Contributions to Economics

Felix Kaup

The Sugarcane
Complex in
Brazil
The Role of Innovation in a Dynamic
Sector on Its Path Towards Sustainability
Contributions to Economics
More information about this series at
http://www.springer.com/series/1262
Felix Kaup

The Sugarcane Complex in

Brazil
The Role of Innovation in a Dynamic Sector
on Its Path Towards Sustainability
Felix Kaup
Potsdam Institute for Climate Impact Research
Potsdam
Germany

Institute for Latin American Studies

Freie Universität Berlin
Berlin
Germany

D 188

ISSN 1431-1933 ISSN 2197-7178 (electronic)

Contributions to Economics
ISBN 978-3-319-16582-0 ISBN 978-3-319-16583-7 (eBook)
DOI 10.1007/978-3-319-16583-7

Library of Congress Control Number: 2015936312

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 Roraima Amapa

Pará
Amazonas Maranhão Ceará Rio Grande
do Norte
Paraíba
Piauí Pernambuco
Acre
Alagoas
Tocanns Sergipe
Rondônia
Bahia
Mato Grosso

Federal
District
Goiás
Minas Gerais
Mato Grosso Espírito Santo
do Sul
São Paulo Rio de Janeiro
Paraná Macro-regions of Brazil
North
Santa
Catarina North - East
Rio Grande Center - West
do Sul South - West
South

Map of the Brazilian Federal States and the five macro-regions. Based on data from http://en.
wikipedia.org/wiki/Regions_of_Brazil

Exchange rates €, US$, and RS$ (average January–December 2012)

Brazilian Real (R$) United States Dollar (US$) Euro (€)
2.8 1.28 1
2.19 1 0.78
1 0.46 0.36

v
ThiS is a FM Blank Page
Acknowledgments

This thesis would not have been completed without the help of many people and
institutions whom I would like to thank here.
First of all, I would like to express my gratitude to Prof. em. Dr. Manfred Nitsch
for reminding me on my once expressed thought that a PhD thesis would be
something worth writing and subsequently for encouraging me to do so. His
discussing the content of the thesis and showing me paths to realize the implemen-
tation, yet giving me the space to find my own way while always giving advice if
needed, have been exemplary. His comprehensive understanding of the subject and
keen eye when revising drafts have been extremely helpful. Furthermore, I would
like to thank Prof. Dr. Barbara Fritz for providing me with the opportunity to
repeatedly present concepts, thoughts, and bits and pieces of my thesis at the
colloquium on the economy of Latin America. Your remarks and comments were
especially useful for finding my methodology and structuring my work, as was your
deadline for presenting my first chapter.
Additionally, I would like to thank the Federal Ministry of Education and
Research (BMBF) and the associated framework program “FONA” that provided
the “Biofuel as Social Fuel”—project and thereby the funding for conducting my
research in Germany and Brazil. I am also grateful for the administrative support
from the German Aerospace Center (DLR). The Potsdam Institute for Climate
Impact Research provided me with a productive work environment, giving me
the chance for exchange with fellow researchers. I would like to thank the team of
the “Biofuel as Social Fuel” project, Anne Klinnert, Katrin Wlucka, Nico Grasselt,
and Wibke Avenhaus, for their support and in particular Thiago Pinto Barbosa who
was extremely important with regard to the transcription of the interviews and
beyond.
During my research stay in Piracicaba at the ESALQ (Escola Superior de
Agricultura “Luiz de Queiroz”), the agricultural department of the University of
São Paulo, I had the chance to meet a variety of people who were extremely
supportive and had extended expertise about the setor sucroenergético, who
made me feel very welcome at this beautiful campus. Prof. Dr. Gerd Sparovek
always has been a source of inspiration, thank you for that. Prof. Dr. Thiago Lib
orio
vii
viii Acknowledgments

