G-15 TRAINING WORKSHOP: BEST PRACTICES ON RENEWABLE ENERGIES BRAZILIAN EXPERIENCE ON BIOFUELS

1. G-15 TRAINING WORKSHOP: BEST PRACTICES ON RENEWABLE ENERGIES BRAZILIAN EXPERIENCE ON BIOFUELS Marlon Arraes Jardim General Coordinator - Renewable Fuels Department marlon.arraes@mme.gov.br Dakar, November 5th, 2012

2. Brazilian Energy Mix – 2010/2020 (%)

3. Brazilian Energy Mix Evolution Renewable Energy (2010): 45.5% 14.0% Hydro 17.8% Sugarcane Products 9.7% Firewood and Charcoal 4.0% Others

4. Brazilian Electricity Supply by Source

5. Fuel Mix - 2011 and Recent Evolution • Highlights: • Biodiesel growth; • Ethanol shortening. Source: MME (2012)

6. Let’s Take a Look in History… T0 = First Oil Shock T1 = Proalcool is launched T2 = Second Oil Shock; E100 begins in Brazil T3 = Ethanol Crisis T4 = End of Ethanol Subsidies T5 = Government begins to study biodiesel policies T6 = Biodiesel Program is launched 2 1 0 3 4 5 6

7. Two types of ethanol used, produced and tested in Brazil: 2002 anhydrous Mixed with pure gasoline (20 to 25%) Complete Liberalization of Fuel Prices (Jan/02) hydrated Directly used in Otto-cycle motors (100%) Free prices in the whole chain of production and commercialization The Deregulation of Fuel Market and the Ethanol Fuel 1975 • National Alcohol Program (Proalcool) goals: • To introduce in the market the mixture gasoline-ethanol • To stimulate the development of pure ethanol motors 1979 1993 Mandatory blending of ethanol and gasoline introduced by Law 1995 Constitutional Amendment Nº 09: petroleum monopoly made flexible (Nov/05) 1999 Liberalization of Hydrated Alcohol prices at the producer with the subsidy reduction (Feb/99) End of subsidies for Hydrated Alcohol (Nov/99)

8. Biofuels x Fossil Fuels FossilFuels FossilFuels Biofuels Biofuels 0,11 x 1012liters/year World 3,5 x 1012liters/year 24 x 109liters/year ... Brazil 79 x 109liters/year 2011 Data (Source: BP / MME) • Middleand Light Destilates: • Diesel, Gasoline e Jet Kerosene

9. Share of Renewables in Different Countries % Renewables Brazil: 2011 Data (Source: MME) • Other Countries: 2010 Data (Source: multiple) • Obs: Size of the country is total energy demand

10. Market Players Retailers Diesel Biodiesel Gasoline C Ethanol Querosene Final Consumers E&P Gas Stations (37.243) Freight and Passengers Transport Companies Aviation Companies Industries General Consumers Refineries (13) Distribution (207) Importers (216) TRR (471) QAV Oil Fuels. Lubricants LPG Solvents Asphalt Petrochemicals(4) AirportsandAviation Gas Stations (90) Distribution Bases (570) AgricultureProducers Ethanol Producers (427) Lubricant distributers Biodiesel Producers (64) Source: MME–ANP–MAPA June/2012 Retailers of LPG (31.800)

11. OIL REFINERY SUGAR MILL GASOLINE “A” (*) ANHYDROUS ETHANOL RETAILER Mixture GASOLINE “C” (GAS “A” + Anhydrous) GAS STATION GASOLINE “C” (GAS “A” + Anhydrous) No Taxation Here Consumer Commercialization of Ethanol for Blending Observation: GASOLINE “A” = Pure Gasoline, without ethanol, not commercialized to final consumer GASOLINE “C” = With ethanol, commercialized in the whole country.

