History Policy Biodiesel Brazil

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Energy Policy 35 (2007) 5393–5398 www.elsevier.com/locate/enpol

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History and policy of biodiesel in Brazil Gabriella P.A.G. Pousa, Andre´ L.F. Santos, Paulo A.Z. Suarez Laborato´rio de Materiais e Combustı´veis, Instituto de Quı´mica, Universidade de Brası´lia, CP 4478, 70919-970 Brası´lia-DF, Brazil Received 20 March 2007; accepted 9 May 2007 Available online 12 July 2007

Abstract Historically, during petroleum shortage, vegetable oils and their derivatives have been proposed as alternatives to petroleum diesel fuel. Since 1930, different approaches have been proposed by Brazilian’s universities and research institutes, including the use of neat vegetable oils (pure or in blends) or their derivatives, such as hydrocarbons obtained by thermal-catalytic cracking and fatty acids’ methyl or ethyl esters (nowadays known as ‘‘biodiesel’’) produced by alcoholysis. Recently, the external dependence on imported diesel fuel and the present petroleum crisis have increased the discussion in Brazil in the sense of starting to use alternatives to diesel fuel, biodiesel being the main alternative for a large petroleum diesel substitution program. r 2007 Elsevier Ltd. All rights reserved. Keywords: Brazil; Biodiesel; Renewable energy

1. Brief history of usage of oils and fats as fuel in Brazil The first record of the use of vegetable oils as liquid fuels in internal combustion engines is from 1900 when Rudolf Diesel used peanut oil (Shay, 1993). However, because of its low cost and easy availability, petroleum became the dominant energy source and petroleum diesel was then developed as the primary fuel for diesel engines. Nonetheless, petroleum and its derivatives fuels have periodically been through short supply and, consequently, the search for alternative energy sources has emerged (Parente, 2003; Schuchardt et al., 1998; Zanin et. al., 2000). Thus, in the 1930s and 1940s, neat vegetable oils were used in diesel engines under an emergency situation (Ma and Hanna, 1999). At that time, the pyrolysis of different triglycerides was also used for liquid fuel supply in different countries. For example, hydrocarbons were produced in China by a tung oil pyrolysis batch system and used as liquid fuels (Chang and Wan, 1947). Another approach proposed at this time was the use of fatty acids’ ethyl or methyl esters, obtained by transesterification or alcoholysis of vegetable

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oils (Chavanne, 1937, 1942) or esterification of fatty acids combined with transesterification of triglycerides (Keim, 1945). Furthermore, the petroleum international crises in the 1970s and 1990s, as well as an increasing concern about the depletion of the world’s non-renewable resources and environmental awareness, provided new enthusiasm in the search for renewable fuel sources (Hill, 2000; Parente, 2003; Schuchardt et al., 2001). In Brazil, this history was not different. During the 1940 decade occurred our first attempts of energy exploitation from oils and fats in internal combustion engines. Indeed, there are reports of many studies about the use of neat vegetable oils, such as babassu, coconut, castor seed and cotton seed (for instance, see Borges, 1944), or hydrocarbons produced by their thermal-catalytic cracking (Otto, 1945). It is worth mentioning that during the Second World War the exportation of cottonseed oil, which was the main vegetable oil produced in Brazil at that time, was forbidden in order to force a drop in its price and, thus, to make possible its use as fuel in trains (Chemical & Metallurgical Engineering, 1943), which is probably the first governmental program concerning the use of biofuels. Afterwards, in response to the petroleum shortage during the decades of 1970 and 1980, Brazil’s Federal Government created in the 1980s a program called

