The Race to Make Fuel From Sugar

Brazil's Rubens Ometto Silveira Mello is no ordinary billionare. Plenty of Latin Americans are wealthier (he ranks 488th on the latest Forbes list), but Ometto is the only one who made his name producing renewable energy—ethanol brewed from sugar cane. No nation does that better than Brazil and no Brazilian better than Ometto, whose company, Cosan, is the world's largest producer of sugar and ethanol. That makes this 56-year-old distiller from the São Paulo farm belt the first tycoon of the era of climate change.

He won't be the last. Thanks to global climate change, sugar now is in big demand. The drum-beat of alarm over global warming has set businesses clamoring for a piece of the sugar-cane action. There are plenty of other ways to make ethanol, of course, and scientists the world over are busy tinkering with everything from switchgrass to sweet potatoes. U.S. farmers make it from corn, but with the scarcity of arable land there's just so much they can plant without crowding out other premium crops, like soy beans. (Meantime, the combination of limited land and surging demand have sent corn prices through the roof). So far nothing beats sugarcane—which grows in the tropics—for an abundant, cheap source of energy. Unlike beets or corn, which are confined to temperate zones and must be transformed into carbohydrates before they can be converted into sugar and finally alcohol, sugarcane is already halfway there. That means the sugar barons like Ometto spend much less energy than the competition, not to mention money.

The moral imperative of finding a substitute for fossil fuels has lent an air of respectability to new ventures to produce biofuels from sugar—a marked contrast to the sugar barons of old, known for their ruthless ways and their appetite for taxpayers' money. "The distillers who ten years ago were the bandits of agribusiness are becoming national and world heroes," Brazilian president Luiz Inácio Lula da Silva. Lula declared recently. "[E]thanol and biodiesel are more than an answer to our dangerous 'addiction' to fossil fuels. This is the beginning of a reassessment of the global strategy to protect our environment."

President George W. Bush kicked off the sugar rush in his January State of the Union Address by enjoining his compatriots to cut gasoline consumption by 20 percent during the next decade and replace it with some 133 billion liters a year of renewable fuels. A new generation of sugar entrepreneurs has appeared virtually overnight to take advantage of the opportunity. Vinod Khosla, the founder of Sun Microsystems, has jumped into the sugar ethanol market. Hyperinvestor George Soros's latest gamble is a multimillion dollar buyout of a Brazilian distillery. "I'm convinced that soon we will be able to put a price on pollution and this will consolidate ethanol as an energy source," he said recently.

Even Bush, who spent most of his presidency with his back to Latin America, has joined the ethanol binge, spending two days touring Brazilian sugar country last month and two more hosting his new biofuel buddy, Lula, at Camp David. Together, the U.S. and Brazil account for some 72 percent of the world's 50 billion liters of fuel alcohol, and to hear it from the aficionados, that is only a drop in the glass. As of early this year, investors had committed $14.2 billion on 412 ethanol plants in Brazil by 2012, and the most ardent biofuels bulls foresee 615 distilleries turning out 5 percent of current world demand by the quarter century mark.

As many would-be sugar barons are finding out, however, turning cane into gold is not so simple. With an eye on surging Yankee demand, investors are turning to the Caribbean, once the world's sugar bowl. Yet the creaky old sugar gins there are so antiquated most of them cannot begin to turn out world-grade fuel at competitive prices; instead, they make ends meet by dehydrating alcohol imported from Brazil and then shipping it through, duty-free, to the United States (As Brazil's sugarcane planters brew ethanol at half the price, the United States protects its corn farmers with a stiff 14 cents per liter surtax on most imported ethanol). African crops like jatropha and oil palms are a distant promise but little more—given the low productivity among the continent's struggling farmers. And with millions of mouths to feed, would-be biofuel powers China and India are torn between topping up their tanks and their larders.

Though any clever scientist can turn biomass into alcohol, doing it efficiently and cheaply is another story. This is where Brazil stands alone. It is shaping up to be the world's biggest supplier of biofuels from sugar cane for years to come. It took three decades of government investment, trial and error, and stubborn research by clever agronomists and planters to make Brazil a showcase for biofuel. Some 44 percent of its liquid fuel—and 13.5 percent of the total energy consumed—comes from sugarcane. Today, without a cent in subsidies, Brazilian producers brew ethanol so competitively it could trump oil at around $30 to $35 a barrel.

Brazilian distillers now turn sugar into ethanol at just 22 cents a liter, compared to 30 cents for corn and 54 cents for beets. "Brazil has the soils, the sun, and the climate, not to mention a 25 year running start on everybody else," says Sergio Thompson Flores, CEO of Infinity Bio-Energy, a UK based startup which plans to spend $1 billion on Brazilian ethanol through 2010.

The trend may have global-warming alarmists cheering, but guardians of the Amazon are worried. They fear an anschlüss of sugar cane rolling all the way to the Amazon basin. But with an estimated 80 million hectares left to till outside the rainforest—one of the planet's largest agricultural frontiers—Brazil would seem to have be plenty of room for fuel, food and forests. For now, Brazil's real obstacle appears not to be land but lobbies. The United States could easily meet Bush's renewable fuel mandate through imports, but as a sop to corn farmers, Congress recently extended the surtax on imported ethanol to 2009. Unless there's a climate change in Washington, the drive for a viable source of green energy may be thwarted.