This is how India's Petrol Prices can be decreased the Brazil way.
Wed Aug 4, 2021
In 2021, fuel prices have surged 24 times. Petrol prices have crossed Rs 100 per liter in seven states and Union Territories — Rajasthan, Madhya Pradesh, Maharashtra, Andhra Pradesh, Telangana, Ladakh, and Karnataka. From biscuits to foodgrains to clothes (choose any example), the price of most of the goods increases causing great distress for the fixed wage-earning common man. A small hike in petrol and diesel prices hurts several industries, the transport sector and also, the common man.
Eg — Higher fuel prices are taking a toll on the Indian consumer. On the one hand, their incomes are not rising because there is a recession in several industries in the market. On the other hand, a rise in fuel prices is eating up a major portion of their income. Rising fuel prices are leading to significant inflation. Hence, their discretionary spending is also being lowered. Since the price of almost all the goods rises, fuel hikes result in inflation. Inflation is harmful to the economy since it can lead to the reduced value of the currency and eroded purchasing power. (Need help to simplify this)If we don’t look at this from a common man’s perspective but from an economy’s perspective, high dependence on foreign countries for oil, any slump in production of oil can have a huge impact on the Indian economy. Trade blockage, political instability in OPEC, and sudden increase in oil prices can have huge repercussions on the Indian economy foreign reserves/ Rupee to USD — The Indian rupee has already depreciated against the United States dollar. If the price of oil increases, the government will also be forced to exchange rupees for dollars. Since the import bill is going to be high due to oil imports, it will put tremendous pressure on the rupee.
Ethanol in BrazilDates back to 1973, when the world was going through its first oil crisis. Arab members of OPEC (Organization of the Petroleum Exporting Countries) decided to quadruple the price of oil to almost $12 a barrel. Oil exports to the United States, Japan, and western Europe, which together consumed more than half the world’s energy, were also prohibited. This decision came in response to a persistent decline in the value of the U.S. dollar (the denominated currency for oil sales), which had eroded the export earnings of OPEC states. With the global capitalist economy already experiencing difficulties, these actions precipitated a steep recession accompanied by rising inflation.
As the world was going through the crisis, there was one country that turned this crisis into an opportunity and an evolutionary solution for their economy. Brazil launched, on 15 November 1975, The Brazilian Ethanol Program — Proálcool — dedicated exclusively to the production of sugarcane fuel ethanol. At that period the country was heavily dependent on oil imports. From 1973 to 1974, Brazilian oil imports rose from US$ 600 million to US$ 2.5 billion, contributing to the trade deficit of US$ 4.7 billion in 1974. The Proálcool, established, had the following:Main objectives
The radical changes in world sugar markets were exacerbating the country’s economic problems. Brazil had responded to high world sugar prices in the early 1970s by expanding production capacity. In 1975, sugar prices collapsed. In February of that year, a trade and aid agreement between the European Community and 71 African, Caribbean, and Pacific countries gave the latter preferential access to the European market for sugar, reducing opportunities for Brazilian sugar exports. In the United States, the other major market for sugar, the food processing industry was then beginning its conversion to corn syrup, a close substitute for sugar in soft drinks.
This confluence of factors left Brazil with excess mill capacity and a reduced ability to earn foreign currency.During this phase of the ethanol program, sugar cane production increased by 50% and ethanol production quintupled to 2.8 billion liters. At the same time, domestic research on (hydrated) ethanol-only engines was stepped up, with the Brazilian government pushing and subsidizing (the initially reluctant) auto companies to develop engines capable of running on 100% ethanol. This innovation effort culminated in 1979 with the commercial introduction of the first pure‐ethanol vehicle, a Brazilian Fiat 147. Foreign and domestic automakers, under pressure from the government, started manufacturing ethanol‐only vehicles. By 1985, virtually all new vehicles sold in Brazil ran on pure ethanol.
During this phase of the ethanol production quadrupled to 12.8 billion liters In 1980, domestic ethanol costs were three times higher than international spot market prices or import costs for gasoline. Yet dedicated efforts to improve the economics of domestic ethanol production were not deemed necessary, as conventional wisdom at that time assumed ever-escalating oil prices which would ensure domestic ethanol would soon become cost-competitive withimported crude oil and gasoline. It is estimated that there was a savings of US$ 50 billion due to oil imports avoided, considering the consumption of ethanol in the country between 1975 and 2002.
As the military dictatorship gave way to civilian government in 1985, Brazil entered a period of economic difficulties and hyperinflation. Struggling to control prices throughout the economy, the government reduced guaranteed prices for ethanol to below the cost of production, and ethanol output fell for the first time since the program began. When oil prices tumbled in 1986‐1987, making ethanol increasingly uneconomic, the government banned the construction of new distilleries.