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PROALCOOL (Goldemberg et al., 2004), which implemented and regulated the use of hydrated ethanol as fuel (engine’s adaptations were needed to use this fuel) and anhydrous ethanol that could be blended with petroleum gasoline. It is important to mention that since 1980 no pure petroleum gasoline is used, only the ethanol/gasoline blends is being used as fuel in Brazil. The ethanol content in those blends started as 5% and has been increased during the three decades of PROALCOOL and actually varies from 20% to 25%. During this petroleum crisis mentioned above, the production of vegetables oils with carbureting purposes plan (PRO-O´LEO) was also created, elaborated by the National Energy Commission, through Resolution No. 007 dated October 22, 1980. It was expected a 30% mixture of vegetable oils or derivatives in diesel and a full substitution at long term. At that time, the transesterification (also known as alcoholysis) of several vegetable oils, resultants of agricultural activities and the extractive sector, was proposed as a technological alternative. Unfortunately, after the drop of petroleum prices in the international market, this program was abandoned in 1986. At the end of 20th century, the Federal Government restarted the discussion about the use of biodiesel, and many studies were made by inter-ministerial commissions in partnership with universities and research centers. In 2002, ethanolysis of vegetable oils was considered as the main route to a petroleum diesel substitution program called PROBIODIESEL. This program was presented by the Ministry of Science and Technology (MCT) and by Decree No. 702 dated October 30, 2002. Until 2005, the substitution of all diesel consumed in Brazil by B5 (a 5% biodiesel and 95% diesel blend) and within 15 years by B20 (a 20% biodiesel and 80% diesel blend), using fatty acids ethyl esters (Vigliano, 2003), was suggested. Although ethanolysis has technological limitations when compared with methanolysis, it was the chosen route due to Brazil’s great ethanol production. In that period, biodiesel stopped being a pure experimental fuel and so began the initial phases of industrial production when the first industry of esters from fatty acids was installed in Mato Grosso State in November 2000, starting a production of 1400 ton/ month of ethylic ester from soybean oil (Sant’anna, 2003). It is important to highlight that the use of biofuels is not only an economical and secure alternative to fossil fuels but it also has many favorable environmental and social aspects: (i) biodiesel is biodegradable and harmless; (ii) it can be produced from renewable materials; (iii) ethyl or methyl fatty acid esters contain no sulfur; (iv) biodiesel decreases soot emission considerably (up to 50%); (v) biodiesel emits about the same amount of CO2 that is absorbed during cultivation of the oilseed; (vi) it does not contain any of the carcinogens found in diesel oil; (vii) biodiesel is not considered a hazardous material; (viii) there are numerous social and economic advantages from its use, particularly in developing countries such as Brazil; (ix) biodiesel represents a suitable outlet for

vegetable oil industry, serving as an important tool for market regulation; and (x) it increases engine lifetime owing to a superior lubrication capability (Parente, 2003; Schuchardt et al., 1998; Ramos et al., 2003; NBB, 2004). 2. Current biodiesel policy in Brazil Brazil’s Federal Government created an Inter-ministerial Work Group, by the Presidential Decree dated July 2, 2003, which was in charge of presenting studies on the viability of using oil, fats, and their derivatives as fuel and indicating the necessary actions for its implementation. In its final report, on December 4, 2003, this commission considered that biodiesel should be introduced immediately in the Brazilian energy matrix and recommended that: (i) the use should not be mandatory, (ii) there should not be a preferential technological route or raw material for the production of biodiesel, and (iii) the social–economic development of the poorest regions should be included. To implement these suggestions, an Executive Inter-Ministerial Commission (CEIB) was created by the Presidential Decree dated December 23, 2003. This Commission was composed of 14 ministries and coordinated by the Civil House and had a Managing Group as executive unit, which is coordinated by the Ministry of Mines and Energy and composed of representatives of 10 ministries and members from the Brazilian National Agency for Petroleum, Natural Gas and Biofuels (ANP), the Brazilian Agricultural Research Corporation (Embrapa), the Brazilian Development Bank (BNDES), and the Brazilian semipublic petroleum corporation Petro´leo Brasileiro S/A (PETROBRAS). One year later, the National Program of Production and Use of Biodiesel (PNPB) was launched in solemn session at the Pala´cio do Planalto (Government seat) on December 4, 2004, its main objective being to guarantee the economically viable production of biodiesel, and its major goal being social inclusion and regional development. The most important action from PNPB was the introduction of biofuels derived from oils and fats in the Brazilian energy matrix by means of Law No. 11097 dated January 13, 2005. In this law, the optional use of B2 until the beginning of 2008 is foreseen; after that year, B2 will be mandatory. Between 2008 and 2013, it will be possible to use blends up to 5% of biodiesel, and after this period B5 will be mandatory. In its article 4, this law defines biodiesel as a ‘‘biofuel derived from renewable biomass for use in engines of internal combustion with ignition by compression or for generation of another type of energy, that can partially or totally substitute fossil fuels’’. According to this definition, there is no restriction in regard to the technological route of choice for biodiesel production, it being possible to use as biodiesel the products obtained by the transesterification, esterification and pyrolysis processes. However, the ANP, in resolution ANP 42 dated November 24, 2004, regulated only the use of methyl or ethyl fatty acids’ esters,

