-Sahara Africa and the
Commonwealth of Independent States (OECD-FAO 2008). Estimates indicate that
several hundred million hectares of land will have to be brought into cultivation the
coming decades to satisfy the increased demand for bioenergy and food, even when
expected yield improvements are taken into consideration (Renewable Fuels
Agency 2008).
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3.3 Synthesis: impacts of Swedish ethanol
use
From a market perspective, it can be expected that an increased demand from Sweden and the EU would mainly increase the production in Brazil and only if the total
increase in demand for Brazilian ethanol exceeds the country’s expansion capacity
will it give rise to increased ethanol production elsewhere. It is unlikely that the
USA would supply this increase in demand, since the domestic maize ethanol production in the USA is comparatively much more expensive. There may however be
some re-enforcing feedback mechanisms between expansion of ethanol production
in Brazil and in the USA due to by-products and lock-in effects.
The increased Swedish (or European) demand will however marginally push up
ethanol prices within Brazil, and globally, reducing the competitiveness of ethanol
somewhat and thus reducing the ethanol consumption in countries not having strict
biofuel mandates. This effect can be expected to be small and the total ethanol
consumption will increase at the same time as the total fuel consumption decreases
somewhat. There will also be a small extra incentive for Brazilian farmers to further increase the rate of expansion of ethanol production.
3.3.1 Price elasticity of supply
The capacity of production in Brazil is already many times larger than the volumes
used in Sweden and it is strongly driven by market forces and domestic demand.
There is also a high external demand which has driven the rate of expansion to its
current level, and an extra Swedish demand may thus have a very small effect in
the short-term. It will probably have stronger impacts in the long-term however.
This could be explained by looking at Figure 3.13 in which price as a function of
time is depicted in the upper graph and the rate of expansion (the derivative of the
supply) is depicted in the lower graph (the rates given in the figure are not based on
empirical data, but intended to support a qualitative discussion).
At P0 (an assumed initial equilibrium price) the sugarcane production is
increased at an initial rate E0 10. When prices increase at some point in time
the rate of expansion, E, increases in response to the changing prices; at
point T1 an additional increase in demand (and thus prices
) result
in the accelerating rate of expansion
» 0, which at this point means
a high price elasticity of supply.
10
This expansion rate would actually be zero in a state of market equilibrium between supply and price.
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Figure 3.13: Qualitative depiction of limitations to expansion as response to increasing demand.
With a continuously increasing demand, the acceleration in expansion
decreases 11, as limiting factors in environmental permits, construction
capacity, infrastructure, etc. set in. At point T2 the expansion capacity has
basically hit the ceiling and the demand increase
only gives rise to
; which could be interpreted
the marginal change in expansion rate,
as the short-term price elasticity of supply goes towards zero for further
price increases. At this point it does not matter – in the short-term – how
rapidly the external demand is increasing, because the production is already
expanding as rapid as possible and will continue to do so – even in the
lowest case depicted in Figure 3-13 – until the supply has reached a new
equilibrium with the demand. As long as ethanol prices remain high enough
for sugarcane production to be more profitable than alternative land uses,
the expansion will continue at a high rate and there is of course inherently
some inertia from planned expansion to realization due to the need for
attaining environmental permissions, constructions of factories, and the
tenure contracts to end and the growth cycle of the sugarcane. The absolute
11
The rate of expansion still increases at this point, meaning that the production is still expanding at an
accelerating rate, but this acceleration is getting smaller with each further increase; i.e. the second
derivative of the expansion is negative. In other words, the short-term responses to increasing prices
are diminishing.
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demand would in this case determine how long the expansion would
continue at the high rate before it starts to decline.
The price elasticity is however still high for large decreases in demand, according
to the theory above; which also is what has happened during the latter part of 2008
and the first half of 2009, during which ethanol prices temporarily plummeted in
São Paulo and production expansion decreased substantially. Several farmers
whose land-rental contracts expired during this period have chosen to switch from
sugarcane production to cattle ranching 7 and the sugar mills switched to a larger
share of sugar production at the expense of ethanol. The OECD-FAO (2009) Agricultural Outlook, depicted in Figure 3. 4, expect this decline in expansion rate to be
temporary and in a longer perspective continue to slowly increase.
In the long-term, the choice of demand-path has much stronger influences, however. In the low increase scenario (Figure 3-13) the production can be expected to
“catch up” with the increasing demand and the expansion gradually slowing down.
In the expected increase scenario, there probably also will be an equilibrium where
the rate of expansion stay constant and the ethanol production continually increase
at full, or close to full, capacity. If the external demand increases rapidly, however,
there will as stated be no short-term response, but in a longer perspective it can be
expected to see changes in legislation to allow for more permits, together with an
increased capacity in the construction sector of sugarcane mills and infrastructure,
as well as for production of harvesting and planting machinery. The ceiling for
expansion capacity can in such a scenario be expected to gradually move upwards.
3.3.2 Relative baseline
Important to consider for the analysis in Section 3.3.1 is what makes up the baseline for the different levels of expansion. The rapid increase in ethanol production
in Brazil during the beginning of this century was a response to (i) rapidly increasing oil prices and (ii) implemented consumption mandates in the EU and in the
USA. Also the flex-fuel cars and reduction of taxes for them influenced local market very much, probably more than the mandates, since Brazil is exporting a limited share of its total ethanol production.
Since the domestic market in Brazil has developed under a long time of increasing
consumption and production capacity, and Brazil now has a mature market with
relatively high penetration of ethanol in the transport sector, our judgement is that
ethanol production expansion in Brazil will not be influenced by capacity increase
limitations unless there is a very substantial international import demand. The
planned Brazilian capacity increase (i.e., number of applications for environmental
permits, infrastructure, etc) reflects expectations about both further domestic increase in ethanol use and growing international demand. The dynamics described
above thus point towards Brazil as producer of the marginal litre of ethanol on the
world market.
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Assessments indicate that if important countries aim for meeting biofuels targets on
the near term (2010-2015) the world will probably see several importing countries
in the coming years – in addition to the EU also Japan, China, India, Australia and
possibly New Zealand. Some countries, such as India, Indonesia and Thailand, may
manage to add production capacity to levels above that corresponding to the domestic demand and thus eventually (about 2015) become exporters together with
Brazil (BNDES; CGEE; 2008). Referring back to Section 3.1.5, it needs to be said
that – in addition to regional producer prices and production expansion capacity –
whether Brazil will be the marginal producer of ethanol imported to Sweden and
the EU depends on how Brazil responds to EU policies, including possible import
tariffs and specific requirements on environmental/socioeconomic standards for
ethanol production, such as those developed in connection to the EU biofuel targets. This, in turn depends on how other export markets develop, e.g. how policies
and regulations in the USA evolve.
3.3.3 The larger global context
Going beyond the discussion about effects of Swedish ethanol, the above discussion indicates that a substantial increase in demand from EU and the USA would
be at the cost of decreased consumption elsewhere, mainly in Brazil. There would
further be an increase in global fuel prices and an incentive to increase production
of ethanol in other areas that reach their parity price as a result of the increased
prices. These areas are likely not as favourable for ethanol production as the expected expansion areas in Brazil, but can be expected to be better than the maize
ethanol production in the USA.
If the current high growth rate in demand for ethanol encourage a rapid increase of
production on all frontiers to satisfy an immediate demand, but at the same time the
long term demand may not be high enough to utilize all production sites, there may
be land use change and ethanol production in areas other than the most favourable
(including areas biophysically favourable but subject to restrictions due to environmental and/or socioeconomic conditions). The expansion in the “best” areas
would later slow down and stop, since a continued production on already established lands would satisfy the demand with a sub-optimal outcome in response to
an artificially raised demand.
