Policy ethanol still drift

Early this year, the ethanol industry, which undergoes major crisis, was target of two political: the return of Cide, levied on gasoline, and the rise once again, the anhydrous ethanol blend in gasoline C, and now 25% to 27% since March 16. Ethanol producers celebrate the two measures. The first increases the competitiveness of ethanol over gasoline too important to attract consumers with flex-fuel cars; the second compulsorily increases ethanol consumption by those who, even without opting for the consumption of fuel at the pump take more than an ethanol room, necessarily, by opting for gasoline. Consumers, in turn, have reason to be dissatisfied with the two measures. In one hand, higher prices; on the other hand, greater restrictions on their freedom to choose between gasoline (pure) and ethanol. And society, this set of producers, consumers and taxpayers do what?

The return of Cide was awaited times. Gasoline consumption generates some social costs, particularly environmental, such as air pollution in urban areas and greenhouse gases. In contrast, the sugar cane ethanol, as a renewable and efficient energy balance fuel, is capable of capturing greenhouse gases and it is associated with significant activities in the sugarcane mills, such as electric power cogeneration which are desirable from a social point of view. Since ethanol and gasoline are substitutes in the absence of any intervention, society would consume too much petrol and just a little bit of ethanol, even if their consumption more desirable from a social point of view.

The Cide fulfilled this role. By focusing on gasoline and not on ethanol, it makes the relative price of the two products most favorable to the consumption of ethanol as socially desirable. In short, the return of Cide is good news for Brazil. Too bad it took so long. Just ask the many plants that failed or went into bankruptcy in the last two years.

And the increase in a mixture of ethanol in gasoline? The opinions conveyed in bordering press, paradoxically, unanimity. The Minister of Mines and Energy, Eduardo Braga, translated this feeling when he said, in a statement released to the press on 05/03, it is “an operation in which everyone wins: the producer wins, wins the market, wins energy supply system in Brazil and wins certainly our production network. ” Anyway, everyone happy. Really?

The first step in answering this question is to understand, in fact, which means this measure. The resolution of Cima (Conselho Interministerial do Açúcar e do Álcool), which increased the mixture of ethanol in gasoline to 27%, puts a constraint to more consumers. Every liter of gasoline C consumed in Brazil, from Oiapoque to Chui, will have less gasoline and more ethanol than before, regardless of consumer choice. For those with flex-fuel vehicles, approximately 60% of the Brazilian fleet, means losing the option to take your car less than 27% ethanol. This choice was banned by the resolution of the Cima. In other words, the mixture of 27% is the fix that keeps us from virtue of flex.

Worst to the owners of vehicles with gasoline. Representative Anfavea suggested, also in a press statement, it would be prudent for these that fuel their vehicles with premium gasoline, which is not affected by the resolution of Cima. Imported cars, in particular, that were not designed for such mixing levels may even continue to run, but certainly with the worst performance. For these, the cost of gasoline will rise further.

Some say that the price of gasoline, with the increase of the mixture will fall, since ethanol per liter costs less than gasoline. What this argument don’t reveals is that the yield of a liter of gasoline C is also affected as the ethanol mixture increases and that, for logistical reasons, the relative price of ethanol and gasoline varies greatly by region of Brazil. A resident of Para, one of the States where gasoline is relatively more competitive than ethanol, will pay more for the kilometer. And here’s the biggest problem of the measure.

It makes little sense to transport Ribeirão Preto’s ethanol to Belém and force Pará to consume it in such high proportions, even though this fuel as more expensive there for logistical reasons. Also in São Paulo, where ethanol is very competitive, consumers will be adversely affected. There, the option of a flex-fuel car owner already is, in most of the times, ethanol. With the increased use of anhydrous ethanol in the mixture with gasoline, there will be less supply of hydrous ethanol, which should raise its price.

We can come to the absurdity of São Paulo prefer to consume gasoline C, given the increase in the price of ethanol, and at the same time, obliging Pará to consume an expensive ethanol, due to the logistics cost, embedded in gasoline C. This increase logistics costs, which is certainly bad for society as a whole.

The motivation for this measure seems to be in the sugar price fall in the international market from $ 0.31/lb in early 2011 to $ 0.14/lb early this year, which aggravates the crisis recovery. There is no doubt that this situation shows the state of penury of the ethanol industry and that this measure can be a salvation for the plants, weakened by about seven years of erratic and disastrous policy for the sector. But such a relevant policy instrument, like ethanol blend level in gasoline, cannot act as a firefighter, who runs after the flames that change with the wind. We should look at the long term. And this gets the impression that our energy policy for ethanol continues to drift.

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