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which can be prepared by transesterification or esterification (ANP, 2004). By this resolution, 26 parameters were specified for pure biodiesel (B100): aspect, density, kinematics viscosity, water and sediments, flash point, ester content, distillation, carbon residue, sulfated ash, total sulfur, sodium plus potassium, calcium plus magnesium, phosphorous, copper corrosion, cetane number, cold filter plugging point, acid index, free glycerin, total glycerin, monoglycerides, diglycerides, triglycerides, methanol or ethanol, iodine index, and oxidation stability. Recently in resolution ANP 15, dated July 17, 2006, the specifications for diesel and diesel/biodiesel blend (B2) for road use were established, as also the rules for commercialization in all national territories and the economic agents’ obligations concerning the product quality were defined. In this resolution, eight parameters were established in order to control the quality of diesel and diesel/biodiesel blend (B2): oxidation stability, composition, volatility, viscosity, combustion, copper corrosion, contaminants, and lubricity (ANP, 2006). The current diesel consumption in Brazil being approximately 40 billion liters per year, the potential market for biodiesel is currently 800 million liters, being able to achieve 2 billion liters up to 2013. Due to its great biodiversity and diversified climate and soil conditions, Brazil has different vegetable oils sources, including soybean, coconut, castor seed, cottonseed, palm trees, and others. Undoubtedly, since Brazil is today the second largest soybean producer in the world and has a welldeveloped soybean-processing industry, this source occupies a prominent position in the development of vegetable oil-based fuels. However, in semi-arid northeast states and in Amazonian states, castor seed oil and palm-tree oils, respectively, seem to be the alternatives of choice. Indeed, castor culture appears to be excellently adaptable to semiarid lands, which will promote a sustainable agriculture in the poorest Brazilian region. On the other hand, extractivism of native palm trees in Amazon rainforests, as well as palm trees growing in already degraded areas, will probably represent a good alternative in order to promote a sustainable occupation and social and economic development. In this sense, the Brazilian Government’s plans to use the PNPB also for developing familiar and sustainable agriculture where underdeveloped areas is critical. The tributary rules for biodiesel use referring to Federal contributions were established by Law No. 11116, dated May 18, 2005, and Decrees No. 5297, dated December 6, 2004, and No. 5457, dated June 6, 2005. It was determined that these tributes were to be charged only once and that the contributor is the industrial producer of biodiesel, the incident value being equal to that collected in the production of diesel from petroleum. In order to promote regional and social–economical development, three distinct levels of reduction of these tributes were established, according to the oil seeds acquired by the industry: (i) 100% reduction in the case of castor seeds (Ricinus sp.) or palm tree (Elaeis sp.) produced in the north and

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semi-arid northeast by familiar agriculture; (ii) 67.9% for any raw material produced by familiar agriculture, regardless of the region; and (iii) 30.5% for castor seeds or palm produced in the regions north, northeast, and semi-arid by the agro-business. Biodiesel producers who acquire raw material in productive arrangements that include familiar agriculture with a purchase guarantee receive the social fuel label. This label, regulated by the Ministry of Agrarian Development in the Normative Instructions numbers 01 and 02, dated July 5 and September 30, 2005, guarantees for industries not only fiscal exemptions, but also better conditions for financing from BNDES and other public banks. Several industries have already acquired the social label, such as Agropalma S/A and AMAPALMA S/A. Indeed, those biodiesel industries have made a contract with familiar agriculturists (Association of Comunitary Development from Ramal Arauai), compromising themselves to buy palm produced by this familiar agriculture group from the north region. In order to stimulate the biofuel market before the beginning of the obligatoriness of its use, biodiesel auctions were idealized, under the responsibility of ANP, where PETROBRAS ensures to purchase the necessary volume of biodiesel for B2 from industrials with the social label. Until now there have been five auctions, from November 23, 2005 to February 15, 2006, when up to 885 millions liters of the biodiesel were commercialized, which are more than the 800 millions liters necessaries to ensure the B2 blend. This is certainly a guarantee of the beginning of biodiesel market in Brazil. Table 1 shows the amount of biodiesel (in m3) purchased in these five auctions, as well as the average prices (in R$/m3), the maximum reference prices (in R$/m3), the number of companies that participated in the auctions, and the delivery date (ANP, 2007). Unfortunately, producers do not report biodiesel production costs, so it is difficult to distinguish production costs from company profits. In a work by Barros et al. (2006), the production costs for biodiesel obtained from different raw materials (soybean oil, palm oil, castor oil, cottonseed oil and sunflower oil) by each Brazilian region were estimated, considering: (i) raw material production costs, (ii) oil production cost, and (iii) biodiesel production cost (see Fig. 1). The set of measures that the PNPB Managing Group has been taking establishes the rules to the production and consumption of biodiesel in Brazil. As a result, the biodiesel productive chain is being structured, not only by the many small installations for proper consumption that emerged after 2000, but also in commercial scale. It is worth mentioning that the first commercial scale industry, located in Ca´ssia—MG, received, from ANP, the authorization for operating, on March 24, 2005, and at the same day the commercialization of B2 began in a gas station in Belo Horizonte—MG. Since 2 years, ANP has authorized the operation of five industries in several Brazilian States and more than 4000 gas stations are commercializing B2.