It should be stressed that the definition of “best” areas is not straightforward and
involves consideration of many other factors than biophysical crops suitability and
“readiness” in terms of infrastructure and investment climate. Depending on the
location of the expansion areas there could be incidents of, e.g., land grabbing,
downstream water impacts and displacement of rural poor populations. If the
biofuel expansion leads to conversion of land holding large volumes of carbon in
soils and standing biomass, the resulting GHG emissions can significantly reduce
or even negate the climate benefits of the biofuel expansion. Yet another perspective is linked to the issue of energy security, where high diversity of producing
nations can be more important than maximizing biofuel output per hectare or
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climate benefit based on targeting only the biophysically best areas for biofuel
expansion.
One conclusion from this discussion is that policymakers need to consider carefully
the pace of international demand growth caused by policy instruments put in place.
Careful monitoring of the development, international cooperation and the use of
adaptive and flexible instruments are recommended. Cooperation with institutions
and actors in possible future large biofuel producing nations – notably tropical
developing countries with a substantial biophysical potential – can improve the
prospects for a sound development of biofuel production capacity.
Chapter 0 below outlines one example of how alternative expansion strategies for
sugarcane ethanol in Brazil can reduce risks of displacement and negative direct/indirect socio-economic and environmental impacts (where such risks exists).
Other expansion strategies can be expected to be better suited in other locations
around the world and in yet other locations the outcome of pre-expansion assessments may simply be that biofuel expansion would be connected with such large
risks of negative environmental and socioeconomic impacts that it would be best to
expand elsewhere.
However, before that, Chapter 4 below reports about the effects of sugarcane ethanol expansion in Brazil: if Brazil is the marginal producer on the world ethanol
market providing volumes imported to Sweden, then it will be essential to understand the effects of Brazilian sugarcane ethanol expansion when addressing the
question posed in the title of this report – “Is it possible to avoid bad impacts by
using good fuel ethanol?”
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4 Effects of expanding the
ethanol production capacity
in Brazil
4.1 Sugarcane ethanol expansion in
Brazil 1996-2006
In this Section, results are presented from an assessment of the expansion of sugarcane in Brazil during the period 1996-2006 12. The studied period, during which no
specific governmental regulation or certification procedure applied on the sugarcane sector, involved a substantial sugarcane expansion in Brazil – from an area of
about 4.8 million hectares (Mha) to above 6.1 Mha, i.e., an expansion of more than
1.3 Mha. Based on the identified effects of the sugarcane expansion during the
period 1996-2006, some conclusions are drawn and suggestions for policy are
made.
Figure 4.1 shows the distribution of municipalities having a substantial expansion
of ethanol production during 1996-2006 (designated ScEx in the figure). The areas
of sugarcane predominance in 1995 are also shown. Regionally, production is concentrated in the Central and Southeast regions, which presently have about 90% of
Brazil's ethanol production. The remaining 10% of ethanol production takes place
in the Northeast region. São Paulo state dominates with about 60% of the total
ethanol production. Other important states are: Paraná (8%), Minas Gerais (8%)
and Goiás (5%).
Most of the sugarcane production in Brazil is also concentrated to a relatively small
share of the Brazilian municipalities. About 10% of the 3 616 Brazilian municipalities have more 80 % of the total Brazilian sugarcane area and these municipalities
contained about 73 % of the total expansion of sugarcane that occurred during
1996-2006.
The central expansion area (designated CEA in Figure 4 1) includes 87 % of the
municipalities identified as experiencing a substantial ethanol expansion during
1996-2006, and about 90 % of the analyzed sugarcane expansion area. CEA can
therefore be considered as representative of the dominating sugarcane regions in
Brazil and the sugarcane expansion in Brazil for the period 1996 to 2006. The regions designated PEA in Figure 4 1 contains a relatively small total sugarcane area
but includes important biomes such as the Amazon and the poor Northeast region.
12
More information about the study, including the methodological approach, can be obtained form the
authors. See also Sparovek et al. 2008.
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The development in PEA can therefore provide information about the implications
of sugarcane expansion in non-traditional regions.
In CEA, sugarcane expansion during the period 1996-2006 resulted in a significant
reduction of pastures and cattle heads and higher economic growth than in
neighbouring areas not experiencing significant sugarcane expansion. Sugarcane
expansion in Brazil did not in general contribute to direct deforestation in CEA,
were most of the expansion took place. In this traditional agricultural region, the
amount of forests on farmland was below the minimum stated in law in 1996 and
the situation did not change over the period 1996-2006.
A Federal law first established the criteria for minimum forest area on private
farmland in Brazil in September 15, 1965 (Law # 4771/1965). The required minimum level of forest area on private farmland has been revised upwards several
times for different Brazilian regions and is still a topic of discussion in the parliament. But the current values for Central-South part of Brazil (20% of forests) and
Amazon (80% of forests) have been stable for a long time. The law also establishes
that a landowner having less forest than the minimum required area should plant
1/10 of the minimum requirement every third year until the minimum required area
has been reached. There is currently a large gap between the requirements in legislation and what is achieved on the average farm today, and there is no established
procedure to sue farmers that do not meet the minimum forest area requirement.
Occurring at smaller rates, expansion of sugarcane in PEA, containing more preserved regions such as the Amazonian biome and the Northeast region, was related
to several negative externalities: direct deforestation, competition with food crops
and absence of economic growth. As noted, PEA had a small share of total expansion in 1996-2006, and these regions are not expected to become important sugarcane growing areas in a near future. Due to high logistic costs, sugarcane cannot be
transported over long distances for processing and the sugarcane needs to be produced close to an ethanol production facility (i.e. < 100 km). Sugarcane based
ethanol production therefore takes place in regions having a dense paved road network, a supply market for industrial needs (e.g. machines, services, labour), and if
possible, high electricity demand to allow co-generation using surplus bagasse.
Also, climatic, topographic and soil conditions has to be favourable, allowing sugarcane cultivation without supplementary water irrigation, and a well defined dry
season to permit maturation and sugar concentration.
PEA regions within the Amazon are limited because of infrastructure, logistics and
distance from market and also more restrictive environmental legislation. The major part of PEA outside of the Amazon – Northeast of Brazil – can only expand
sugarcane production with irrigation, which is not common practice for sugarcane
production in Brazil.
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Finally, the likely most important reason is that large areas in CEA are still available for expansion and can be expected to be the first choice for already established
actors planning to expand their operations. The logistic costs tend to favour the
formation of industrial clusters and to transform the surroundings of industrial
facilities into a landscape that is highly influenced by intensively managed sugarcane plantation. A suitable region with favourable soils, topography and climate;
provided with adequate supply market and infrastructure – will attract several investors. Remote areas are not attractive for expansion. However, the more distant
future (beyond the coming 10-15 years) is less certain and the establishment of
mitigating measures in PEA is warranted.
The extent by which the sugarcane expansion induces ILUC in remote regions
could not be established in the study and is still at the time of writing this report
subject to uncertainty and debate. There is currently limited knowledge concerning
migration and re-establishment patterns among displaced agents. Thus, the linking
and quantification of ILUC caused by sugarcane expansion in different areas of
Brazil is presently not possible to achieve with high confidence due to lack of empirical data. However, the results obtained in the study summarized here indicate
that a possible migration of the cattle production reached further than the neighbouring of expansion regions.
Summarizing, sugarcane expansion during the period 1996-2006 did not in general
contribute to direct deforestation in the traditional agricultural region where most
of the expansion took place. The amount of forests on farmland in this area is below the minimum stated in law and the situation did not change over the studied
period. Occurring at much smaller rates, expansion of sugarcane in regions such as
the Amazon and the Northeast region was related to direct deforestation and competition with food crops, and appear not to have induced economic growth. Sugarcane expansion resulted in a significant reduction of pastures and cattle heads and
higher economic growth than in neighbouring areas.
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Figure 4.1. The geographical distribution of the sugarcane expansion (ScEx) municipalities, and of
the neighboring (ScNoEx) municipalities that did not experience a significant sugarcane expansion during the period 196-2006. Note that the total municipal areas are shown, rather than the
part of the municipal areas that is covered by sugarcane plantations. Traditional sugarcane regions are also shown.
