NCPA - National Center for Policy Analysis

Growing Gas?

October 16, 2002

With the rising cost of oil and the slumping global market, many developing countries are having trouble paying for their oil imports. One particularly hard hit country, Brazil, is attempting to solve this by substituting ethanol for gasoline.

Brazil attempted a similar plan during the oil shock of the 1970s:

  • Being a primary exporter of sugarcane, Brazil had no problem supplying sugar-based ethanol.
  • At its peak from 1983 to 1985, nearly 80 percent of Brazilian car production was ethanol-fueled.
  • However, a surge in the world price of sugar meant growers could earn more money from exporting than from distilling it -- shutting down distilleries and ending the experiment.

Because of their economic crisis and high oil prices, the Brazilian government is encouraging the plan again. It has cut the sales tax on ethanol cars and encouraged local producers to introduce new models.

According to supporters, the plan has several benefits:

  • The International Energy Agency reports that Brazil's system will lead to a net savings of about 50 percent in greenhouse-gas emission per kilometer traveled.
  • With new methods, these savings could be pushed ever higher.
  • The sharp fall in the real and efficiency improvements mean that ethanol-powered cars may no longer need subsidies to compete with fossil-fueled ones.
  • Sugarcane grown for food can be fertilized using treated sewage, thereby providing a use for the growing quantities of human waste emerging from Brazil's cities.

Brazil is pursuing this policy internationally as well. During the Johannesburg summit on sustainable development, Germany and Brazil struck a pact. German companies would subsidize Brazilians to buy cars that run on ethanol. In return, German companies would earn carbon dioxide reduction "credits" that will count against their country's targets under the Kyoto protocol.

Source: "Driven to alcohol," Economist, September 7, 2002.


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