It's been called the Brazilian “miracle” — and Brazil's ethanol program has been touted as a model for the U.S. and other countries to follow.
In a new CEI Issue Analysis, “The Brazilian Sugarcane Ethanol Experience,” Brazilian economist Marcus Renato S. Xavier explores the underpinnings of the “miracle” and points out what would be required in terms of huge and continuing taxpayer subsidies and government mandates.
If ethanol were truly key in displacing oil imports, the Brazilian ethanol program also shows that biofuels should not be considered a panacea for the world's energy challenges. Brazil's ethanol infrastructure model required huge taxpayer subsidies over decades before it could become viable. The ethanol program became uneconomical when petroleum prices fell in the late 1990s. Even today, during a period of high oil prices, ethanol volatile prices have not freed Brazilians from losing money on the E20 blend mandated by their government. The Brazilian ethanol program is not a suitable model for U.S. energy policy reform.
It would be better to get rid of the high tariff on ethanol imported from Brazil. For other problems with ethanol, check out the earlier companion piece published by CEI on ethanol in the U.S.