Thus, the mitigation benefits of most of the Brazilian sugarcane ethanol seem not
to be dramatically reduced by GHG emissions from forest conversion to sugarcane
plantations. Soil carbon emissions may occur in the instances where pastures with
high soil carbon content are cultivated with sugarcane that is manually harvested.
However, new sugarcane plantations are commonly mechanically harvested and
harvest residues can be circulated to the field and mitigate soil carbon losses.
The expansion of sugarcane in regions such as the Amazon and the Northeast region was related to direct deforestation and competition with food crops, consequently causing direct LUC emissions and possibly also indirect emissions to the
extent that competition with food induces cropland expansion elsewhere with GHG
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emissions as a result. It is however not expected that the Northeast region or regions in the Amazon will experience substantial increases of sugarcane in the near
future since the production conditions are much more favourable elsewhere (see
also Figure 4.2 in the next Chapter).
It could not be established to what extent the discontinuation of cattle production
induced expansion of pastures in other areas, possibly leading to indirect deforestation. Nevertheless, the possibly large CO2 emissions that might arise from ILUC –
as illustrated by, e.g., (Fargione, et al., 2008) (Gibbs, et al. 2008) – motivate the
development of sugarcane expansion models that reduce the risks of such indirect
effects.
4.2 Sugarcane ethanol expansion in Brazil
up to about 2020
Figure 4.2 shows the location of existing sugarcane ethanol plants and of the ethanol plants under construction or in planning. The map shows where the major expansion of sugarcane ethanol production can be expected to take place: mainly in
the current major production region (the State of São Paulo and surroundings), and
in the new Central West region. In these two regions, pastures with extensive livestock production still surrounds the existing sugarcane fields and climate or soil
conditions appear not to be limiting – although, long term performance of sugarcane varieties is not known and the adjustment of agronomic technology is not
complete in the Central West region increasing the risks for investments. Also, the
dryer climate may restrict rain fed production in this region and thus lead to increasing costs or environmental impacts due to the need of water irrigation.
As during the period 1996-2006, the expansion in the State of São Paulo and especially in Central-West can be expected to occur predominantly on areas currently
occupied with extensive pastures, which are largely available in these regions.
Land prices or rent payments are low and the cattle ranchers find it economically
rational to sell or rent out their land to increase income. Without regulation or interference, the changes will occur based on market logic and resemble previous
development in expanding regions. Livestock production can be expected to decrease or be displaced to local marginal areas. A general trend towards more intensive animal production may become stronger if land values increase and extensive
pasture production have difficulties finding cheap land suitable for grazing. Also,
small properties can be expected to merge into larger and more feasible units for
large-scale sugarcane production.
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Figure 4.2. The geographical distribution of existing sugarcane ethanol plants and of plants under
construction or in planning.
Local environmental impacts can arise – due to higher rates of pesticide and
chemical fertilizer use, industrial residue recirculation to croplands (e.g., vinasse,
filter cake) and increasing soil tillage with consequent increase in erosion and
physical soil degradation. Environmental impacts intrinsic to a more intensive
agricultural land use are difficult to avoid, but adoption of best management practices may reduce these impacts to tolerable levels.
Once again coming back to the question raised in the title of this report: if the recent and possible near term expansion of sugarcane ethanol as described above
make Swedes questioning the statement that Brazilian ethanol is good ethanol, one
should ask whether there are alternatives to the conventional sugarcane ethanol
expansion paradigm. The next section describes the alternative sugarcane ethanol
expansion model mentioned in Section 3.2.2.4 favouring coexistence instead of
sugarcane monoculture and integration instead of displacement.
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5 An alternative sugarcane
ethanol expansion model
Alternative expansion models, where sugarcane production is integrated with the
previously existing land uses, can potentially promote increased food crop and
livestock production and reduce the incidence of migrating extensive cattle production. Additional benefits of such expansion models include increased welfare return
for affected communities and reduction of local environmental impacts. One example of an alternative sugarcane expansion model is presented below. It is developed to provide several objectives: i) local development, ii) no (or minimal) land
use displacement, and iii) unaffected land tenure – the land property structure is
kept intact by avoiding that small holders sell land for the establishment of larger
producing units.
5.1 Integrating cattle production with
sugarcane ethanol production
In regions with a dry winter – a climate type also suitable for sugarcane cropping –
extensive livestock productivity is restricted because of the low availability of
pasture in wintertime. Integration of sugarcane ethanol production with livestock
production can be based on opportunities to produce animal feed at the ethanol
plant: minor adaptations of an industrial plant designed for sugarcane processing
for sugar and ethanol – using proven, commercially available technology – makes
it possible to produce animal feed based on steam cooked (hydrolyzed) bagasse
pulp 13.
Sugarcane is harvested during winter, and therefore the animal feed can be produced and delivered to the ranchers during this shortage period. During the rainy
season no ration can be produced (because no sugarcane is harvested at this time
and the industry is not operating), but pastures are then highly productive. About
70 % of the area used previously to spare pastures for the winter or produce silage
during the summer, can be utilized for sugarcane production. The remaining 30%
will be required as summer pastures.
Solving the winter feed problem is the key aspect for production intensification
under seasonal climate conditions. The integration of the industrial plant as main
source of animal feed may benefit not only the areas where sugarcane fields will
expand, by allowing its coexistence with livestock production (beef cattle, milk,
sheep, pork, or horses), but also spread out over a larger region. The productivity of
livestock tends to increase. Ranchers’ income will increase not only because of
13
In Brazil, rations based on steam-hydrolyzed bagasse are produced for beef cattle production in
several industrial plants. Until 1995, 120 plants were equipped with such facilities. This number is currently reduced to about 30 due to that other similarly profitable uses of the surplus bagasse emerged
(e.g. co-generation of electricity).
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higher productivity, but also due to income from the sugarcane production on the
remaining land, or from renting out the land for this purpose 14. The dependence on
one economic sector is also reduced: diversity helps to equilibrate local economy
and reduces the vulnerability to varying profits in one or the other sector. Native
farmers and rancher are more likely to use their increased income for local investments, thereby stimulating other sectors in the region. The increased productivity
and income may also reduce the occurrence of migration of ranchers to remote
regions, thus reducing the risk that the sugarcane establishment leads to ILUC
emissions.
The integration model is possible to implement for different farm scales. Involvement of family agriculture in the integration also reduces the likelihood of farm
aggregation into larger units, maintaining tenure structure. The findings of a case
study, where sugarcane ethanol production is integrated with cattle production
among small-scale farmers in agrarian reform settlements, are presented in the next
Section.
5.2 The integration of sugarcane with cattle
production in settlements in the Pontal
do Paranapanema region in the State
of São Paulo
Pontal do Paranapanema (Pontal: see Figure 5.1) is the region in State of São Paulo
where sugarcane can still expand substantially. Several sugarcane companies have
at present received the environmental license to operate in Pontal and a near expansion period is expected.
Pontal is the second poorest region in the state and extensive beef cattle farming is
the dominating land use: 55 % of the 1.4 million ha large area is presently composed of extensive pasture, and 4 % is used for sugarcane production. There are
two main groups of land owners: i) Ranchers often own areas larger than 1,000 ha
and their main income comes from extensive beef cattle farming; ii) Settlers, which
received land by agrarian reform, own small properties of approximately 20 ha
used for low-productive milk production and subsistence. The prevailing milk
production in Pontal (extensive, low-productive cows and limited pasture management) restricts income growth for the settlers. Food production for subsistence also
consumes part of the land leaving little space for other cash corps. Some settlers
14
Sugarcane industries will initially have to invest in the construction and operation of the feed production equipment. Economic assessments indicate that attractiveness for the cattle owners may require
that the feed is sold at a price roughly corresponding to the production cost, implying a long period of
investment amortization. However, from a ethanol plant perspective the costs related to the animal feed
production is very small (a few percent of total costs) and can be regarded a motivated investment for
gaining local acceptance and reducing risks of ILUC emissions, which might reduce the value of the
produced ethanol under prospective certification systems. Another advantage is related to the diversification of the industry itself that become engaged in intensive beef cattle farming and/or milk production.
