Friday, October 12, 2007

Brazilian ethanol: Too cheap to meter

Again by Andrew Leonard at How the World Works:
(see also the post immediately below)

Lula, a.k.a. Luiz Inacio Lula da Silva, the President of Brazil, dropped in on Charlie Rose Wednesday night. He had much to say on a wide variety of topics, ranging from the necessity for fresh blood on the U.N.'s Security Council and expanded membership in the "G-8" cabal of rich countries that coordinate global economic policy amongst themselves, to his own evolution from a resolutely left-wing radical metal-worker to a moderate consensus-seeking governing politician.

But one can hardly utter the word "Brazil" these days without also saying "ethanol," so of course the conversation soon flowed towards what Lula called, several times, "the issue of building a new energy matrix in the fuel area."

Lula's got a problem. The price of Brazilian ethanol is plunging, down 35 percent since the beginning of the 2007-2008 sugarcane harvest, a victim of booming sugar and ethanol production in conjunction with the lack of a well-developed international market to soak up the surplus. Brazil's sugarcane crop has grown by an average of 8 percent a year since 2000, investment is pouring into the industry, new mills are popping up everywhere, but there's nowhere for the biofuel to go. As a result, in Brazil, gasoline prices are falling and inflation is down.

In an energy-constrained world, this would seem to be a good problem, no?...MORE