Romanelli has been a huge support when organizing the ESALQ-PIK workshop on
“The Future of the Sugarcane Sector” and beyond. Prof. Dr. João Gomes Martines
and Prof. Dr. Weber Amaral supported me with their expertise and contacts.
Rudi Schallenmüller has been warm-hearted and helpful during my research
visits in Ribeirão Preto and provided me with the contact to Hanskarl Kirfel whom I
would like to thank for the highly interesting days visiting usinas and staying at his
sı́tio. Additionally I would like to thank Daniel Furlan Amaral from ABIOVE for
our extended discussions.
But first and foremost I would like to thank all the experts from universities,
research institutes, industry, government institutions, business associations, and
NGOs who took their time to share their expertise and provided me with fascinating
insights on the setor sucroenergético.
Abbreviations

ANEEL Agência Nacional de Energia Elétrica (Electric Energy

Regulating Agency)
ANP Agência Nacional do Petr
oleo, Gas e Biocombustı́veis
(National Agency for Petroleum, Natural Gas and Biofuels)
APEX Agência Brasileira de Promoção de Exportações e
Investimentos (Brazilian Trade and Investment Promotion
Agency)
APLA Arranjo Produtivo Local do Álcool (Local Ethanol Cluster)
APP Áreas de Preservação Permanente (Permanent Protection
Areas)
ARB (Californian) Air Resources Board
ASTM American Society for Testing and Materials
BAU Business as usual (scenarios)
BNDES Banco Nacional de Desenvolvimento Econômico e Social
(National Development Bank)
BRIC(S) Brazil, Russia, India, China, (South Africa)
BSI Better sugarcane initiative
CBD Convention for biological diversity
CCS Carbon capture and storage
CDM Clean development mechanism
CEIB Comissão Executiva Interministerial do Biodiesel
(Interministerial Executive Committee for Biodiesel)
CENA Centro de Energia Nuclear na Agricultura (Center for Nuclear
Energy in Agriculture)
CEPEA Centro de Estudos Avançados em Economia Aplicada (Center
for Advanced Studies on Applied Economics)
CGEE Centro de Gestão e Estudos Estratégicos (Center for Strategic
Studies and Management)
CHP Combined heat and power (plant)
CIDE Contribuição de Intervenção no Domı́nio Econômico
(Contribution for Intervention in Economic Domain)

ix
x Abbreviations

CIMA Conselho Interministerial do Açúcar e do Álcool

(Interministerial Council for Sugar and Ethanol)
CNPE Conselho Nacional de Polı́tica Energética (National Energy
Policy Council)
COC Chain of custody
COFINS Contribuição para o Financiamento da Seguridade Social
(Contribution for Financing Social Security)
CONAB Companhia Nacional de Abastecimento (National Company
of Food Supply)
CONSEA Conselho Nacional de Segurança Alimentar e Nutricional
(National Food and Nutrition Security Council)
CSAA C^amara Setorial do Açúcar e do Álcool (Chamber for the
Sugar and Alcohol Sector)
CSD Commission on sustainable development
CSR Corporate social responsibility
CTBE Laborat
orio Nacional de Ciência e Tecnologia do Bioetanol
(Brazilian Bioethanol Science and Technology Laboratory)
CTC Centro de Tecnologia Canavieira (Center of Sugarcane
Technology)
CTNBio Comissão Técnica Nacional de Biossegurança (National
Technical Commission on Biosafety)
dLUC Direct land use change
EC European Commission
EIA (US) Energy Information Administration
EISA Energy Independence and Security Act
EKC Environmental Kuznets Curve
EMBRAPA Empresa Brasileira de Pesquisa Agropecuária (Brazilian
Agricultural Research Corporation)
EPA (US) Environmental Protection Agency
EPE Empresa de Pesquisa Energética (Energy Research Company)
ESALQ Escola Superior de Agricultura “Luiz de Queiroz” (‘Luiz de
Queiroz’ College of Agriculture)
ETIS Energy technology innovation system
EU European Union
FAO Food and Agriculture Organization
FAPESP Fundação de Amparo a Pesquisa do Estado de São Paulo
(Foundation for Research Support of the State of São Paulo)
FEARP Faculdade de Economia, Administração e Contabilidade de
Ribeirão Preto (Faculty of Economics, Management and
Accounting, Ribeirão Preto)
FFV Flex-fuel vehicle
FINEP Financiadora de Estudos e Projetos (Funding Authority for
Studies and Projects)
Abbreviations xi