Diversification may be a strategy for the industries to sustain business.
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already grow sugarcane for local industries but this activity presently claims less
than 1 % of the suitable areas.
Figure 5.1. Geographic location of Pontal. The map also presents the distribution of sugarcane,
forests and agrarian reform settlements in the state of São Paulo.
The evaluation of the expansion model for the case of Pontal compared a Sugarcane integration scenario (with intensification of milk production, using 70% of
the former pastures and animal feed produced in the ethanol plant for winter feeding) with the currently observed sugarcane production in the settlements, designated Sugarcane exclusive scenario since it focus completely on sugarcane that
becomes the only source of income. The evaluation focused on the settlers. Ranchers in Pontal would also be affected by expanding sugarcane production, but this
aspect was beyond the scope of the case study 15.
The results of the evaluation indicate that increased production of sugarcane ethanol from Pontal can contribute to substantial GHG emissions reduction and also
increased income for the settlers – but both effects occur only in the Sugarcane
integration scenario. After 15 years, the intensified milk production leads to a stable net annual income that is several times higher than the currently obtained from
the milk production. In addition, sugarcane production will further increase the
income. However, the support from the ethanol plants providing non-profit feed is
crucial for economic viability: cattle feed is the largest cost component in milk
production.
The climate benefits differ depending on scenario. In the Sugarcane exclusive
15
More information about the study, including the methodological approach, can be obtained from the
authors. See also Sparovek et al. 2007.
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scenario, where the farmers focus mostly on sugarcane production, more ethanol is
produced and used to replace gasoline leading to larger reductions of GHG emissions from transport. On the other hand, substantial volumes of additional milk are
produced in the Sugarcane integration scenario, substituting milk production (and
related GHG emissions) elsewhere.
The total net climate benefit obtained in the two scenarios was found to be sensitive to several aspects. One important aspect is the relative importance of manual
vs. mechanical harvesting of sugarcane, where mechanical harvesting allows cycling of harvesting residues to the cropland. As has been noted earlier, this can
mitigate soil carbon losses as a consequence of sugarcane cultivation on former
pastures with high soil carbon content. Such soil carbon losses can otherwise reduce the net climate benefit of the sugarcane ethanol production.
The Brazilian law – stating that the practice of burning the cane-leaves before harvest (which is necessary in manual harvesting) should be totally phased out by year
2031 – was established because burning leads to severe air pollution during the
harvest season. But, given that a shift to mechanical harvesting (due to the phaseout of burning) also leads to that biomass recirculation to the cropland becomes
established practice, the law can clearly contribute to improved climate benefit of
expanding sugarcane ethanol production.
As for the study of the effects of sugarcane expansion 1996-2006 reported in an
earlier Chapter, the empirical basis for linking sugarcane expansion in Pontal with
land use change in remote areas was found too weak for supporting any definite
conclusions. But sensitivity calculations showed that the mitigation benefits of
expanding sugarcane ethanol production in Pontal are clearly highly sensitive to
the occurrence of such indirect effects. Ongoing research is dedicated to improving
the understanding of this important aspect.
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6 Prospects for production within
an integrated and certified
market: an assessment of
stakeholder opinions
If integration with prevailing land uses is identified as a possible model for avoiding possible negative impacts of sugarcane expansion (such as displacement of
farmers), regulation mechanisms may need to become established that support such
a development. In order to improve the understanding of such systems, and the
difficulties of including integrated production in certification schemes, a qualitative
survey based on interviews has been applied. The interviews covered a wide range
of stakeholders of sugarcane mill owners, independent producers, representatives
of social and union movements, entities representing cattle and milk producers,
specialized consultants and trade companies.
The opinions of these stakeholders can be useful for the design of certification
rules, and for the understanding of possible conflicts arising from the inclusion of
specific rules and models, such as integrated production. Also, other intervention
measures – such as zoning, regulation, legislation – may also benefit from this
knowledge.
6.1 Methodology
The interviews were based on semi-structures questionnaires. The interviewer took
notes during the interview, and later converted the notes in concluding remarks.
The interview was organized according to the following sequence.
1. Presentation of data related to recent sugarcane expansion in Brazil:
The data in Sparovek et al. (2008), related to the impacts of recent sugarcane expansion in Brazil, and the location of the future expansion region (based on the
mills under construction and planned to be constructed) was initially shown. The
idea was to build a common basis for all interviews, considering their diversity and
uneven level concerning respondents’ access to relevant information. Also, during
this part of the interview (that was taking place before the suggested certification
and integration schemes was introduced), the spontaneous view of each stakeholder
could be registered. The questions during this section were about impacts of sugarcane expansion, and solutions for the expected impacts.
2. Certification:
After the first part of the interview questions followed about the possibility of certification as a procedure for mitigating impacts related to sugarcane production.
Also, it was investigated whether the respondents expected certification to apply on
the marked in the short or long term and what kind of rules that should be applied.
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There were also questions concerning the possible benefits and disadvantages of a
certified market for ethanol for the specific sectors represented by the stakeholders,
and also concerning the applicability of integration with previous land use.
3. Integrated sugarcane & cattle & food production:
The respondents were questioned about possible integration concepts that could
combine sugarcane expansion with cattle (beef and milk) and food production.
4. Presentation of the integration approach described in Sparovek et al.
(2007):
The main concepts and results of the integration scheme described in Chapter 0
above were presented for the respondents. The benefits for farmers and mills were
briefly presented and also some quantitative data on viability were given. After this
the respondents were asked to present their views on the possibility of including
the integration concept in the certification schemes.
5. Reaction to the proposed certification & integration:
After the presentation, the respondents were asked to propose improvements of the
integration model and to elaborate on advantages and disadvantages. Also, some
questions specific for each stakeholder type were raised at the end of the interview.
The interview sequence was based on constructivism where each interview component builds on the discussion in the previous components. In this way, several interviews also resulted in new questions and suggestions that were introduced in the
subsequent interview components.
6.2 Stakeholders that were interviewed
The 20 respondents were divided as follows. In the summary of results shown in
sequence, each respondent group was identified by a numeral to allow the immediate association of opinion, statement or suggestion with the respective author.
•
•
•
•
•
•
•
(1): Mill owners (including UNICA 16 ) [7 interviews];
(2) Independent sugarcane Producers [2];
(3) Social Movements (including MST) and rural worker’s unions [4];
(4) Milk producers Entities [2];
(5) Certification companies [2];
(6) Specialized Consulting professionals [2];
(7) Trade company [1].
6.3 Results
The result was categorized and divided into topic groups. The opinions and conclusions from the authors of the survey were presented in italic.
16
Sugarcane Industry Association
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6.3.1 Ethanol production and development
Regarding ethanol production and development some groups pointed out local and
more specific issues (1) and (2); while others (3), (4), (5), (6) and (7) extended the
discussion to broader range with regional and national implications. The different
points and opinions related to development were:
6.3.2 Economic
All groups agree that sugarcane expansion is essential for Brazilian development.
The rationale is the need to replace fossil fuels in general, and specifically the expected expansion of the ethanol demand – both domestic and internationally, where
Brazilian ethanol have advantages thanks to efficiency and capacity of Brazilian
production. Even (3), traditionally being opposed to large scale and monoculture
agriculture, highlights the importance of sugarcane at the farm level because of its
wide range of uses (fuel and food), and also nationally, as a crop capable of wealth
generation in local and external markets. (3) suggests that the expansion of sugarcane should be built on a “National Agreement” that includes family agriculture.
Restrictions for sugarcane expansion were proposed mainly by (3) and are related
to the model of concentration of wealth and land in the hand of large economic
groups that replicate in the traditional monoculture pattern of sugarcane production
with negative impacts on environment and society. In relation to the environmental
impacts of monoculture (5) and (6) also agree.
