The reasons for Brazil’s success are essentially two fold. First the government decided early that they could not secure petroleum self-sufficiency through domestic production and that alternatives to gasoline had to be developed. They initiated a pro-alchol programme (in Brazil, ethanol is known as alchol) in the mid ‘70s and supported that through a series of fiscal incentives. The tax burden on ethanol for instance accounts for only 28 per cent of its final pump price whilst that of gasoline is 45 per cent. Second, they built on their high yielding, low cost and integrated sugar processing and ethanol blending structure. The industry was able to generate significant economies of scale and efficiency and as a result today the ethanol production costs ($1.10 E/gallon) are amongst the lowest (if not the lowest) in the industry. Brazil is the largest producer of ethanol in the world accounting for 45.5 per cent of global production.

Europe too initiated steps to produce bio-fuels. The Common Agricultural Policy (CAP) incentivised the production of ethanol from a combination of sugar beets and wheat and the European Commission passed legislation to encourage the production of biodiesel from rapeseeds and sunflower seeds. But even though Europe now accounts for 90 per cent of the global production of 1 billion gallons of biodiesel the impact of these efforts on its energy basket has been miniscule.

In recent months the biofuels industry has been given a massive push. This is because of the broadening consensus that the era of cheap oil is over and that oil prices will range between USD 55-65/barrel. Ironically President Bush has been its strongest proponent. In other countries too including India, the biofuels industry is witnessing a burst of activity. The Indian government has contemplated a 5 per cent ethanol blend and the pricing of long-term contracts between ethanol producers and the public sector oil marketing companies has been agreed.

... contd.