FONA Forschung für Nachhaltigkeit (Research for Sustainable

Development)
FSC Forest Stewardship Council
GBEP Global bioenergy partnership
GHG Greenhouse gases
GII Global Innovation Index
GMO Genetically modified organism
GPS Global positioning system
GRI Global reporting initiative
GW GigaWatt
HFCS High-fructose corn syrup
IAC Instituto Agronômico de Campinas (Campinas Institute of
Agronomy)
IBAMA Instituto Brasileiro do Meio Ambiente e dos Recursos
Naturais Renováveis (Brazilian Institute of Environment and
Renewable Natural Resources)
IEA International Energy Agency
IEEP Institute for European Environmental Policy
IFPRI International Food Policy Research Initiative
iLUC indirect land use change
INMETRO Instituto Nacional de Metrologia, Qualidade e Tecnologia
(National Institute of Metrology, Quality and Technology)
IPI Imposto de Produtos Industrializados (Tax on Industrialized
Products)
ISO International Organization for Standardization
IT Information technology
LADA Land degradation assessment in drylands
LCA Life-cycle assessment
LNBio Laborat
orio Nacional de Biociências (Brazilian Biosciences
National Laboratory)
MAPA Ministério da Agricultura, Pecuária e Abastecimento
(Ministry of Agriculture, Livestock and Food Supply)
MCT Ministério da Ciência e Tecnologia (Ministry of Science and
Technology)
MDA Ministério do Desenvolvimento Agrário (Ministry of Agrarian
Development)
MDIC Ministério do Desenvolvimento, Indústria, e Comércio
Exterior (Ministry of Development, Industry and Foreign
Trade)
MF Ministério da Fazenda (Ministry of Finance)
MMA Ministério do Meio Ambiente (Ministry of Environment)
MME Ministério de Minas e Energia (Ministry of Mines and
Energy)
MOT Motor ordinance test
xii Abbreviations

MPT Ministério Público do Trabalho (Ministry of Labor)

MW MegaWatt
NGO Non-governmental organization
NIPE Núcleo Interdisciplinar de Planejamento Energético
(Interdisciplinary Center of Energy Planning)
NIS National innovation system
NTB Non-tariff barrier
OECD Organization for Economic Cooperation and Development
OPEC Organization of the Petroleum Exporting Countries
PAC Programa de Aceleração do Crescimento (Program of
Accelerated Growth)
PAISS Plano de Apoio a Inovação dos Setores Sucroenergéticos e
Sucroquı́micos (Support Plan for Industrial Technological
Innovation in the Sugar-energy and Sugar-chemical Sectors)
PET Polyethylene
PIS Programa de Integração Social (Contribution to the Social
Integration Program)
PLANALSUCAR Programa Nacional de Melhoramento da Cana-de-Açúcar
(National Program of Sugar Cane Improvement)
PNE Plano Nacional da Energia (National Energy Plan)
PROINFA Programa de Incentivo as Fontes Alternativas de Energia
Elétrica (Program of Incentives for Alternative Sources of
Electrical Power)
PRORENOVA Programa de Apoio a Renovação e Implantação de Novos
Canaviais (Aid Program for Renewal and Planting of New
Sugarcanes)
QDA Qualitative data analysis
R&D Research & development
RED Renewable Energy Directive
RFS Renewable fuel standard
RIDESA Rede Interuniversitária para o Desenvolvimento do Setor
Sucroalcooleiro (The Inter-University Network for the
Development of the Sugar-Alcohol Sector)
ROI Return on investment
RSB Roundtable on sustainable biomass
RSPO Roundtable for sustainable palm oil
RTRS Round-table for responsible soy
SINDICOM Sindicato Nacional das Empresas Distribuidoras de
Combustı́veis e de Lubrificantes (National Association of Fuel
and Lubricant Distribution Companies)
SME Small and medium-sized enterprise
SNPC Sistema Nacional de Proteção de Cultivares (National System
of Cultivar Protection)
TC Ton of cane processed
Abbreviations xiii

