Jackson & Löfsedt (1998, Section 2.1) reporting on the success of the Brazilian ethanol fuel program state that:
“[It is] currently producing 12 billion liters of ethanol a year, equivalent to around 60 percent of the country’s automotive fuel requirements. Eight million petrol-driven cars now run on fuel containing 22 percent ethanol without modification, and with no mileage penalty. A further 4 million cars use hydrated ethanol in specially designed Otto-cycle engines. Between 1976 and 1985 the Proalcool program was estimated to have cost Brazil around US$6.5 billion (in 1986 prices). At the same time however, it saved almost US$9 billion in avoided petrol costs”.
However, Berg (1999) states that a full understanding of the Brazilian alcohol fuel program requires distinguishing between hydrous and anhydrous alcohol. Hydrous alcohol is not suitable for blending and is used alone in specially designed engines. As the production and sale of vehicles with these engines has fallen, demand for hydrous alcohol has also fallen. In contrast, anhydrous alcohol is used as an additive to petrol, with present regulations stipulating a blend of 24 per cent (Berg, ibid.). Demand for this product has been rising sharply, and is likely to continue to grow, as the number of petrol-engine vehicles increases. This increase has been exacerbated by the withdrawal of government support in the growth and maintenance of the alcohol fuel program (Gregg, 1998). Government support and encouragement of alcohol-only cars in the 1980s led to a dramatic increase in the production of hydrous alcohol fuel. However, the program proved to be a heavy burden for both government and industry. In recent years, the Brazilian government has moved to end years of expensive subsidies to the program which recently amounted to more than R1.5 billion (Berg, 1999) - US$0.8 billion - annually. As a result, the hydrous alcohol industry has been faced with a dwindling demand for its product, and an oversupply of product as sales of hydrous-alcohol-powered vehicles have tumbled (refer Figure A2).
In spite of the reported economic gains of the Brazilian program, it has not been without problems. Perhaps the most significant of these has been the disposal of “stillage” produced during the distillation process. The early solution of dumping these wastes in rivers has turned out to be environmentally unacceptable. Increasingly, wastes are now subject to further treatment. Anaerobic digestion is used to generate biogas (which can be used for energy) and liquid fertilizers (which can be recycled to the sugar cane fields).
The growth of the Brazilian ethanol program has, and to a considerable extent remains, the child of government intervention. Without the government’s support it is doubtful that the alcohol-powered vehicle program would have existed. Growth in the demand for anhydrous alcohol is ensured by policies, which have seen demand for vehicles increase coupled with regulations requiring that all petrol sold contain an excess of 20 percent alcohol.