12. EthanolGovernance includes: • CNPE (Energy Policy National Council) • CIMA (Interministerial Council): • Ministry of Agriculture, Livestock and Food Supply; • Ministry of Mines and Energy • Ministry of Finance • Ministry of Development, Industry and Foreign Trade. • Staff Office of the Presidency and the MFA (Ministry of Foreign Affairs) • ANP (Regulatory Agency for Oil, Natural Gas and Biofuels) • National Sucroenergetic Forum (Association of Producers) • UNICA (Center-South region Association of Producers) • Agriculture Sector Chamber • SINDICOM (Union of Distributors and Fuel Retailers) • BNDES (National Development Bank) • Biodiesel Governancealso includes: • Staff Office of the Presidency - CEIB (Interministerial Council) • Ministry of Mines and Energy – GrupoGestor (Program Manager) • Brazilian Biodiesel Union (UBRABIO), BrazilianAssociationofVegetableOil Industries (ABIOVE) and Brazilian Biodiesel Producers Association (APROBIO) Government and Private Associations

13. ThelawofBrazilianenergypolicy includes as oneoftheobjectives: to increase the share of biofuels in the national energy mix. The main general instruments include: • Mandatory mix: ethanol (E18-25) and biodiesel (B5). • Tax differentiation regime in federal level. • Line of credit for ethanol strategic buffer stocks (conceived to improve off-season supply conditions). • Public auctions for biodiesel market supply. • Research funding (CT-Petro, created in 1999 and CT-Energ, created in 2000). • Agro-ecological zoning that orients and guarantees that raw-material production will take place only in suitable areas. The Brazilian government managed to conclude the sugarcane (2009) and palm oil (2010). The General Policies for Biofuels

14. Biofuels are now treated as fuels and not only as an agriculture product inserted in the Brazilian energy mix. This understanding is boosted by the growing ethanol utilization of ethanol and biodiesel, both in Brazil and abroad, that demonstrates the extraordinary role and potential of biofuels. • Biofuels have an uniform treatment regarding their role in National Energy Policy. That includes both ethanol and biodiesel, as well as any other new biofuel that eventually will be produced in commercial scale in the future. • The National Energy Policy Council (CNPE) has, from now on, authority to establish the directions for biofuels imports and exports in the same way that it already has for all oil derivatives such as gasoline, diesel and jet fuel. Recent Modifications on Biofuels Regulation

15. Ethanol Savings and Benefits for Brazil 1.5 billionbarrelsofoildisplaced

16. Light-Vehicles Fuel Demand in Brazil: Trends million m³ (Gasoline Equivalent) +53% [Jan-Jun(12)]/[Jan-Jun(06)] (E25) (E100)

17. Conjunction of different but interconnected factors: • International financial crisis in 2008; • Climate event (excess of rainfalls) in 2009/2010 season; • Climate event (lack of rainfalls) in 2010/2011 season; • Higher sugar prices, since 2009; • Fuel demand (internal market) skyrocketed! Why Ethanol Decreased Its Share in 2011? • Main factors: • Mandatory mixture was raised from B3 (1st half 2009) and B4 (2nd half of 2009) to B5 (since Jan/2010); • Brazilian economy growth. Why Biodiesel Increased Its Share in 2011?

18. What the Government is Doing for Ethanol? • Highlights: • Finishing the necessary regulatory instruments by ANP after the recent Biofuels’ Law (Law 12.490/2011) approved; • Public policy design is being conducted by Government officials considering next ten years scenarios for ethanol demand; • Incentives package for production expansion investments; • The strengthening of future market contracts as a tool for ethanol commercialization; • Permanent dialogue with the private sector representatives of the whole chain of production and commercialization.