TIS Technological innovation system

TNC Transnational companies
TRS Total recoverable sugar
TÜV Technischer Überwachungsverein (Technical Inspection
Association)
UFMG Universidade Federal de Minas Gerais (Federal University of
Minas Gerais)
UFRJ Universidade Federal do Rio de Janeiro (Federal University of
Rio de Janeiro)
UFScar Universidade Federal de São Carlos (Federal University of
São Carlos)
UN United Nations
UNEP United Nations Environmental Program
UNICA União da Indústria de Cana-de-Açúcar (Brazilian Sugarcane
Industry Association)
UNICAMP Universidade Estadual de Campinas (University of Campinas)
US(A) United States of America
USP Universidade de São Paulo (University of São Paulo)
USPTO United States Patent and Trademark Office
WTI West Texas Intermediate
WTO World Trade Organization
WWF World Wide Fund for nature
ZAE Zoneamento Agroecol
ogico da Cana-de-Açúcar
(Agroecological Zoning of Sugarcane)
ThiS is a FM Blank Page
Contents

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Biofuels at the Focal Point of Energy, Agriculture and Rural
Development . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1.1 Energy: The Resource . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1.2 Biofuels, Trade and Rural Development . . . . . . . . . . . . . . 4
1.1.3 Biofuels, Food and Agriculture . . . . . . . . . . . . . . . . . . . . 5
1.1.4 Biofuels and the Environment . . . . . . . . . . . . . . . . . . . . . 7
1.2 Presenting the Research Puzzle . . . . . . . . . . . . . . . . . . . . . . . . . . 8
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
2 Theoretical Framework: Sustainability and Innovation . . . . . . . . . . 13
2.1 Sustainability and the Transition Towards Sustainable Mobility . . . 15
2.1.1 The Quest for Sustainable Development: Challenges of
Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.1.2 Sustainable Mobility and Related Energy Issues . . . . . . . . 17
2.2 Economic Research: Strands and Trends . . . . . . . . . . . . . . . . . . . 19
2.2.1 Neoclassical Views on Environment, Sustainability
and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.2.2 Ecological Economics . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.2.3 Evolutionary Economic Theory, Innovation and Path
Dependency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.3 Innovation, Technologies and the Dynamics of Socio-technical
Systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
2.3.1 From Linear to Systemic Innovation . . . . . . . . . . . . . . . . . 27
2.3.2 Overcoming Lock-In: Radical and Incremental Change . . . 29
2.3.3 Innovation Systems and Institutions . . . . . . . . . . . . . . . . . 31
2.3.4 ‘Physical’ and ‘Social’ Technologies . . . . . . . . . . . . . . . . 32
2.3.5 National and Technological Innovation Systems . . . . . . . . 33

xv
xvi Contents

2.4 Technology Innovation Systems . . . . . . . . . . . . . . . . . . . . . . . . . 34

2.4.1 Supply-Push and Demand-Pull Mechanisms . . . . . . . . . . . 34
2.4.2 The Energy Technology Innovation System (ETIS)
Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3 Research Design: A Case for Methodological Pluralism . . . . . . . . . . 45
3.1 Why Brazil? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.2 Selection of the Research Approach . . . . . . . . . . . . . . . . . . . . . . 48
3.2.1 Assessing Qualitative Research in Economics . . . . . . . . . . 49
3.2.2 Integrating Qualitative and Quantitative Research
Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
3.2.3 Strategies for Qualitative Research: ‘Qualitative Content
Analysis’ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
4 Empirical Research—setor sucroenergético in Brazil—From the
Experts’ Mouths . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
4.1 The Empirical Approach: Conducting Research in Brazil . . . . . . . 65
4.1.1 The Interviews . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
4.1.2 The Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
4.1.3 Computer Assisted Qualitative Data Analysis: ATLAS ti
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.1.4 Selection and Application of the Codes . . . . . . . . . . . . . . . 72
4.2 Sugarcane in Brazil . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
4.2.1 The Flex Crop Sugarcane . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.2.2 Biofuels and Sugarcane Ethanol . . . . . . . . . . . . . . . . . . . . 87
4.2.3 Recent History of the Sugarcane Complex . . . . . . . . . . . . 91
4.3 Developments in the Agricultural and Industrial Systems:
Product/Process Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
4.3.1 Mechanization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
4.3.2 Cogeneration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
4.3.3 New Technologies and Further R&D Aspects . . . . . . . . . . 124
4.4 Actors, Networks and Institutions: The Institutional Level . . . . . . 144
4.4.1 National Perspective: Governmental Institutions, Strategies
and Politics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
4.4.2 National Perspective: Laws, Regulations and
Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 156
4.4.3 National Perspective: Industrial Cooperation . . . . . . . . . . . 168
4.4.4 International Perspective: Concentration and
Internationalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
4.4.5 International Perspective: Certification . . . . . . . . . . . . . . . 181
4.4.6 International and National Market Demand . . . . . . . . . . . . 195
Contents xvii

