Brazilian Ethanol and Futuristic Engines Melissa Block talks with Daniel Yergin, chairman of the Cambridge Energy Research Associates, about the rise of Brazil's sugar-based ethanol industry. Yergin says rising oil prices and the introduction of flex-fuel engines, which run on both ethanol and gasoline, have caused an increase in Brazil's use of the bio-fuel.

Brazilian Ethanol and Futuristic Engines

Brazilian Ethanol and Futuristic Engines

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Melissa Block talks with Daniel Yergin, chairman of the Cambridge Energy Research Associates, about the rise of Brazil's sugar-based ethanol industry. Yergin says rising oil prices and the introduction of flex-fuel engines, which run on both ethanol and gasoline, have caused an increase in Brazil's use of the bio-fuel.

MELISSA BLOCK, Host:

The ethanol agreement between the U.S. and Brazil unites the two largest biofuel producers in the world, responsible for about 70 percent of the world's ethanol production. Brazil had record exports last year of its ethanol, which is made from sugar cane, and the U.S. is looking to expand its ethanol market.

Energy analyst Daniel Yergin tells us the ethanol agreement is about two things.

DANIEL YERGIN: One, it's about further jumpstarting the development of an international business in biofuels and ethanol. And the second thing, it clearly represents an effort to offer an alternative to Mr. Chavez's Venezuela and his oil.

BLOCK: The Brazilian president today, in making this announcement, said that the last time that President Bush had gone to Brasilia, President Lula was truly obsessed with the bio-fuel. He said he almost couldn't have lunch because I wouldn't stop talking about biofuel.

Where is Brazil with ethanol production right now?

YERGIN: Well, Brazil and the United States are about neck and neck in terms of ethanol production. The difference is that we make most of our ethanol from corn. They make their ethanol from sugar, which is a lot cheaper. It's 40 percent of their total motor fuel supply. But their motor fuel supply is only about 3 percent of ours.

But Brazil is a low-cost producer. It has a capacity to greatly expand its output of ethanol, and it's really determined to be the leading player in terms of ethanol on the world stage.

BLOCK: And you read this that ethanol made from sugar is far more efficient than ethanol made from corn. Why is that?

YERGIN: Sugar is easier to ferment into ethanol. Corn requires more processing to get to the sugar stage before it can be made into ethanol. So sugar cane ethanol from Brazil in a head-to-head competition has a tremendous cost advantage over corn and some of the other sources.

BLOCK: When you look at where Brazil is with ethanol, both production and consumption, most cars now sold in Brazil have flex-fuel engines, most cars by far. How did Brazil convert and adapt so relatively quickly to ethanol?

YERGIN: Brazil first went to ethanol in the 1970s, when the sharp rise in oil prices brought to a very sharp end the Brazilian economic miracle. And so that's when the industry got going. But then it went from a great boom to a great bust because sugar prices went up and people were not interested in making ethanol, and people with ethanol cars could not get the ethanol they needed.

The key technological innovation was creating these flex-fueled vehicles which enable you to switch easily from conventional gasoline to ethanol. And once you have that, it restored the credibility of ethanol at a time that oil prices where going up. And that's how you've gotten this tremendous popularity. But there's 30 years of experience, some of it rather bitter, to get to where they are today.

BLOCK: When this agreement was announced there were charges, people protesting, saying that this basically sets up an OPEC of ethanol, a sort of cartel. Do you think there's some legitimacy to that?

YERGIN: I don't think so at all. We're talking - the volumes are so small right now and Brazil is the only country that's really in a position right now to be an exporter of ethanol.

BLOCK: Do you think that this agreement will have an effect on spreading ethanol production around the world? They're talking about Africa, possibly Asia, Asian market...

YERGIN: Well, there's a lot - interest in ethanol and biofuels among governments around the world is very high. Some months ago I was in a meeting with the president of Nigeria, which happens to be a big oil producer. And he was discussing ethanol and biofuels. I think a lot of countries want to move in this direction. And as in the United States, a lot of them now have regulations that require growing volumes of biofuels, such as ethanol, in their motor fuel and their gasoline. So are biofuels going to grow? Is the global market for ethanol going to grow? It is, and it's going to be driven not only by economics, but also very much by government policies around the world.

BLOCK: Daniel Yergin, thanks very much.

YERGIN: Pleasure.

BLOCK: Daniel Yergin is chairman of Cambridge Energy Research Associates in Cambridge, Massachusetts.

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