Brazil fights oil prices with alcohol

Brazilians aren't waiting for high-priced hybrid cars.

Drivers are fighting rising gasoline prices by buying "flex" or "flexible fuel" cars that slurp more alcohol.

Alcohol made from sugar cane is becoming the fuel of choice in Brazil, and other countries - so much so that global sugar prices hit a seven-year high this week.

Regular car engines will run fine on a 10 percent blend of alcohol and gasoline. But by using computer sensors that adjust to whatever mix is in the tank, flex car engines run on either ethanol, gasoline, or any combination of the two. And they have been roaring out of dealerships here since Volkswagen sold the first TotalFlex Golf in March 2003.

Today, flex cars are outselling traditional gasoline models. In August, 62 percent of new cars sold were flex, according to industry numbers. "Demand has been unbelievable," says Barry Engle, the new president of Ford Brasil. "I am hard-pressed to think of any other technology that has been such a success so quickly."

As many countries reexamine their dependence on petroleum fields for fuel, Brazil offers a model for how to make the switch to cane, beet, wheat, or corn fields. The successful transition here comes down to many factors, but price is the primary one, experts say.

Unlike hybrids sold in the US, for example, flex cars sold in Brazil don't cost any more than traditional models. In fact, some models are only available with flex engines now. Ethanol engines use 25 percent more ethanol per mile than gasoline. But ethanol (the alcohol produced by fermenting sugar) usually sells at somewhere between a third to half of the price of gas. Even people who were reluctant to take the plunge and buy a flex say they have been won over by the savings.

"It's been a revelation because of the economy," says Madalena Lira, a university lecturer who says that she and her husband had reluctantly purchased a flex car because it was the only available version of the Fiat Palio Weekend they wanted. "I love this car in spite of it being a flex, not because it is a flex. The savings have been great. I'd certainly buy another one."

In addition to the savings, environmentally conscious drivers appreciate having a car that runs on a cleaner fuel, and some might even buy a flex car because they know it is good for the country's auto and sugar manufacturers. But today, two-and-a-half years into the flex experiment, another unforeseen advantage is emerging.

"There is something curious that we are just starting to see," says Alfred Szwarc, an ethanol consultant with Sao Paulo's sugar cane association. "Gasoline powered cars lose more of their [resale] value than flex cars. People know that oil is finite and that it is going to get more and more expensive. They think that a gasoline-powered car is going to be more difficult to sell. They see flex cars as the car of the future."

Ethanol-powered cars are not new in Brazil. In a bid to cut the country's reliance on foreign oil imports and help their own sugar producers, Brazil's military government pushed alcohol-powered cars in the early 1980s. Gas stations across the country added ethanol pumps to the existing gasoline and diesel ones. Between 1983 and 1988 more than 88 percent of cars sold annually were running on a blend of ethanol and gasoline.

This didn't last for long, though. The subsidies were withdrawn at the end of the decade, and cane farmers quickly realized they could get more from selling sugar than turning it into ethanol. When alcohol fuel shortages ensued it looked like the end of the road for ethanol engines as sales of the experimental cars plummeted.

That experience may have been a bitter one but it gave Brazilians a taste for alternative fuels that lingered. Although most people abandoned ethanol cars, many taxi drivers kept them because it was so much cheaper than a gas-only car. Then the country's Congress passed a law forcing oil companies to add small quantities of ethanol to their gasoline. That prompted car companies to experiment with an engine that would run on both fuels, and when they did, the flex car sales took off.

"Why did this take off here?" asks Mr. Engle. "Because this isn't brand-new. Car buyers concerned about high gas prices or potential ethanol shortages no longer have to make a choice between the two. It used to be an either-or but now there's both and that gives consumers peace of mind and explains why Brazilians have embraced it."

The next task is convincing other nations to adopt the technology, industry experts said. With oil prices at a record high, there is a clear advantage to diluting gasoline or even substituting it, with sugar-based ethanol or one of the biofuel alternatives such as beets or corn.

For most countries, the problem is the lack of ethanol production and a distribution system. Although many countries require oil companies to dilute their gasoline with ethanol (in Brazil, gas sold at the pumps is 25 percent ethanol; and some of the gas sold in the US, China, Australia and Canada is 10-15 percent ethanol), few actually make ethanol or manufacture flex vehicles, and even fewer have a network of gas stations with ethanol pumps.

In the US - with about 4 million flex cars - there are 14 states without even one ethanol pump, says Robert White, project director for the National Ethanol Vehicle Coalition.

With years of experience at every stage of the process, Brazil is in the pole position to help other nations' farmers grow crops, scientists refine it into fuel, or engineers produce the technology to make flex cars, says Rogelio Golfarb, president of Brazil's car makers association. "There is an enormous demand from abroad to know more," Mr. Golfarb says "This is an advantage and an opportunity for Brazil."