(1) object to the critique of (3) related to excessive wealth and land concentration,
and adds that the investments of foreign capital groups does not challenge national
security or interests. (1) proposes that the new mills should buy only part of the
land they need for sugarcane production and that most of the production be delivered by independent producers, thus not contribution to land ownership concentration. Other aspect highlighted by (1) is the natural regional development around the
new mills by higher tax collection and more qualified labour need (higher payments) than traditional agricultural work. (3) points out risks of social exclusion by
competition for land with family agriculture resulting in interruption of small and
medium size farming and migration to urban areas or to remote areas at the agricultural frontiers.
6.3.3 Social
The social dimension related to sugarcane pointed out by all respondent groups was
the great capacity to generate labour opportunities, mainly for harvesting. Also, the
increase of mechanical harvesting, essential to avoid burning, was associated by all
with unemployment (especially in the state of São Paulo). Further mechanization of
sugarcane harvesting is considered unavoidable by all groups, and is expected to
influence employment negatively in the short term. All expansion regions plan for
mechanical harvesting. In short term (about 2014) manual harvesting will be
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restricted to the Northeast production region and to small amounts of land with
slope > 12 % in the traditional south region. Also, all groups agree that only part of
the employees will be relocated in the sugarcane sector.
Concerning labour (1) is more optimistic in relocation of the employees in better
paid positions (mechanical harvesting, sugarcane planting), and state that expansion will also absorb part of the workers, counterbalancing the negative impacts of
mechanization. (2) points out that the end of relatively high payments for manual
sugarcane harvesting, based on productivity, will severely impact the local economies where the workers come from (part of the workers are migrants). Because of
the usual low qualification of these workers, even with relocation, a reduction in
income is expected. (3) suggests that the mill owners should contribute for a better
qualification of the released workers, allowing a more easy relocation. According
to (6) the increase in mechanization will release large amounts of land that is not
suitable for mechanization (not for sugarcane nor other crops) making it urgent to
establish a profitable land use for these areas to avoid additional economic and
social impacts. (1) argues that several mills sustain social actions through foundations, mainly in health, education, and professional training.
6.3.4 Environment
The environmental theme resulted in more diverging opinions, and in some cases
antagonism and complete disagreement between (1) and (3) was observed. (1)
argues that sugarcane production is under greater surveillance and higher standards
of inspection for legal issues than other agricultural sectors. (1) also argues that
sugarcane is a soil protective crop and adopts ecologic management in several
agronomic practices. Also environmental legislation related to Legally Protected
Areas – APP -(forest reserves that has to be placed along the rivers and water reservoirs) are being increasingly followed also in rented land and by independent
producers. Regarding the Legally Protected Forest Reserves – RL (a proportion of
farmland that has to be kept without production as a natural vegetation reserve,
varying from 20 to 80 % depending on the region), opinions diverge. (6) points out
that it will not be possible to keep the 20 % of RL in the traditional production
region, and suggest a new agreement around the legislation. For (3) the negative
impact of sugarcane expansion is related to the increase of burning, and extensive
monoculture areas that impact biodiversity. (3) states that a traditional expansion
will impact the Amazon region because of the indirect expansion of pastures, and
result in deforestation and desertification. Also, the large amount of residues, especially vinasse, is expected by (3) to impact negatively on the environment. For (1)
all these impacts will be counterbalanced by the effective role of sugarcane based
ethanol in GHG emission reduction, and in the extremely favourable energy balance. For (6) certification may contribute meaningfully by introducing environmental standards for sugarcane production, considered a consequence of demands
from export markets.
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6.3.5 Tenure and land ownership concentration
All respondent groups agree about differences in land tenure and ownership in the
traditional production region and the expansion areas. Land ownership is consolidated in the traditional regions, including the Northeast region. (1) states that in the
traditional sugarcane regions no suitable land is available for expansion. This is
confirmed by (3) and (6). For (1) the expansion to new regions follows an economic logic, driven by markets. Sugarcane is the most profitable crop, thus replacing mainly pastures. The dominating land use change pattern will follow this trend,
but in some regions in the South of the state of Minas Gerais and the Central West
region states cereal crops are being replaced. (1) affirms that the mills buy only
minor amount of land, most of the fields will be established on rented land or the
sugarcane be provided by independent producers, thus, not affecting land ownership concentration. (3) questions the renting contracts in the expansion areas, based
on a 12 years term and with the last 2 years paid in advance. With these contracts,
land owners that are close to the end of the contract will have to negotiate in a
difficult situation and will be more sensitive for selling land or accepting lower
payment for renting. (1) argues that the most usual land renting contracts are established for 6 to 7 years and that no advance payment applies. (1) also argues that the
payment for sugarcane is ruled and based on production costs (CONSECANA 17),
thus being transparent and reasonable.
All groups agree that sugarcane expansion force extensive cattle production to
migrate, and according to (3) this will contribute to the deforestation in the Amazon. For (1) sugarcane is a solution for family agriculture that can profitably rent
the land and work in other sectors. (3) points out that the increase of the price for
land with sugarcane expansion will impact the Brazilian Agrarian Reform, reducing the availability of areas suitable for expropriation and new settlements.
6.3.6 Relation with other sectors
(1) states that sugarcane production interacts and can easily establish win-win relations with other sectors using the example of cereal production in areas of sugarcane renewal. In expansion areas, because of the traditional culture of extensive
beef cattle ranchers, some difficulty may occur for renting land or planting cereals.
The traditional cattle ranchers are extremely tied to their productions systems and
reluctant to establishing new activities even if these are assessed as economically
more attractive. For (3) a better integration could be established if the mills were
open to stimulate local economies, using the example of purchasing food for the
employees from family agriculture in the area. This could improve the relations
17
The State of São Paulo Sugarcane Producers Council is an association of representatives from
industry, and sugarcane independent producers; and establishes the good practices in the relation
between mills and producers. This practices also establish the cost of sugarcane based on production
costs updated constantly. The adoption of the suggested price is not an obligation but very frequently
done in contracts and land renting.
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between mills and settlements and promote family agriculture in the expansion
region.
6.3.7 Certification
Despite that the understanding of the certification rules varies among stakeholders,
all respondent groups agree that the concept of certification is a necessary prerequisite for sugarcane expansion in Brazil. Also, the triple bottom line – social,
economic and environmental – vision was emphasized by all groups. Most of the
respondents also agree that the certification should be implemented in short term.
For (1) certification is essential to guarantee technical standards for Brazilian ethanol, using INMETRO 18 as a good example. (1) also envisions that certification
may be needed to protect the Brazilian ethanol (and biofuel sector) from barriers
against international trade, related to sustainability requirements. Certification is
also considered by (1) as an additional measurement to protect markets, mainly in
the EU, to be added to local subsidies.
UNICA (1) informs that there are no common criteria for certification considering
the international discussion, despite that several initiatives are in development,
mostly in Europe. UNICA considers the requirements included in the European
Directive for renewable fuels as the most important type of “certification initiative”. The reason is related to the potential of this directive to promote a global
increase in the demand for biofuels. UNICA identifies its role as defending the
Brazilian sugarcane sector from certification schemes with excessive regulations
that are difficult to achieve.
(3) states that certification may have different meanings and understandings according to the sector. CONTAG, the Rural Workers Union Confederation (3) is
mainly concerned with labour and working conditions, considering that, because of
environmental concerns and emission control, mechanical harvesting will expand
and be adopted in the total expansion region, reducing dramatically the need for
labour. CONTAG establishes a trade-off relation between environmental issues and
social concerns related to employment in Brazilian sugarcane production. For
FEARESP, the São Paulo State Federation of Rural Salary Workers (3), certification is mainly motivated by it contributing to a better standard for rural workers,
although is considered important for environmental issues also. MPA, the Movement of Small Farmers (3), has an own vision of biofuel ethanol production for
family agriculture. MPA states that the certification systems under discussion are
only applicable for large scale mill production, and that family farm based production should be included in the certification schemes. As suggestion is that different
(less restrictive) quality standard should apply for small scale production and that
ethanol from small producers should have preferential markets and shared respon18
INMETRO, the Brazilian Institute for Metrology, Normalization and Industrial Quality, published in
August 7, 2008 the normative # 282, submitting for open public discussion the Rules fro Conform Assessment of Biofuel Ethanol.
