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The Transferability of Brazilian Knowledge and Technology. Donald Mitchell* World Bank *Lead Economist, Development Prospects Group April 25, 2006 . Sugar cane as an energy crop. Sugar cane produces a large amount of biomass per hectare (80 tons)
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The Transferability of Brazilian Knowledge and Technology Donald Mitchell* World Bank *Lead Economist, Development Prospects Group April 25, 2006
Sugar cane as an energy crop • Sugar cane produces a large amount of biomass per hectare (80 tons) • Cane juice can produce ethanol or sugar • Bagasse can be burned to produce electricity • Molasses can be used to produce ethanol, other alcohols and other products
Potential as energy crop depends on: • Price of sugar • Price of energy • Government incentives • Environmental benefits
Co-generation seems to hold the greatest promise • Cane residue (bagasse) is a clean burning fuel • High pressure boilers can produce electricity from bagasse to power sugar factory and supply electricity to national grid • Economically viable because bagasse has almost no other value • Reduces cost of sugar production by removing power plant from factory
Ethanol economics • Prices of ethanol have been high and sugar low – ideal conditions for ethanol • But sugar prices have tripled in past two year which changes the profitability • Ethanol is profitable in Brazil because it is the world’s lowest cost producer of sugar and has large installed ethanol production capacity
Understanding the risks • Crude oil prices are at record highs and will likely fall over the longer term • The global sugar market is undergoing a major restructuring and prices may not return to previous lows • Large investments in ethanol could become very unprofitable • Large subsidies to ethanol production divert resources away from more economic uses
Crude oil prices are high because • Lack of surplus production capacity due to many years of low prices and little incentive to invest • Rapid demand growth from China and other countries • Supply disruptions – hurricanes in US, strikes in Nigeria, terrorist strikes in Iraq • Uncertainty about future supplies
Crude oil prices $/bbl Forecast
Sugar market in transition • EU policy reform could make the EU a large net importer • Many ACP countries will reduce exports because of EU price cuts • Global sugar market will be restructured • Sugar prices may not return to previous low levels
Sugar prices Forecast
Conclusion • Co-generation appears to be profitable and has environmental advantages • Ethanol production from sugar cane is not profitable for most countries even at current high prices • Risk to investing in ethanol production is that energy prices will fall and/or sugar prices will remain high, and …
Governments could be left supporting large ethanol industries which are unprofitable • Resources could be diverted from more efficient uses such as food crop or export crop production