4.5 Interdependencies Within and Between Levels:

The Sugarcane-based Energy Technology Innovation System . . . . 209
4.5.1 Recapitulation: What Constitutes an ETIS? . . . . . . . . . . . . 210
4.5.2 Eligibility of Product/Process Level Codes for ETIS . . . . . 211
4.5.3 Eligibility of Institutional Level Codes for ETIS . . . . . . . . 215
4.5.4 Conclusion of the ETIS . . . . . . . . . . . . . . . . . . . . . . . . . . 220
4.6 Sustainability Aspects of the Sugarcane Innovation System . . . . . 222
4.6.1 Land Effects: Expansion, Displacement and iLUC . . . . . . 223
4.6.2 Emissions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
4.6.3 Economic Impacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
4.6.4 Employment and Rural Development . . . . . . . . . . . . . . . . 242
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 271
Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
ThiS is a FM Blank Page
List of Figures

Fig. 2.1 Environmental Kuznets curve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Fig. 2.2 Supply-push and demand-pull mechanisms. . . . . . . . . . . . . . . . . . . . . . . . 36
Fig. 2.3 The energy technology innovation system—ETIS. . . . .. . . . .. . . . .. . 38
Fig. 4.1 Interview types in quantitative and qualitative research. . . . . . . . . . 67
Fig. 4.2 Classification of the Brazilian experts from the sugarcane
complex . . .. . . . .. . . . .. . . . .. . . . .. . . . .. . . .. . . . .. . . . .. . . . .. . . . .. . . . .. . . . .. . 70
Fig. 4.3 Screenshot ATLAS ti—sample of codes . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Fig. 4.4 Feedback meeting—revision and clustering of inductive and
deductive codes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Fig. 4.5 Categories and codes of analysis developed with ATLAS ti . . . . . 76
Fig. 4.6 Assignment of selected codes to ETIS analysis and sustainability
aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Fig. 4.7 Worldwide cultivation area of sugarcane (2012). . . . . . . . . . . . . . . . . . 84
Fig. 4.8 Increase in sugarcane production, yield and area
(1980/1981–2013/2014). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Fig. 4.9 Industrial sugarcane processing—final products and
by-products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
Fig. 4.10 Ethanol production in Brazil (1980/1981–2013/2014) . . . . . . . . . . . . 89
Fig. 4.11 Registration of cars in reference to the engine type in Brazil
(1979–2013) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 96
Fig. 4.12 Mechanized harvester in the middle of a sugarcane
field (2010) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Fig. 4.13 Brazilian electricity supply by source in % (2012) . . . . . . . . . . . . . . . . 114
Fig. 4.14 Top five worldwide sugar producers and exporters
(1998–2010) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 143
Fig. 4.15 Institutions mentioned in the interviews. Size related to
frequency of mention . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . . . . . . .. . . . 145
Fig. 4.16 Mean prices of hydrated ethanol compared to gasoline in %
(2012) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151

xix
xx List of Figures

Fig. 4.17 Domestic energy supply regarding different energy carriers in %

(1970–2030) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 153
Fig. 4.18 Ethanol consumption in Brazil in billion liters
(1980–2010) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 161
Fig. 4.19 The ZAE and suitable areas for sugar cane expansion and
protected areas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
Fig. 4.20 The largest sugar exporters and the largest importers worldwide
(1990–2013) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 197
Fig. 4.21 Price index for crystal sugar—translated into US cent
per pound (including 7 % VAT) (2003–2014) . . . . . . . . . . . . . . . . . . . . . 198
Fig. 4.22 Brazilian revenue from sugar and ethanol exports in US$
(1990/1991–2012/2013) . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 199
Fig. 4.23 Projections: Cane harvested for sugar and ethanol production
(2013–2022) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 200
Fig. 4.24 World market prices for WTI crude oil and sugar
(2003–2013) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 201
Fig. 4.25 Costs for 1,000 l gasoline, opportunity costs for ethanol and sugar
(2003–2013) . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . . . .. . . . . . . 203
Fig. 4.26 Brazilian ethanol exports and imports in US$ million
(1990/1991–2012/2013) . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . 205
Fig. 4.27 Indirect Land-Use-Change (iLUC) effect . . . . . . . . . . . . . . . . . . . . . . . . . . 226
Fig. 4.28 Reference values for direct emissions and the iLUC effect of
selected biofuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 233
List of Tables