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sibilities between producers and consumers. MST - Landless Movement (3) – has a
very negative view on certification, considering it as a “fake procedure” to disguise
from international consumers the unfairness and social inequity of Brazilian sugarcane production. MST considers certification as a pure market mechanism with no
positive outcomes for the Brazilian rural poor. (7) has a more pragmatic opinion
about certification, and believes that it will only apply when the majority of the
producers will be ready to satisfy its conditions. (5) and (6) proposes that certification should be implemented in 2010 and will have an important role for the European market.
It’s important to point out that depending on the rigor of the certification rules, a
wealth concentration process may occur by excluding small and medium producers
not able to satisfy the requirements. Complete phasing-out of manual sugarcane
harvest is one example, where the investment for one harvesting machine and the
adaptation of trucks for mechanical harvesting is not affordable for medium and
small producers.
6.3.8 Sugarcane and food integration
The perception that sugarcane stimulates cereal grain production using the areas of
sugarcane renewal exists - to greater or smaller extent – in all respondent groups.
The difficulties are related to the high technical level that this agricultural system
requires in order to fulfil the requirements from the mills and the need of integration with the mill’s schedule for sugarcane planting. Usually the mills establish
contracts with a third actor for cereal plantations. Cereal plantations in sugarcane
renewal areas are more frequent in the South region. In Northeast, crop rotation is
related to social promotion, while the mills allow the workers to use the fields for
subsistence agriculture.
Investments in technology and machines are seen by (1) as a key issue to increase
cereal production in rotation with sugarcane. Also, in the expansion region (1)
points out that rotation may be enhanced by planting cereals for two consecutive
years, resulting in additional benefits for sugarcane and greater output of grains.
Although, some adjustments to the legal framework for land renting is needed to
allow longer term contracts between mills and cereal producers (1).
(3) states that integration should take place at the farm level, allowing each producer to equilibrate energy and food production using ecologic technologies and
share responsibilities with consumers. (4) establishes a direct relation between the
sugarcane expansion region and important milk production regions, showing concerns about long term displacement of milk production to take place further away
from milk consumers, reducing the income of milk producers.
We conclude that sugarcane may stimulate food production. Although, despite that
this synergy exists no targets for increasing food production were considered to fit
in neither certification rules, nor integration targets with traditional land use in
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expansion areas. Some statements point to difficulties due to specificities of each
production system (sugarcane vs. cereals) that are usually not implemented by the
same producers. The respondents were sceptic about a proposed uniform certification system that applies on different types of producers without adjustments.
Two important issues, related to the possible integration of sugarcane with cattle
and food crop production, were considered during the interviews:
• A fundamental aspect for rural development will be the capacity of farmers to diversify production. A goal to aim for will be expanding sugarcane without land ownership concentration and displacement of traditional land use. The integration of sugarcane – cereal – cattle production
is a key issue for these;
• The establishment of an equilibrated amount of sugarcane, bioenergy
(from sugarcane bagasse) and grains in the same region allows the establishment of sustainable production clusters optimizing food-energyfuel production; including biodiesel from oilseed grains provided by family agriculture and processed efficiently in the mills based on bagasse
energy.
6.3.9 Reaction to the integration proposal
In general all reactions to the integration proposal described in Chapter 0 were
favourable. (1) affirms that grain production in renewal fields is widely accepted,
because of weed control and soil amendment. The suggested integration with cattle
production was also considered as extremely viable by (1), and the other respondent groups as well. The major arguments were the large amount of residues available for producing the complete ration and a better payment for the main residue
involved (sugarcane bagasse) when compared to other options (e.g. cogeneration of
electricity). Some remarks should be considered to further improve the integration
proposal:
• The suggested integration, and other ways of promoting food production
in sugarcane areas in the expansion region and Brazilian Northeast still
needs technological development (R&D) to improve the standards of
these system to the level already available for the traditional production
regions in the State of São Paulo (1);
• Considering irrigated sugarcane production (possible expansion in the
Northeast region and part of the Central West expansion) the bagasse
surplus is more limited, because part of it will be used for providing energy for irrigation (1);
• Integration with cereal production in the Central West region in renewable fields should be implemented with two years of rotation (1);
• Integration of sugarcane with cattle production in the expansion region
may promote a more general intensification of pasture based beef cattle
production, increasing the intensity of land use, that may benefit sugarcane production (1) ;
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• The suggested integration with sugarcane production may provide a more
intensive and profitable land use type for cattle (beef and milk) in areas
not suitable for mechanical cropping in the expansion region (2);
• Independent sugarcane producer cooperatives could coordinate the integration procedure and distribute the cattle ratio (2);
• Negative impacts of sugarcane expansion based on monoculture may be
reduced by combining zoning and integration concepts (1) and (3);
• The suggested integration may promote important improvements for
family agriculture, but should be complemented with policies to allow
the small farmers to adapt to the new technology (3);
• The negotiations to allow the adoption of the integration scheme in large
scale should be collective, and has to preserve the interests of rural workers (3);
• The suggested integration could benefit from the concept of Certified
Territory, a theoretical certification scheme with high potential for these
condition (6).
Regarding the restrictions for the implementation of the suggested certification, (1)
points out the logistic costs for ratio distribution, restricting the range to 50 km
from the mills. Also (1) is concerned with market and ideological aspects. Mill
owners are not used to negotiate and set agreements with social movements and
rural workers representations, a key issue in the integration concept. According to
(2) the market restriction is related to the competitive cost of beef cattle produced
in the integrated system and cattle produced on pasture in remote regions at the
Brazilian agricultural frontier. Shortage of bagasse or excessive increase of its cost
was not pointed out as restriction, because of the trend of the new mills to increase
energy efficiency, resulting in additional surplus bagasse. (3) is sceptic about the
real benefits for rural workers of the suggested integration and concerned that it
may replicate what happened with the poultry industry in South Brazil and to some
extent also in the biodiesel sector: creation of “faked employment”. The established
contracts, in many cases, are unfair for the family farmers allowing the industry to
pay for the working hours less than the national minimal wage. (5) is concerned
that the cattle producers are not used and prepared for the bureaucracy of certified
production. (3) and (6) highlights the need for supporting policies related to trade
protection to protect the small farmers from price reduction due to over production.
6.4 Some concluding remarks
• The interviews, which covered a wide range of actors that will have to
interact in a certified biofuel ethanol production, highlighted important
topics:
• Certification is already considered by all involved stakeholders as part of
sugarcane expansion in Brazil.
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• Its importance in achieving a higher environmental standard in sugarcane
production is also not questioned.
• The real purpose of certification and what each sector realize about it, is
still variable and in some parts conflicting.
• Social movements and other entities related to rural workers are sceptical
about the possibility of certification (and to some extent sugarcane expansion in itself) to improve local and regional development, benefit rural workers and create employment.
• Mills and trade companies identify certification as an external demand
with the main purpose of protecting markets (specially the European),
and a discussion to be present to protect Brazilian producers from excess
of regulations and measurements aiming exclusively at market protection.
• Food combined with energy production is identified by most actors as
something natural in sugarcane production regions, mainly in the expansion areas.
• Integration with cattle (milk and beef) production is considered feasible,
despite it being unusual at present.
• Integration in general, and with cattle specifically, is also considered as
essential by all to reduce conflicts, benefit family agriculture, promote
sound local development and achieve higher social return to local and regional communities in the expansion region.
• Integration with cattle production is seen by some of the respondent
groups as beneficial to establish a good relation with present land users in
the expansion regions, a way of avoiding indirect land use change effects
and increase the land available for sugarcane production by intensification of pasture based extensive livestock production.
