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   From: oO@oO.com   
      
   As Brazil Fills Up on Ethanol, It Weans Off Energy Imports   
      
   by: David Luhnow & Geraldo Samor, Staff Reporter for The Wall Street Journal   
      
      
   Rio de Janeiro, Brazil - After nearly three decades of work, Brazil has   
   succeeded where much of the industrialized world has failed: It has   
   developed a cost-effective alternative to gasoline. Along with new offshore   
   oil discoveries, that's a big reason Brazil expects to become energy   
   independent this year.   
      
   To see how, take a look at Gildo Ferreira, a 39-year-old real-estate   
   executive, who pulled his VW Fox into a filling station one recent   
   afternoon. Instead of reaching for the gasoline, he spent $29 to fill up his   
   car on ethanol made from sugar cane, an option that's available at 29,000   
   gas stations from Rio to the Amazon. A comparable tank of gasoline would   
   have cost him $36. "It's cheaper and it's made here in Brazil," Mr. Ferreira   
   says of ethanol. If the price of oil stays at current levels, he can expect   
   to save about $350 a year.   
      
   At current prices, Brazil can make ethanol for about $1 a gallon, according   
   to the World Bank. That compares with the international price of gasoline of   
   about $1.50 a gallon. Even though ethanol gets less mileage than gasoline,   
   in Brazil it's still cheaper per mile driven. As a result, ethanol now   
   accounts for as much as 20% of Brazil's transport fuel market. The country's   
   use of gasoline has actually declined since the late 1970s. The use of   
   alternative fuels in the rest of the world is a scant 1%.   
      
   Yet countries wanting to follow Brazil's example may be leery about   
   following its methods. Military and civilian leaders laid the groundwork by   
   mandating ethanol use and dictating production levels. They bankrolled   
   technology projects costing billions of dollars, despite criticism they were   
   wasting money. Brazil ended most government support for its sugar industry   
   in the late 1990s, forcing sugar producers to become more efficient and   
   helping lower the cost of ethanol's raw material. That's something Western   
   countries are loath to do, preferring to support domestic farmers.   
      
   With government support, sugar companies and auto makers' local units   
   delivered cost-saving breakthroughs. "Flexible fuel" cars running ethanol,   
   gasoline or a mixture of both, have become a hit. Car buyers no longer have   
   to worry about fluctuating prices for either fuel because flex-fuel cars   
   allow them to hedge their bets at the pump. Seven out of every 10 new cars   
   sold in Brazil are flex-fuel.   
      
   Brazil is also fortunate that sugar is the cheapest way to make ethanol and   
   Brazil has the right conditions for growing the crop -- plenty of land, rain   
   and cheap labor.   
      
   Despite these unique circumstances, Brazil's efforts are being closely   
   followed by countries with big fuel bills. India and China have sent a   
   parade of top officials to see Brazil's program. India, the world's   
   second-biggest sugar producer behind Brazil, mandated in 2003 that nine of   
   its states add a 5% ethanol mixture to gas. The Brazilian unit of Germany's   
   Volkswagen AG, the first car maker to introduce a flex-fuel model in Brazil,   
   has received 38 delegations from more than a dozen countries in the past   
   year alone, VW officials say.   
      
   Brazil says its ethanol exports will likely double to $1.3 billion in 2010   
   from $600 million in 2005, largely to Japan and Sweden. These countries hope   
   using ethanol -- which releases less carbon dioxide than fossil fuels --   
   will help them meet their obligations under the Kyoto Protocol to cut   
   emissions.   
      
   The U.S., which currently imports 60% of its oil, is watching Brazil's   
   progress, too. Three members of the Senate Energy Committee recently   
   visited, and Sen. Hillary Clinton has cited Brazil as a role model in   
   cutting dependence on imported oil. When President Bush made a recent   
   stop-over in Brasilia, Brazilian leader Luiz Inacio Lula da Silva hosted a   
   barbecue and described to Mr. Bush how the country has reduced its oil   
   import bill, according to Brazilian officials at the meeting.   
      
   The most recent U.S. energy bill, signed into law in August, calls for more   
   than doubling ethanol use by 2012. But U.S. ethanol, which is made from   
   corn, costs at least 30% more than Brazil's product, in part because the   
   starch in corn must be first turned into sugar before being distilled into   
   alcohol. It may take the U.S. a few more decades to bring the cost of   
   ethanol down to 80 cents a gallon -- equivalent to Brazil's most efficient   
   producers -- according to the U.S. Department of Energy. U.S. trade barriers   
   make Brazilian ethanol and its sugar expensive to buy.   
      
   Using carbohydrates instead of fossil-fuels to run cars is not a new idea.   
   Henry Ford's first car was made to run on ethanol. So was the first   
   spark-ignition car engine, developed by German Nicolas Otto in the second   
   half of the 19th century. During World War II, the U.S., Brazil and other   
   nations relied on ethanol to extend gasoline supplies. In the postwar   
   period, however, gasoline was so plentiful and cheap that ethanol lost its   
   allure.   
      
   'Strategic Challenge'   
      
   The first oil shock in 1973, sparked by an oil embargo amid war in the   
   Middle East, rekindled interest. Months after Syrian and Egyptian tanks   
   rolled into Israeli-held territory, the price of oil quadrupled. Few places   
   were hit harder than Brazil, which imported 80% of its fuel at the time.   
   Within months, Brazil's economy slid into recession. About 40% of its   
   foreign-exchange income was used to import oil.   
      
   "We faced a clear strategic challenge: How would we develop without oil?"   
   recalls Eduardo Pereira de Carvalho, a finance ministry official at the time   
   who now heads the São Paulo state sugar-growers' federation.   
      
   In 1975, Brazil's military leader, Gen. Ernesto Geisel, ordered that the   
   country's gasoline supply be mixed with 10% ethanol, a level Brazil steadily   
   raised to 25% over the next five years. That meant the same amount of   
   gasoline would last longer. It also allowed Brazil to pay for fuel with   
   local currency, in the form of payments to farmers.   
      
   To help the nascent industry, the government gave sugar companies cut-rate   
   loans to build ethanol plants and guaranteed prices for their product. Sugar   
   companies were delighted with the new market, which helped when prices were   
   low. The government also funded Urbano Ernesto Stumpf, an ethanol researcher   
   at a Brazilian Air Force laboratory, who was developing a car that would run   
   on ethanol alone.   
      
   In November 1976, three ethanol-powered cars created by Mr. Stumpf -- a   
   Beetle, a Dodge and a Brazilian car called a Gurgel -- embarked on a 5,000   
   mile trip from the air force's research lab in the southeastern state of São   
   Paulo to the northern city of Manaus in the heart of the Amazon. The trip,   
      
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