At the same time, world sugar prices recovered, and by 1990 producers were increasing sugar exports even as ethanol output stagnated. Ethanol shortages caused high prices and long waits for drivers of ethanol‐only vehicles, and Brazil was forced to import ethanol from overseas. Pure ethanol vehicle owners were put at a considerable economic disadvantage, compounded by emerging technical performance issues with pure ethanol engines, including the inability to start in cold temperatures and the requirement of more frequent refueling. Consumers lost confidence in the future ethanol supply, and the purchase of ethanol‐only vehicles collapsed. Following this period of relative stagnation, standard gasoline engines were reestablished as the norm. The ethanol program was revived in 2003 with the introduction of flex‐fuel vehicles. Encouraged by the Brazilian government, this innovation was introduced by the Brazilian subsidiaries of major international car companies such as General Motors and Fiat as well as Volkswagen, drawing both on indigenous R&D as well as international knowledge and technology spilloversFlex‐fuel vehicles (FFVs) were priced competitively with traditional gasoline automobiles and allowed consumers to choose the desired blend ratio. FFVs can take pure gasoline, pure ethanol, or any mix. On‐board sensors determine the fuel mix and adjust operation accordingly. A significant cost-cutting innovation was the introduction of post-combustion sensors for establishing the gasoline/ethanol blend of the fuel, as opposed to the previously dominant.
The government incentivized the purchase of FFVs with the same policies that earlier had been used to increase sales of ethanol‐only vehicles, including favorable tax treatment at the point of purchase, and reduced annual licensing fees. Presently, over 90% of new passenger vehicle sales in Brazil are flex‐fuel vehicles allowing consumers to make decisions, based on price and other factors, about which fuel to use at any given time. FFVs thus resolved the issue that led to a collapse in consumer confidence when oil prices collapsed in the late 1980s and early ‘90s.
Consumers now have the ability to choose the most economical fuel at any given time, and therefore are no longer vulnerable as they once were to price spikes or fuel shortages. The rapid proliferation of FFVs in Brazil is the most critical development in the recent success of the Brazilian ethanol program. Importantly, the vehicles were made available at a time of record‐high petroleum prices, meaning ethanol was frequently the cheaper option of the two fuels. Because ethanol has a lower energy content than gasoline, ethanol pump prices have to be lower compared to gasoline in order to be competitive.
Since 2003, Brazil’s emissions of carbon dioxide have been reduced by more than 300 million tons, which is equivalent to planting and maintaining 2.1 billion trees for 20 years. One of the reasons for such a success is that presently about 58% of sugarcane is diverted purely for ethanol production in Brazil. It could be even higher in the coming years on account of the need to have the cash flow for the production units, a drop in global sugar prices, and changes that have occurred in that country’s domestic fuel ethanol market. Another trend is although ethanol production is increasing, exports (now about 1 billion liters only) are declining. Most of the sugarcane ethanol in Brazil is based on first-generation technology, and there are currently two commercial plants producing cellulosic ethanol in Brazil: one from the GranBio group and the other one from Raizen, with a production capacity of 82 and 40 million liters, respectively.
Many factors and policies like:
(1) ideal climatic conditions for sugarcane crop,
(2) cheap labor,
(3) huge subsidies,
(4) fully integrated industrial processing of sugarcane as a feedstock for sugar and ethanol,
(5) laws forcing the oil marketing companies (OMCs) to blend ethanol,
(6) stringent environmental laws,
(7) flexibility to growers to divert sugarcane towards sugar or ethanol depending on the profitability contribute towards promotion and adoption of ethanol blends.
How will this help India?
In 2008, the Government of India announced its National Policy on Biofuels mandating a phase-wise implementation of the program of ethanol blending in petrol in various states. The blending of ethanol at 5% with petrol was to be taken up by the oil marketing companies (OMCs) in 20 states and four union territories. However, the implementation of this policy has not had much success.
In India, ethanol production is mainly done using sugar cane as feedstock. For successful implementation of EBP in India, a steady supply of sugar cane (or sugar cane juice) is required as a feedstock. The sugar cane production in 2008–09 was 271.2 million tonnes as per the statistics of the Indian Sugar Mills Association (ISMA).
The ethanol production in 2008–09 as reported by ISMA is 1,560 million tonnes. However, considering the different uses of ethanol in India (potable, alcohol-based chemical industry) and making assumptions about industry growth rates, a grand total of approximately 545 million tonnes of sugar cane would be required for consumption in India with the mandated 5% blending for transport by 2011–12. This is much more than the total sugarcane production of approximately 355 and 340 million tonnes during the 2006–07 and 2007–08, which were bumper crop years. (To conclude it says that they couldn’t match up with the amount needed for the country to produce Ethanol)Brazil pushed the idea of Ethanol in a way that citizens were aware of this choice. If India pushes that idea, at a cheaper price, we could help our environment and our economy.A liter of ethanol is currently priced at ₹62.65 in India, compared to nearly ₹100 for a liter of petrol and above ₹90 for a liter of diesel. This means ethanol or ethanol-blended petrol will reduce the fuel cost of consumers significantly compared to pure fossil fuel vehicles. Lesser dependency on fossil fuel — With the ethanol policy implemented, India’s fossil fuel dependency will be much lower than now. India currently imports 80% of its fossil fuel requirement. This translates into a huge amount of fuel bill for the country. With ethanol-blended petrol, the fuel import bill would come down substantially.
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