5.1 Biofuels in Brazil: How and Why
101
Table 5.4 summarizes the principal policy instruments behind biodiesel promotion
in Brazil.
The rationales for Brazil’s biofuel policies have varied through the years,
arguably expanding their range and significantly shifting depending on the federal
administration. Table 5.5 synthesizes the five main foci identified.
5.1.4 Assessing Institutional Causality
The state has played a crucial role throughout the history of biofuel expansion in
Brazil. Unlike other markets, which may emerge spontaneously out of consumer
demand and private sector initiative, biofuels have been a governmental project in
all the occasions they appeared: in the 1930s, 1970s, and most recently in the 2000s.
Public institutions have always been critical for the debut, development, and acquired
economic viability of the sector.
All along, the Brazilian government has used a powerful combination of regulatory and economic instruments to enable private agroindustries to produce biofuels
and make this production economically attractive. From their earliest days, blending
mandates have secured captive markets to absorb production regardless of biofuels’
competitiveness vis-à-vis gasoline and diesel. There has been vast subsidization in
the forms of tax breaks, public credit, and investments in production infrastructure
and R&D (including vital public-funded research to improve soybean and sugarcane
yields during the 1970s and 1980s). Notably, the government never engaged in feedstock cultivation. Instead, it has mandated consumption, creating additional markets
for an agricultural sector that in Brazil has historically been in private hands, while
oil refining and fuel distribution have been dominated by Petrobras, a state-controlled
company. Every time, surges in biofuels production came as a direct consequence of
public policies.
The pattern of how public institutions drive biofuel expansion has, however,
changed over the years. While direct subsidization and government-set prices characterized the sector in the 1970s and 1980s, the 1990s saw a period of deregulation
that was not reversed when biofuels resurged in the 2000s. Subsidies gave place to
loans, primarily from Brazil’s state-controlled development bank (BNDES). Moreover, although blending mandates have been maintained, sugarcane-ethanol production was already efficient enough to compete with gasoline in the free (non-captive)
market, which was crucial for the extensive adoption of flex-fuel cars since 2003.
A few other differences have marked this more recent, post-deregulation phase.
First, foreign bioproduct markets appeared in the 2000s for the first time and gained
relevance. Brazil initiated the so-called “ethanol diplomacy” (Jank 2011) to increase
exports and promote biofuels abroad to establish them as globally traded commodities
(see Chap. 4). These foreign markets can be considered additional drivers of biofuel
and bioeconomy expansion in Brazil, but their influence is arguably minor compared
to that of the broad framework of Brazilian institutions promoting them. Moreover,
most investments and the lion’s share of biofuel consumption remain domestic.
101
Table 5.4 summarizes the principal policy instruments behind biodiesel promotion
in Brazil.
The rationales for Brazil’s biofuel policies have varied through the years,
arguably expanding their range and significantly shifting depending on the federal
administration. Table 5.5 synthesizes the five main foci identified.
5.1.4 Assessing Institutional Causality
The state has played a crucial role throughout the history of biofuel expansion in
Brazil. Unlike other markets, which may emerge spontaneously out of consumer
demand and private sector initiative, biofuels have been a governmental project in
all the occasions they appeared: in the 1930s, 1970s, and most recently in the 2000s.
Public institutions have always been critical for the debut, development, and acquired
economic viability of the sector.
All along, the Brazilian government has used a powerful combination of regulatory and economic instruments to enable private agroindustries to produce biofuels
and make this production economically attractive. From their earliest days, blending
mandates have secured captive markets to absorb production regardless of biofuels’
competitiveness vis-à-vis gasoline and diesel. There has been vast subsidization in
the forms of tax breaks, public credit, and investments in production infrastructure
and R&D (including vital public-funded research to improve soybean and sugarcane
yields during the 1970s and 1980s). Notably, the government never engaged in feedstock cultivation. Instead, it has mandated consumption, creating additional markets
for an agricultural sector that in Brazil has historically been in private hands, while
oil refining and fuel distribution have been dominated by Petrobras, a state-controlled
company. Every time, surges in biofuels production came as a direct consequence of
public policies.
The pattern of how public institutions drive biofuel expansion has, however,
changed over the years. While direct subsidization and government-set prices characterized the sector in the 1970s and 1980s, the 1990s saw a period of deregulation
that was not reversed when biofuels resurged in the 2000s. Subsidies gave place to
loans, primarily from Brazil’s state-controlled development bank (BNDES). Moreover, although blending mandates have been maintained, sugarcane-ethanol production was already efficient enough to compete with gasoline in the free (non-captive)
market, which was crucial for the extensive adoption of flex-fuel cars since 2003.
A few other differences have marked this more recent, post-deregulation phase.
First, foreign bioproduct markets appeared in the 2000s for the first time and gained
relevance. Brazil initiated the so-called “ethanol diplomacy” (Jank 2011) to increase
exports and promote biofuels abroad to establish them as globally traded commodities
(see Chap. 4). These foreign markets can be considered additional drivers of biofuel
and bioeconomy expansion in Brazil, but their influence is arguably minor compared
to that of the broad framework of Brazilian institutions promoting them. Moreover,
most investments and the lion’s share of biofuel consumption remain domestic.