Brazil's ethanol journey offers India both lessons and cautionary tales

Brazil avoided it, but India seems to be rushing through the ethanol transition at consumers' expense viewpoint

Brazil’s deployment of ethanol as a substitute for petrol should serve as a blueprint, with cautionary footnotes, for India. Brazil started implementing ethanol mixes in 1975, after the 1973 oil shock. Like India, Brazil was a huge importer of crude oil. 

At the time, Brazil was ruled by a military dictatorship, which didn’t care about public opinion. So the government could have rammed an ethanol mandate through. But some senior military officers had interests in the automobile industry, while others had interests in the sugarcane-to-ethanol industry. 

This led to a balancing of interests. Brazil opted for a gradual ethanol transition. This gave Brazil’s auto industry and insurers the time they needed to develop efficient flex-fuel engines. It also meant drivers could fully depreciate the petrol-powered vehicles they were using, before moving to flex-fuel. 

Fifty years down the line, Brazilian pumps offer choices between E20, and various ethanol-petrol mixes all the way to E100 (a combination of ethanol and water with no petrol). All Brazilian petrol cars, and most motorcycles, run on flex-fuel engines, which use any mix. The fuel tanks have sensors that detect the composition and adjust engine timing. 

Brazil has also developed “dropin” biodiesel — fuels which can be used in diesel engines without modifications. India is looking at 15 per cent isobutanol blending in diesel, which also presents its own set of problems. 

Brazil is almost three times as large as India. It has one-seventh the population. It’s in the tropics. This means lots of arable land.  It planted sugarcane in huge quantities. Cane is the most efficient crop for ethanol yield due to its high-sugar content. For historical reasons, Brazil also had a tradition of advanced research and development (R&D) in the agro-sciences, which meant it found ever more efficient ways to squeeze ethanol out of cane. It also had a big internal market for automobiles and manufacturers started incorporating flex-fuel engines into Brazilian cars. 

Brazil had insane inflation through the 1970s and 1980s, often logging 100 per cent plus inflation per annum during those decades. But the consensus opinion is that ethanol blending helped moderate some of the ill effects because it insulated the country from oil shocks. 

The downside was that extensive sugarcane plantation led to massive environmental degradation, both directly and indirectly. Cane is a water-intensive crop that needs good soil. It is commonly cleared after harvest by burning. 

Cane plantations took over areas where such conditions existed, while less fertile regions became home to livestock farmers and crops that could survive in less benign conditions. So while cane degraded the fertile Atlantic coast, cattle-ranchers and other farmers were displaced and moved into the Amazon. They cut down the rainforest, and killed local tribal people. This process has continued and is said to have accelerated during the Jair Bolsonaro  regime, when laws protecting the rainforest and its tribes were repealed. 

Despite the darker aspects of this process, we could claim that Brazil’s adoption of ethanol has been a qualified success. Ethanol has a lower carbon footprint than fossil fuels. The Brazilian consumer has a choice between many mixes, which are priced according to prevailing prices of crude and ethanol. The long runway gave the auto industry time to engineer for the transition, and people did not suffer economic losses with their vehicles suddenly experiencing steep dips in mileage and seeing rubber parts wearing out quickly. 

Brazil is the world’s second-largest cane sugar producer. India is the largest. India consumes more sugar and khandsari than Brazil does. (India also uses damaged grains and rice to produce ethanol.) India has a much larger population, much less arable land and more water stress. The environmental degradation will be considerable if acreage under cane increases from current levels, and India lacks the vast rain forest, a la Amazon where displaced crops may be replanted (never mind the displacement of tribals). 

In key cane-growing districts, a large chunk of the population tends to be employed on the industry’s value chain, and this value chain has extended as ethanol enters the picture. This makes cane politically sensitive, since the fortunes of voters align with industry trends. Ethanol as fuel is good for the cane industry. 

But the automobile industry also has a really long value chain and generates lots of employment. Forcing the auto industry and vehicle owners through a rapid transition was something Brazil’s generals avoided. 

India has missed out on that balance. It might get the environmental degradation as well as the additional unhappiness of auto manufacturers and vehicle owners suffering economic losses.