Brazil: The future of biofuel in Minnesota?

Ethanol may be king in these energy-strapped times

On a recent drive from his farm in Blue Earth County to St. Paul, Kevin Paap passed eight filling stations with an E85 fuel pump. Just two years ago, less than half of those pumps were up and running.

Paap, a corn and soybean farmer, heads the Minnesota Farm Bureau Federation and has advocated for the expansion of E85 across Minnesota and beyond. "You're probably going to see more E85 here—availability and infrastructure—than you would in a lot of states," Paap says.

With record oil prices, lawmakers decreeing the use of 36 billion gallons of renewable fuels by 2022, and calls for energy independence on the lips of the presidential candidates of both parties, ethanol seems destined to play a significant role in the nation's future.

There's just one problem: Nationwide, ethanol pumps are relatively scarce, available at just 1,505 of the 170,000 gas stations coast to coast. And six states, including New Jersey and Massachusetts, lack them entirely. (Minnesota leads the country in E85 pumps, with 339.)

While increasing the availability of E85 is no simple task, the answer may be in Brazil, where ethanol is readily available at filling stations, giving consumers a convenient alternative to petroleum.

"The consumer obviously loved it," says Morgan Perkins, director of the Agriculture Trade Office in São Paulo. "You go to the gas station and you look and see which is cheaper and you fill up with the cheaper fuel."

The idea of creating an alternative fuel source in Brazil began during the energy crunch of the 1970s, with the Pro-Alcohol ("Pro-Alcool") Policy. The program aimed to decrease dependence on foreign oil.

At the time, prices for sugar were low, so converting it to fuel provided a cheap alternative. The government built and paid for a distribution network to expand the use of ethanol and kept the cost of the biofuel affordable to attract customers. During the late 1970s the Brazilian government subsidized as much as 75 percent of the cost for constructing distilleries. Later, the government also created tax incentives for ethanol-powered cars. By the early 1990s, nearly all the passenger cars in Brazil were powered by sugarcane-based ethanol.

But then came several years of poor sugarcane crops, which resulted in fuel shortages. "People would have to sit in line, three, four hours at the gas station to get a really expensive tank of [ethanol]," Perkins says. "The consumer basically lost confidence in alcohol-powered cars."

The revival of the Brazilian ethanol industry occurred in 2004, with the innovation of "flex fuel" vehicles, which run on either ethanol or gasoline. The U.S. Agriculture Trade Office in São Paulo forecast 4.5 billion gallons of domestic ethanol use in Brazil this year, an increase of more than 750,000 gallons over last year.

Efforts in the U.S. to copy the Brazilian ethanol model are still taking root, with the Midwest taking the lead. As part of the energy legislation signed by President Bush in December, Sen. Amy Klobuchar pushed to expand the use of E85. She inserted provisions for grants to gas stations for installing E85 and biodiesel fuel pumps, while also preventing oil companies from blocking and controlling the sale of the fuels at franchised stations.

"This is still in its infancy," says Klobuchar. "You need to have the actual ethanol biofuels, then you need to have the pumps so people can get it."

With the federal government mandating an increase in the use of ethanol, it is now requiring other states to do what Minnesota has done on its own, says Gene Hugoson, commissioner of the Minnesota Department of Agriculture. "It ensured that we had a supply for the market and a market for the supply," Hugoson says. "In other states they have been making a product, but they haven't necessarily had a market."

Yet critics argue that subsidies have no place in an industry that rakes in billions annually. Ethanol is subsidized to the tune of $6 billion a year, or 60 times greater than the subsidies for gasoline, says David Pimentel, professor of ecology and agriculture at Cornell University. "I'm not for any subsidies, but that is way out of line and that's what's encouraging this tremendous rush to produce ethanol," Pimentel says. "If ethanol is so great, why are we subsidizing it?"

In 2006, the Brazilian Association of Vehicle Manufactures estimated that roughly 14 percent of all cars on the road could run on ethanol. That number is expected to increase to 33 percent by 2010. Compare that to the United States, where slightly more than 2 percent of vehicles can actually run on E85.

"The flex-fuel cars started in the U.S., but the U.S. has a small flex-fuel fleet, [and has] no distribution of competitive ethanol," says Marcos Sawaya Jank, president of UNICA, Brazil's sugarcane industry union. "So people have flex-fuel cars, but they don't have the fuel to use."

For now, the U.S. market is stuck in a classic catch-22: Automobile manufacturers say they would make more flex-fuel cars if there were more stations with ethanol pumps, while gas station owners say they'd add more ethanol pumps if there were more flex-fuel cars to use them.

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