The development of Brazil’s ethanol sector - its expansion,
commercialisation, up-take, competitiveness and profitability - can
largely be attributed to government policies. Strategies to make ethanol
production more attractive, practices to enable the use of ethanol in
automobiles, tax breaks and price fixing, are just some of the policies
underpinning ethanol’s early commercial development in Brazil. Since the
beginning of the Próalcool programme, the ethanol sector has depended
upon government support, making a series of demands to which the
government has responded. Even given these public efforts to boost and
stabilise the ethanol market, there have been gains and losses in terms
of competitiveness and profitability due in part to dynamic interactions
with the gasoline and sugar markets. Other factors, including an
increase in production costs and reduction in investments, also affected
ethanol’s competitiveness. The lessons learned by Brazil about managing
these ups and downs could be useful for policymakers and private sector
leaders from other regions facing the same challenges. In particular,
these key lessons learned might allow other countries to avoid losses,
such as investments in technologies now deemed redundant, and provide
guidance about how and when to introduce - or reduce - government
support like subsidies and tax breaks.
Government intervention was fundamental for boosting Brazil’s national
ethanol programme, in particular policies requiring mandatory blending
and promoting the Flexible Fuel Vehicle.
The government’s active support of the ethanol programme attracted
private investment, which encouraged producers to focus on efficiency
and productivity gains.
Flexibility to choose between producing ethanol or sugar increases
producer profitability, but may jeopardise national energy security.
Nino de Carvalho, P. ELLA Policy Brief: Government Intervention to Strengthen the Ethanol Sector: Lessons from Brazil. ELLA, Practical Action Consulting, Lima, Peru (2013) 8 pp.