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5396 Table 1 Biodiesel auctions results

Number of participating companiesa Volume of biodiesel sold (m3)a Maximum reference price (R$/m3)a Average selling price (R$/m3)a Delivery datea Exchange rates American dollar (US$)/Brazilian real (R$)b Exchange rates euro (h)/Brazilian real (R$)b a

First auction 11/23/2005

Second auction 03/30/2006

Third auction 07/11/2006

Fourth auction 07/12/2006

Fifth auction 02/14/2007 and 02/ 15/2007

4 70,000 1920.00 1890.00 January–December/ 2006 1/2.238

6 170,000 1908.00 1859.65 July/2006–June/ 2007 1/2.195

6 50,000 1900.00 1828.97 January–December/ 2007 1/2.185

25 550,000 1799.56 1747.26 January–December/ 2007 1/2.191

3 45,000 1904.51 1853.19 February–December/ 2007 1/2.100

1/2.640

1/2.669

1/2.793

1/2.783

1/2.755

Based on ANP (2007). Based on BC (2007).

b

Fig. 1. Estimated biodiesel production costs by region, in US$/L (source: Barros et al., 2006).

Furthermore, five more industries are under regulation process and 24 others are being installed or designed. Another action of PNPB was the creation of a research network involving scientists from university and research institutes from all Brazilian regions (Suarez et al., 2006). The aim of this network is to develop science and technology for all the biodiesel production chain. 3. Brazilian energy market and possible impact of biodiesel The Brazilian internal energy market is shown in Fig. 2. As one can see in this figure, differently from other countries, renewable energy sources represent almost one half of the energy supply, and biomass has become the second most important source of energy in Brazil. The introduction of biodiesel in the Brazilian energy market

will certainly reduce the use of fossil fuels and increase the use of biomass. Fig. 3 shows Brazil’s demand and production of petroleum and diesel from 1989 to 2005. It is clear from this figure that, although there has been an increase in the consumption, the decline in petroleum importation was caused by a significant growth in internal production. On the other hand, diesel consumption increased considerably and Brazilian diesel production is being complemented by a direct importation of diesel fuel. Indeed, although the increasing production of petroleum in Brazil has been significant, external dependence on diesel has been quite stable in the last decade. Since 80% of diesel consumption is due to public and goods transportation (BEB/MME, 2006), the increasing or maintenance of external dependence of this fuel would probably become dramatic to the

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Fig. 2. Internal energy offer in Brazil—year 2005 (source: BEB/MME, 2006).

40200 91500 Amount 103 (m3)

Amount (103 m3)

81500 71500 61500 51500 41500 31500 21500

30200

20200

10200

11500 1500 1988

1991

1994

1997

2000

2003

2006

200 1988

1991

1994

Year petroleum consumption

petroleum production

1997

2000

2003

2006

Year imported petroleum

diesel consumption

diesel production

imported diesel

Fig. 3. Petroleum and diesel market in Brazil (source: BEB/MME, 2006).

Brazilian economy in the case of any further shortage in the international diesel market. In this sense, the partial substitution of diesel fuel by biodiesel will not only contribute to social and agricultural development but also be important in order to diminish Brazil’s external dependence on this fossil fuel. 4. Final remarks The Brazilian government is very engaged in the biodiesel program, which seems to be an irreversible process. In this sense, the use of biodiesel in Brazil will probably provide financial and environmental benefits to the country, specially diminishing our dependence on imported diesel fuel and increasing the agricultural economic segment. One of the main objectives of the Brazilian biodiesel program is to promote social and regional development in

the most economically underdeveloped areas, like northeast semi-arid and Amazonian regions. Indeed, the government policy trend is to provide social inclusion, by including familiar agriculture as a partner to biodiesel producers. Despite fiscal and financial federal subvention, it is not certain that familiar agriculture will be able to compete with agribusiness to ensure the supply of raw materials. Probably, more than subvention, the government should provide technical and social assistance to those agricultures in order to organize their business and prepare them to be competitive as biodiesel feedstock suppliers. Acknowledgments GPAGP and ALFS express their appreciation for fellowships granted from CNPq and FBB. PAZS thanks CNPq for research fellowships.

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