Table 4.1 ATLAS ti codes applied on ETIS and subsequently on

sustainability aspects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
Table 4.2 Annual costs of sugarcane production during five harvests, in
São Paulo state . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
Table 4.3 Comparison of sugarcane ethanol with other first generation
biofuels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
Table 4.4 Employment scenarios sugarcane complex, São Paulo state
(2006/2007–2020/2021) . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 109
Table 4.5 Electricity by different sources in 2009 and 2020 in Megawatt
per hour . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . 119
Table 4.6 Expected ethanol yield in l/ha. Expected productivity increases
the next 20 years . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . 130
Table 4.7 Economic scenarios of first and second generation
ethanol/electricity production . .. . . .. . .. . .. . . .. . .. . . .. . .. . .. . . .. . .. . 134
Table 4.8 Expansion of sugarcane area by 2025. CGEE-10 % substitution
scenario . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154
Table 4.9 Brazilian legislation with reference to the sugarcane complex
(1965–2012) .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . 158
Table 4.10 Taxation on hydrated, anhydrous and gasoline C (2010) . . . . . . . 162
Table 4.11 BNDES disbursements to the setor sucroenergético in US$
million (2008–2013) . . . . . . .. . . . . .. . . . . . .. . . . . .. . . . . .. . . . . . .. . . . . .. . . 165
Table 4.12 Protected sugarcane cultivars in numbers—listed at
SNPC/MAPA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165
Table 4.13 Joint Ventures, M&A in the Brazilian sugarcane complex
(2009–2012) .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . 177
Table 4.14 Number of patents granted by USPTO by year of patent grant
(1997–2012) .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . 180
Table 4.15 Sustainability criteria for biofuels in the EU-Renewable Energy
Directive (2009) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 186

xxi
xxii List of Tables

Table 4.16 Selection of most important regional and global biofuel

certification schemes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Table 4.17 Projections of world market price for WTI crude oil
(2010–2040) .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . . . . . . . .. . . . . . . . . . . .. . . . . . 201
Table 4.18 GHG emissions of sugarcane harvesting within four
scenarios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231
Table A.1 New product families and applications of sugarcane-based
material . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
Table A.2 Frequency of occurrence of institutions mentioned within
the 48 interviews . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . .. . . . .. . . . .. . . .. . . 274
Table A.3 Registered institutions at the SNPC and the number
of cultivars registered . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274
Table A.4 Global Innovation Index (GII) ranking
(total of 142 countries) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Table A.5 ETIS aspects of the ‘setor sucroenergético’—product/process
level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 275
Table A.6 ETIS aspects of the ‘setor sucroenergético’—institutional
level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 277
Chapter 1
Introduction

Abstract The initial research puzzle is explained in this chapter as well as the
reasons for conducting this specific research. An explanation is given for the rise of
biofuels and their importance within current commercially viable alternative ener-
gies and reasons why they are still contested are presented. Beginning with the fact
that the availability of energy can be considered as essential for human needs as the
provision of food, water and shelter, the effects of commercial-scale biofuel
production on rural development, agriculture and the environment are illustrated
in more detail. This chapter provides an overview on why emerging and developing
countries that have a strong agricultural resource base might promote biofuels.
These countries anticipate a potential to generate and secure rural labor and
promote rural development. Furthermore it is concisely explained why it is crucial
to consider the competition for agricultural land between food crops and crops for
energy purposes. The environmental impacts of biofuel production and consump-
tion are discussed that need to be taken into account when biofuels are subsidized
and promoted by governmental regulations. This chapter concludes with the pre-
sentation of three research questions that represent the common thread for the
overall structure of the text at hand.