• The suggested integration model presented in Chapter 0 was considered
feasible and expected to be efficient.
• Implementation of this model, or any other integration scheme, will need
support in the form of regulation and/or incentives.
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7 Summary and some brief
remarks
Biomass presently contributes some 10% to the world primary energy mix – 3%
and 22% in industrialized and developing countries, respectively. The bioenergy
sector – and in particular biofuels (mainly ethanol but also biodiesel) production
and use for transport – has witnessed significant growth in recent years. This
growth has made it evident that reducing fossil fuels with biofuels can mitigate
some impacts but can at the same give rise to new types of impacts. International
trade in biofuels grows but the global biofuels market is complicated and distorted
due to various market interventions such as fixed mandates, production targets,
import tariffs and subsidies. The Brazilian ethanol market is a mature market, earlier shaped partly by policy support but today such instruments have been phased
out.
Ethanol production costs vary substantially between different areas and production
systems. The production costs are sensitive to feedstock costs as well as capital
costs, and development towards larger plants – which has been the trend – reduces
total production cost. The level of co-product revenues is another important factor.
The Brazilian ethanol production cost is presently roughly 0.20 – 0.30 USD/litre,
which is substantially lower than in USA and EU, and Brazilian ethanol becomes
cost competitive against gasoline at a crude oil price of about US$35-45/bbl.
The response to a change in demand for a given crop is not presented by a single
crop supplier or a single country, but rather by responses from a variety of suppliers of several different crops in several countries. Yet, acknowledging all the complex interconnections between global and local food and bioenergy markets, including not the least legislation, policies and other market interventions, we propose that – under conditions of balanced growth and in the absence of policies and
other market interventions – Brazil is the most likely marginal ethanol producer on
the world market and can thus be considered as provider of the marginal litre of
ethanol imported to Sweden. In other words, if Swedes consume one more litre of
ethanol for transport Brazil is the most likely producer of this additional litre.
In situations of very rapidly increasing global ethanol demand, high prices in combination with capacity expansion rate constraints in Brazil may lead to that increased import demand in Sweden/EU induces increased ethanol production outside Brazil. Production cost considerations point to mainly other tropical countries
as marginal ethanol suppliers after Brazil. However, uncertain investment climate,
lack of knowledge and infrastructure, and also limited domestic institutional capacity to support a sound near term bioenergy expansion, can make production capacity growth slow in these countries. This could possibly lead to higher-cost countries
such as USA becoming marginal suppliers.
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In situations where ethanol demand increases at steady rates over longer time periods it can be expected that Brazilian ethanol production growth is based on both (i)
increasing the conversion efficiency at the ethanol plants – possibly by introducing
technologies for converting part of the cellulosic residue bagasse into ethanol – and
(ii) increasing agricultural output, which can be accomplished by increasing the
sugarcane area and/or increasing the yields through agronomic development.
During the recent decade, Brazilian sugarcane has mainly expanded on agricultural
land in established agricultural regions and caused little direct deforestation. Much
of the future expansion can be expected to take place on pastures used for extensive
cattle production. This could lead to indirect land use change – displaced cattle
ranchers re-establish their operations elsewhere or prices of animal food products
induce additional extension of cattle production – and if this land use change involves conversion of forests or other natural ecosystems the effect is negative for
biodiversity and the climate benefit of sugarcane ethanol is reduced.
Recent years, there has been much debate over the links between biofuel expansion
and land use change. New studies have confirmed and re-established attention to
earlier findings that greenhouse gas emissions arising from direct and indirect land
use changes induced by bioenergy expansion can drastically reduce the mitigation
benefits of bioenergy. At present, there is lack of empirical data and limited knowledge concerning migration and re-establishment patterns among displaced land
users. Thus, the linking and quantification of indirect land use change caused by
sugarcane expansion in different areas of Brazil is presently not possible to achieve
with high confidence. Productivity increase in cattle production and crop cultivation can potentially be important for mitigating indirect land use change.
Critique of Swedish use of Brazilian ethanol point to socioeconomic and environmental impacts connected with the conventional approach to producing ethanol in
Brazil. However, it is not at all clear that the net global effect of using one more
litre of Brazilian ethanol is negative: this depends on how the fuel displaced by this
ethanol would have been produced. Under an obligatory biofuel target, this displaced fuel would be another biofuel – possibly ethanol from outside Brazil. In the
absence of such a target the alternative fuel could be either another biofuel or gasoline. All fuel alternatives would be produced in ways that lead to impacts – possibly different in character and difficult to compare with the impacts of the Brazilian
production.
Brazilian ethanol is judged to be among the best alternatives we have at present:
relying on other fuels could lead to worse effects. Nevertheless, if the effects of
conventional sugarcane ethanol production in Brazil are still not considered to be
acceptable, alternative strategies can be considered for Swedish transport:
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• continue using petroleum based alternatives while awaiting other climate
friendly alternatives than biofuels, such as hydrogen cars and electric vehicles. However, it will take time before such alternatives become established on a substantial scale. Consequently, reductions in the transport
sectors’ greenhouse gas emissions the coming 1-2 decades would need to
be based on increased vehicle efficiency and structural changes in transport and other societal systems. The reduction requirements for the stationary energy system could also be increased leaving more emission
space for the transport sector.
• shift to Brazilian ethanol or other biofuels that meet the requirements on
socioeconomic and environmental performance – e.g., certified biofuels.
Sustainability standards and certification systems are still in an early
phase of development and it remains to see which biofuels that meet the
set sustainability requirements. Alternative expansion models for Brazilian ethanol – where the sugarcane production is integrated with the previously existing land uses – can potentially offer an attractive alternative
by reducing risks of displacement and negative socioeconomic and environmental impacts. A model for integrating sugarcane ethanol production
with cattle production described in this report offers a concrete example.
Certification systems that place specific requirements on the ethanol production
can hedge against some of the undesired consequences and promote a positive
development where implemented effectively. There appear to be agreement among
Brazilian stakeholders that sugarcane expansion is important for Brazilian development and that certification can be considered as a part of the sugarcane expansion context in Brazil. Its importance in achieving a higher environmental standard
in sugarcane production is not questioned, but there is scepticism among stakeholders representing social movements and other entities related to rural workers
over certification systems’ ability to improve local and regional development,
benefit rural workers, or create employment. Representatives of mills and trade
companies looked at certification as an external demand with the main purpose of
protecting (especially European) markets. Finally, certification schemes cannot
effectively address macro-level impacts such as price shifts on food commodity
markets.
Most actors consider combined food and ethanol production as standard procedure
in Brazil and the model for integrating sugarcane ethanol production with cattle
production was considered feasible and expected to be efficient. It was also considered as possibly essential for reducing conflicts and making sugarcane ethanol
benefit family agriculture, promote sound local development and achieve higher
social return to local and regional communities in the expansion region. Implementation of this model, or any other integration scheme, was expected to require support in the form of regulation and/or incentives, and also facilitation of negotiations.
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Finally, some brief remarks in relation to the title of this report – Is it possible to
avoid bad impacts by using good fuel ethanol? – reflecting a near term focus on
effects arising from Swedish ethanol use today, rather than longer term strategic
considerations.
Clearly, there are biofuel options that are unlikely to give a positive contribution to
climate change mitigation due to very large greenhouse gas emissions arising from
the conversion of carbon-rich ecosystems to bioenergy plantations. However, is not
evident that unfavourable climate performance due to indirect emissions during a
near term expansion period disqualifies all biofuels from being part of a long term
solution to the climate problem. An alternative perspective could be that we have to
dedicate part of the available GHG-emission space for developing a biofuel industry that has the capacity to provide low-GHG transport fuels for the world on a
long term: burn less coal in order to make place for developing the alternatives.
Also, the direct emissions of biofuels production can become lower in the future as
soil C stabilize at a new equilibrium level, conversion technologies improve and
use renewable process fuel, and feedstock production systems develop into less
GHG intensive systems 19.
