TRANSITIONING TO ETHANOL - IN 1975

• This ad is an early piece used in Brazil in the critical days after the Brazilian government established the “Pro-Álcool” (“Pro-Alcohol”) program in 1975, designed to reduce the country’s dependence on foreign funds and oil.
  
  Its main goal was to convince consumers to try out the new fuel – not an easy task, given that doing so would require purchasing a car with an engine especially designed for ethanol combustion.

So let us examine the situation in the Brazilian automotive market when that country’s government decided that national security concerns warranted the creation of a sizable ethanol-powered fleet:

1. A much smaller number of cars and light trucks meant that economies of scale would be less significant and harder to come by than will be the case when a similar transition occurs in the U.S.;
2. Lower per-capita income signified that purchasing any kind of car – a major investment in Brazil, even for the middle class – was a considerable barrier to participation in the new ethanol market;
3. Brazil’s vast geographic expanse made nationwide distribution – a critical element to the new fuel’s acceptance – a daunting task, a problem compounded by the absence or inadequacy of the country’s infrastructure.

Nevertheless, the Brazilian initiative succeeded in firmly establishing ethanol as an alternative to gasoline.

If a developing nation was able to pull off such a feat, what, but political considerations, keeps the U.S. from doing so as well?

When ethanol becomes a widely utilized, viable substitute for or complement to gasoline in the United States, the economies of scale that will be achieved will be substantial, signifying that the current ethanol prices in the few fueling stations around the country that sell it – already lower than the price of gas – could drop even more.

Americans’ higher purchasing power will significantly decrease the barriers to entry in the new market, vis-à-vis the Brazilian experience.

And the United States’ superior infrastructure will allow ethanol to be more easily – and more cheaply – distributed throughout the country. A modern railway system, in particular, is a factor that will greatly benefit the distribution system – unlike in Brazil, where the railway grid is limited and trucks are used to transport most of the cargo, even over very long distances.

In short, the U.S. should look at Brazil and see it as a 31-year “trial market”. In this sense, Brazil, an industrialized country comparable in size to the United States, is a window into the future that America would do well to examine more closely.

Hindsight, after all, is 20-20.

Hear it from the horse's mouth - follow what's happening in the Brazilian ethanol market on Ethablog, the only blog in English dedicated to Brazilian ethanol.