Within alternative energies, biofuels1 play a very distinct role, since they are
regarded as a commercially viable alternative to fossil fuels as well as a lifestyle
and ‘business as usual’ option for the future of public and private mobility. That is
why high hopes—and high subsidies—are attached to ethanol and biodiesel, the
established first generation biofuels already in use for some time. A great deal of
research and capital are also invested into the second and third generation of
biofuels, exploring and developing new technologies how to make further use of
biomass for mobility purposes.
Today, ethanol derived from sugarcane, corn, wheat or sugar-beet is undoubt-
edly the most prevalent biofuel. In 2009, the leading producers were the USA, with

1
Throughout the thesis, the wording of reference will be ‘biofuels‘, ‘bioethanol‘or ‘biodiesel’
because in most scientific and popular articles the same terms are used. The wording ‘bio’ does not
imply to communicate any positive message that might be expected by that choice. ‘Agrofuels’ is
an alternative term to describe first generation biofuels but since biofuels is the most common one
it will be referred to accordingly.

© Springer International Publishing Switzerland 2015 1

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7_1
2 1 Introduction

a production volume of 34 billion liters made from corn and Brazil with 25 billion
liters made from sugarcane (Crago et al. 2010). And while there are obvious
alternatives in the markets of thermal heat and electricity supply, there currently
exist only very limited substitutes for mineral oil fuels in the mobility markets.
Apart from the railroad sector that is largely driven by electricity, other mobility
sectors, be it road (heavy duty) or aerial transport, are strongly dependent on the
availability of crude oil (Erdmann and Zweifel 2008).

1.1 Biofuels at the Focal Point of Energy, Agriculture

and Rural Development

Although there are large subsidy programs and other mechanisms that promote the
production and use of mainly bioethanol and biodiesel, the effects of their appliance
and the cultivation of their raw materials are still contested. Within academia and
politics there is already an extensive literature existing on life-cycle assessment,
greenhouse gas (GHG) emissions, certification, energy input-output ratios, illumi-
nating positive and negative impacts of biofuels. New laws and regulations are
stipulated, adapted and dismissed, and often coherent as well as reliable politics are
missing. Within those discussions for and against, the thesis presented here wants to
contribute an additional point of view by trying to display and analyze the dynam-
ics, interdependencies and (technological) developments of the sugarcane complex
(setor sucroenergético)2 in Brazil and how they are reflected in the (local) Brazilian
experts’ opinions and assessments.
To consult different stakeholders about a system as multi-faceted as the sugar-
cane complex favors a wide research approach on the part of the author, taking into
account the variety of aspects mentioned by the interviewed experts. The analysis
of such complexities and dynamics thereby poses the chance not just to refer to one
aspect of ethanol production which is then automatically presented as the most
crucial aspect, be it GHG emissions or production costs. Instead, this sectoral
analysis hopes to clarify the effects institutions, regulations, and various actors or
stakeholders have on that system and thereby displaying and evaluating dynamics

2
Translation: “The sugar and energy sector”. The phrase in Portuguese is used time and again
within this thesis since setor sucroenergético already relates to the variety of products (sugar,
ethanol, and electricity) that can be produced out of sugarcane. It should be noted that the focus of
this research lies with biofuels and therefore the production of ethanol derived from sugarcane. But
since the interdependencies of sugar, ethanol and other sugarcane products are inherent to the plant
and the production process itself, the analysis of the total sugarcane complex becomes essential to
this research. Throughout this thesis the sugarcane complex will be referred to, which can be
understood as a synonym for ‘sugarcane industry’ and ‘sugar-energy sector’. The word ‘complex’
has been chosen due to its derivative ‘complexity’ which illustrates the variety and the extension
that this research incorporates.
1.1 Biofuels at the Focal Point of Energy, Agriculture and Rural Development 3