Consideration of how a longer term development is influenced by the present
choices can give perspectives on the present situation. Even in the unlikely event
that Swedish/European demand for ethanol would – during periods of very rapid
growth and high prices – induce production of US maize ethanol on the margin
today, it still contributes to shaping the growth of the ethanol production capacity
in Brazil (and in other emerging producer countries). One possibility could be that
ethanol import demand, including specific requirements on the ethanol production
(e.g., via preferential agreements, EU legislation and/or voluntary certification
systems), becomes an important niche for non-conventional ethanol production that
influences the development of the conventional ethanol production, by providing
attractive examples and also opportunities for learning in alternative production,
including how it is monitored and verified.
Yet, again, Swedish/European ethanol consumption contributes to establishing
ethanol as a global transport fuel and incentivizes an increased global infrastructure
to handle and consume ethanol. As the ethanol system expands there will be a
greater demand for ethanol and eventually Brazil will reach its maximum production capacity. In such a scenario US maize ethanol may be demanded despite its
less favourable environmental performance (which on the other hand may improve
over time), simply because the energy is needed and people are used to ethanol as
fuel. Similarly, concerns about negative socio-economic and environmental effects
may become downplayed due to a common apprehension that large scale ethanol is
19
This is further discussed in a forthcoming report commissioned by the Swedish Energy Agency and
IEA Bioenergy. Contact Berndes for more information about this report.
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simply necessary for maintaining life styles while addressing concerns about climate change and oil dependency.
To conclude, we propose that Brazilian sugarcane ethanol is among the best options for meeting the set biofuels targets and for reducing road transport emissions
in Sweden based on fuel shifts. By using ethanol that is produced within a sustainability certification framework Swedes can promote positive development in Brazilian ethanol production – and by engaging in relevant international processes
Sweden can also have influence on how certification systems in themselves develop. Given the uncertainty about the long term development of road transport,
ethanol should not be the only option that is promoted. Ensuring that flexibility is
built into technical infrastructures – including flexibility in relation to reliance on
primary energy sources – can help avoid a future lock-in for the transport sector.
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Appendix A: Persons and interviewed entities
UNICA (Sugarcane Industry Association)
MARCOS SAWAYA JANK - President
Address: AV. BRIGADEIRO FARIA LIMA, 2179 – 9º. ANDAR – CEP: 01452-000 – SÃO PAULO/SP
Email: [email protected]
Mills
Northeast region
JAPUNGU AGROINDUSTRIAL S.A.
LUIS MAR MELO - Owner
Address: Fazenda Japungu, Zona Rural – Município de Santa Rita/PB
Email: [email protected]
DESTILARIA MIRIRI SA
GILVAN CELSO CAVALCANTI DE MORAIS SOBRINHO – Owner
Address: Fazenda Miriri - Zona Rural – Santa Rita/PB
S/N.
Email: [email protected]
USINA SÃO FRANCISCO
COMPANHIA AÇÚCAREIRA VALE DO CERAMIRIM
ECOENERGIA DO BRASIL
GERALDO MELO - Owner
Address: Município de Ceará Mirim/RN
Central West region
USINA CAMEN
VIRGILIO – Manager
Address : BR 153 – KM 646 – Morrinhos -GO
Web:
www.usinacamen.com.br
GOIASA – GOIATUBA ALCOOL Ltda
CÉLIO DA SILVA GONÇALVES - Manager
Address : RODOVIA GO 040 – KM 194 – CX. POSTAL 35 – CEP: 75600-000 GOIATUBA/GOIÁS
Email: cé[email protected]
www.goiasa.com.br
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SWEDISH ENVIRONMENTAL PROTECTION AGENCY
Report 6331 • Title: Is it possible to avoid bad impacts by using good fuel ethanol?
Southeast region
USINA SANTO ANTONIO S.A.
ATTÍLIO BALBO NETO - Owner
Address : CRUZ DAS POSSES - Cx. Postal 536 – CEP: 14177-970 – SERTÃOZINHO/SP
Email: [email protected]
Independent sugarcane producers
COPLANA – Cooperativa dos plantadores da zona de Guariba
FRANCISCO FERRAZ DE LAURENTIIS
Address : Avenida Antonio Albino, 1640 - Vila Garavello GUARIBA/SP
COPLACANA - Cooperativa dos plantadores de Cana do Estado de São Paulo
ARNALDO A. BORTOLETTO
Address : Avenida Comendadr Luciano Guidotti No. 1937 - CEP: 13425-000 – CAXAMBU – PIRACICABA/SP
Email: [email protected]
Consultants
SUCRAL ENGENHARIA E PROCESSOS Ltda
RICARDO CAIUBY DE FARIA
Address : Rua José Ferraz de Camargo, 188 – São Dimas – Piracicaba/SP CEP: 13416-060
Email: [email protected]
AGRIPOINT CONSULTORIA Ltda
MARCELO CARVALHO
Address : RUA TIRADENTES
No. 848 – 13º. Andar – CEP: 13400-760 – PIRACICABA/SP
E-mail: [email protected]
SCOT CONSULTORIA
ALCIDES DE MOURA TORRES JR
Address : RUA CEL. CONRADO CALDEIRA , 578 – CX POSTAL 14 – CEP: 14700-970 – BEBEDOURO/SP
Email: [email protected]
Social movements and rural workers entities
MST - Movimento dos Sem Terra
CIRO CORREIA
Address : SCS, Quadra 6, Edifício Carioca – Sala 708 Brasília DF
Email: [email protected]
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CONTAG – Confederação Nacional dos Trabalhadores na Agricultura
ANTONINHO ROVARIS
Address : CESIR
N.
Email: [email protected]
MPA – Movimento dos pequenos agricultores
MARIA JOSE DA COSTA
Address : SHIGS 704, BLOCO M casa 15
N.
Email: [email protected]
Milk production sector
Associação Brasileira das Pequenas e Médias Cooperativas e Empresas de
Laticínios - G100
WILSON MASSOTE PRIMO
Address : SAS, QD 05, Bloco K, Sala 711
Brasília /DF
Email: [email protected]
Trade company
VITAL COMMODITIES
RENATO PINTO OSORIO
Address : RUA FIDÊNCIO RAMOS
N. 223 Conj. 32 – Vila Olímpia – São Paulo/SP CEP: 04551-010
Email: [email protected]
Certification companies
IMAFLORA
LUIS FERNANDO G. PINTO
Address : RUA CHICO MENDES No. 185 Cx. Postal 411 - CEP: 13400-970 – PIRACICABA/SP
Email: [email protected]
TRIPLO A NORMAS
WILSON TOMANIK
Address : Av dos Bandeirantes, 263 5 Andar Londrina Paraná CEP 86010-020
Email: [email protected]
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Is it possible to avoid
bad impacts by using
good fuel ethanol?
report 6331
swedish epa
isbn 978-91-620-6331-3
Issn 0282-7298
Much of the global production of ethanol and other
biofuels is considered to be non-sustainable. Since
concern over climate change is the major force driving
fuel ethanol use in Sweden, we need to know whether it
is possible to screen the Swedish use of “good” ethanol
from markets for ethanol with bad climate characteristics.
Is it possible to avoid bad impacts by using “good”
ethanol?
What characteristics do relevant markets have? What
do we know about land-use change and its real impact
on the climate characteristics of the fuels? These, and
other, questions are complex and controversial issues on
which we hope that this report, written by researchers in
Sweden and Brazil, will cast more light on.
Swedish EPA SE-106 48 Stockholm. Visiting address: Stockholm - Valhallavägen 195, Östersund - Forskarens väg 5 hus Ub, Kiruna - Kaserngatan 14.
Tel: +46 8-698 10 00, fax: +46 8-20 29 25, e-mail: [email protected] Internet: www.naturvardsverket.se Orders Ordertel: +46 8-505 933 40,
orderfax: +46 8-505 933 99, e-mail: [email protected] Address: CM-Gruppen, Box 110 93, SE-161 11 Bromma. Internet: www.naturvardsverket.se/bokhandeln