19. Ethanol: What the Government plan is showing? PDE 2021 is under public consultancy until Oct. 31st Contribution must be sent to pde2021@mme.gov.br million m³ Internal Market will remain as main driver (flex-fuel car sales) Neverending quest between sugar prices and ethanol prices Not to mention the new products from sugarcane... Ethanol for Internal Fuel Market Source: PDE 2021 (Public Consultancy Version)

20. Biodiesel Main Policies • Mandatory mix (5%) • Social Fuel Certificate (SFC) • Granted to biodiesel producer who stimulates feedstock supply from household agriculture • SFC ensures preferential biodiesel market access • Lower taxation • Public Auctions promoted by ANP • Trade rule between biodiesel producers (suppliers) and diesel producers (buyers)

21. Social Fuel Certificate • Minimum feedstock's purchase from household agriculture • 15% at Mid West or North • 30% at Southeast or Northeast • 35% at South (40% from 2013/14 season on) • Diversifying, regionalization and cooperatives • The multipliers concept: • 2x for non-soya oilseeds • 2x for Northeast and Semiarid • 1.2x for Household Cooperatives • Cumulative Situations -> (2 x 2 x 1.2 = 4.8)

22. Biodiesel Production in Brazil Key to Symbols: WITH SFC* WITHOUT SFC* 1,000 m³/Year 1,000 m³/Year (*) Social Fuel Certificate

23. Biodiesel US$ / Family per Year Higher levels of income since the mandate period confirms the policy Families Total Biodiesel Production Total Income of the Families due to Biodiesel m³ Source: MDA, MME (2011)

24. Biodiesel: Positive Impacts • Already obtained with B5… • Brazil is one of the top3 world biodiesel consumers (USA and Germany) • GDP: US$ 3,6 billions/year • Investments: US$ 2 billion on biodiesel plants (B5) • International trade: US$ 6.5 billion savings of diesel imports • Employment: 86 thousand new jobs • Household agriculture: 104,000 small farm’s units • Estimated environmental and health benefits: • - 57% CO2 emissions • - 13,000 hospitals’ admissions • - 1,800 deaths due to emissions

25. Land Use in Brazil * Total Area Native Vegetation Arable Land Others 15 2% Available Pasture Agriculture Sugarcane * 2009 Data Source: ICONE, ESALQ and IBGE. Elaboration: COSAN and UNICA

26. Agricultural zoning as a guarantee for public and private investments and a recommendation of suitable areas for harvest Sugarcane Expansion with Agroecological Requirements Agrozoning for Soy, Sunflower, Castor, Palm, Cotton Seed etc. North Region Focus = arcofdeforestation Maximum allowed: 65 million ha or 7,5% (green areas) NortheastRegion Focus = coastareas

27. The BNDES launched PAISS (Joint Programme of Technological and Innovation Support for Sugarcane Sector), were selected from 25 companies that submitted 35 business plans, which will generate investments of about R$ 3 billion. • The PAISS fosters research and development of cellulosic ethanol. If made ​​viable economically, the cellulosic ethanol could increase the productivity of the sector in more than 40%. New Uses in Other Sectors (P&D)

28. BioenergyInternationalCooperation • Map of International Agreements on Bioenergy sign by Brazilian Representatives 77 countries Nearly 1/3 of the whole nations * Includes MoUs, partnerships and other agreements signed directly by any Federal Government Department or Agency or Public Enterprise. It was considered bilateral agreements, cooperation in third countries and agreements signed with economic or regional blocks.

29. Some Bioenergy Externalities… • Renewable energy source • Energy security • Better CO2 and pollutants emissions • Income improvement at rural areas • Bioenergy industry helps to deconcentrate energy markets • It is much lower capital intensive than oil industry • Bioenergy can be produced in a sustainable way worldwide while oil is concentrated in a few countries (many of them with political instability)

30. The Government Role (as we see) • Maintain the best environment for investments with a clear regulatory framework • Articulate the different interests involved • Assure the proper incentives to best practices • Pursue the most sustainable path to expand the industry and promote development • Give ways to assure and respect contracts • Induce and facilitate the international trade • Correct market distortions that might lead in long term to imbalances in economic activity

31. ThankYou! Marlon Arraes Jardim marlon.arraes@mme.gov.br