Big Oil, Biofuel, and Brazil

As economic powerhouses go, the US is undisputed north of the equator; however, should one journey a little farther south, they would find Brazil taking the lead. It currently boasts the largest economy in South America and is wealthier than all the countries of that continent combined - this in spite of Venezuela's much-vaunted oil revenues.

Brazil's claim to economic fame has come largely from energy production and export, although this was not an immediate financial miracle for the largest country in the southern hemisphere. Rather, it was a slow and socially-conflicted process of trial and error - one, to a certain degree, still in its infancy. This essay seeks to explore Brazil's rise to power: from colonial independence to energy independence.

Once upon a time in the Amazon

Brazil was claimed by the Portuguese Crown in 1500: its only foothold in Latin America. (Any other potential New World colonies Portugal might have sought were precluded under the Treaty of Tordesillas, signed between Spain and Portugal in 1494.) Originally colonized for the sole purpose of imperial competition with Spain, Brazil quickly earned a name for itself as a lucrative mineral extraction, sugarcane and coffee cultivation hub.

By 1822, Brazil's economic merits had proven so prodigious that Pedro I, prince of Portugal, broke ties with his father, King João VI, and declared himself emperor of the 5.2 million square-mile country. This new Brazilian monarchy endured for nearly seventy years until its overthrow in 1889. It was then remodeled as a federal republic, propped up by coffee exports. By 1908 Brazil was producing 65% of the world's coffee.

Egalitarian rule prevailed in Brazil until the 1930s when a coup, led by Getulio Vargas, succeeded in establishing a more authoritarian regime. This gave way to full-out military rule in 1964, by which point economic growth had been all but stifled. The military government took over of all major business sectors, and Brazil's foreign debts went unpaid. By 1985 Brazil's inflation rate was out of control.

Brazil's economic woes continued even after military rule ended however; it was not until 1994 with the election of Fernando Henrique Cardoso that Brazil's inflation rate came under control. Cardoso further rehabilitated the Brazilian economy by redistributing land to Brazil's poor, and by securing an IMF rescue package for Brazil in 1998.

From loss to Lula

Although Cardoso had proven both a popular and effective president, a nouveau socialist revolution had begun sweeping across South America beginning in the late 1990s. It was this same movement which swept Luiz Inácio Lula da Silva into office in 2003.

Although Brazil's financial markets panicked at the prospect of a left-wing president, Lula's accession to power has been largely beneficial to the Brazilian economy. Pledging to eradicate hunger and to bring Brazil into the modern age, Lula is fast on the way to making his campaign promises a reality. Since taking office, his administration has: successfully launched Brazil's first space rocket; instituted a cash for guns program to rid Brazil's streets of firearms and curb gang violence; stabilized the rate of HIV/AIDS incidence, producing affordable medications to treat the disease; and applied Brazil for permanent membership on the UN Security Council.

How sweet it is!

As the nations of the world seek to reduce their collective carbon footprint, Brazil is already leading the way in terms of cleaner, renewable energy. Ethanol, a biofuel derived from sugarcane, has become widely accepted throughout Latin America and the Western world as a cheaper and more environmentally-friendly alternative to fossil fuel. It is higher in power-producing octane than standard gasoline, and has a much-reduced carbon monoxide emission rate.

At present, one-third of all vehicles in Brazil run on ethanol; others run on a blend of 74% gasoline, 26% ethanol. Ethanol sells for half the cost of gasoline, and has been a welcome alternative fuel source amid fluctuating world oil prices. Brazil is currently the world's largest producer and exporter of ethanol thanks to its abundant sugarcane fields. It ships over half a billion gallons a year to a dozen countries, including the United States; however, ethanol sales to American markets have been stymied due to protective import tariffs on foreign sugarcane products, favoring US farmers. (The US has attempted its own biofuel manufacture using corn oil, but this process is far less cost-effective and the ethanol yielded is far less efficient than its sugar-born counterpart.)

The one major drawback to Brazil's biofuel boom has been the level of deforestation it has exacerbated. Poor farmers, eager to strike it rich in the ethanol industry, slash and burn acre after acre of Amazonian rainforest to replace with sugarcane fields. This has, in turn, put Brazil both at the zenith of the biofuel revolution and at the brink of ecological ruin.

Black Gold

In 2008, amid the international gas crisis, fortune smiled on Brazil again with the discovery of a massive oil deposit off its southeast Atlantic coast. With what may potentially be the world's third largest oil reserve, Brazil could soon be pumping out nearly 100 billion barrels of high-quality crude at an estimated $3 trillion value - equal to 150% of Brazil's current GDP. Couple this projected returns from Brazil's already booming biofuel industry and that figure nearly doubles!

OPEC immediately approached Brazil for membership in its cartel upon hearing of its oil discovery. The South American giant refused, however, citing Brazil's wish to remain in control of its own economic destiny. Given its preeminent biofuel and petroleum resources, Brazil - at long last - stands ready to do just that.

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Sources

Ajl, Max. Brazil's New Oil Wealth Raises Debate on Redistribution. North American Congress on Latin America. http://nacla.org/node/5296 4 December 2008.

McDonnell, Patrick J. Human cost of Brazil's biofuels boom. Los Angeles Times. http://www.latimes.com/news/nationworld/world/la-fg-biofuels16-2008jun16,0,2605521.story 16 June 2008.

Morgan, Dan. Brazil biofuel strategy pays off as gas prices soar. Washington Post. http://www.msnbc.msn.com/id/8262015/ 18 June 2005.

Timeline: Brazil. BBC News. http://news.bbc.co.uk/2/hi/americas/country_profiles/1231075.stm 4 December 2008.