that are rarely taken into account when discussing the pros and cons of biofuel
production and utilization.
As empirical part of the research, a qualitative approach was chosen in order to
integrate the different institutions and stakeholders and their opinions and expertise
into the analysis. Qualitative research applied to a case study on innovation,
research, demonstration and development and technological diffusion promises
distinct insights (Starr 2014). The arguments of the proponents and opponents of
the sugarcane and bioethanol sector in Brazil will be summarized and analyzed in
order to fathom how the sector is organized and linked and what ties and binds are
existent but cannot be seen at first glance. These insights and experiences of sector
experts from different backgrounds are most likely the ones that will reveal
dynamics and dependencies that cannot be identified by looking only into numer-
ical data and scientific literature and documents: for example, the dilemma that
some NGOs are in when they demand the improvement of manual labor in the
sugarcane fields and at the same time approve mechanization of the sugarcane
harvest, resulting in the loss of employment of the cane cutters.
Furthermore, in the opinion of the author, the issue of sustainability that is of
such high relevancy for biofuels cannot be answered by analyzing certification
schemes, but rather by evaluating innovation and technological developments
which might give evidence of a transition towards sustainable mobility. Thus
technological change and innovation provide much of the theoretical background
alongside which the analyses of such dynamics take place. The dynamics and
interdependencies between energy, agriculture and social issues are considered to
be very complex. Therefore the analysis of the negative or positive impacts
attributed to the production of biofuels such as ethanol and biodiesel seems
fascinating, yet is often difficult to demonstrate. According to Tait (2011):
Biofuels occupy a space where several of the modern global challenges interlink, including
mitigating climate change, the need for a secure supply of sustainable energy and interest in
further economic development.

1.1.1 Energy: The Resource

To catch a glimpse of that complexity, a short introduction into the different

strategic aspects affected by biofuels is given here. Energy and agriculture are
fundamental aspects of lives in a modern society. The availability of energy can be
considered as essential for human needs such as the provision of food, water and
shelter. Energy technologies are understood as the means of locating, harvesting or
mining, processing, transforming and using the forms of energy that nature can
provide us with, such as biomass, crude oil, uranium and coal as well as water,
wind, sunshine and geothermal heat. These energy forms can either be utilized as
primary and direct services (burning of wood and other biomass) or be transformed
and made disposable as secondary services (e.g., gasoline, electricity). The
4 1 Introduction

availability and use of energy services are crucial for economic prosperity
(Gallagher et al. 2006).
The importance of energy can be demonstrated by the following data: In 2004,
international energy trade amounted to 10 % of all world trade (US$900 billion) and
the global investment in energy-supply technologies at the beginning of the twenty-
first century was about US$400 billion per year. The overall subsidy for fossil-fuel
consumption between 1974 and 2007 is estimated to reach US$500 billion, which
shows the hegemony of traditional carbon-based energy when compared to the US
$160 billion of investment into innovation and a post-fossil fuel energy supply
(Wilson et al. 2012).
Apart from the energy services that these resources provide, energy technologies
are responsible for much indoor and outdoor pollution, for example the anthropo-
genic effects of oil added to the oceans, radioactive waste, pollution of soil and
groundwater and (GHG) emissions. The global consumption of petroleum in 2005
was 80 million barrels per day, of which almost 60 million barrels were moved in
world trade. The International Energy Agency (IEA) expects the daily consumption
to rise to 120 million barrels by 2025 of which 90 million will be traded and moved
(Gallagher et al. 2006).

1.1.2 Biofuels, Trade and Rural Development

These figures might function as a partial explanation for the existence and ongoing
promotion of alternative energies and—with reference to this research—especially
the support for biofuel and bioenergy. The reduction of energy dependence, posi-
tive effects on the trade balance and the domestic generation of added-value by
securing and creating rural labor and industrial production processes provide strong
political and economic incentives for the implementation of biofuel policies and a
respective industry.
The scale of reducing the import of fossil fuel by domestically produced biofuels
certainly depends on the endowments with natural resources and agricultural area.
Thus, countries like Brazil or the US have higher rates of fossil fuel substitution
than European countries where lands are less vast, more than 40 % of gasoline in the
former and up to 15 % of gasoline in the latter respectively (Meyer et al. 2013;
Goldemberg 2013). Furthermore, some countries which are endowed with large
agricultural areas are heavily exporting first generation biofuels to countries that
have implemented a mandatory blending of biofuels and are not willing or able to
produce them in the needed amounts. In 2010, Argentina exported two-thirds of its
biodiesel production (Trostle et al. 2011). Brazil even evaluated the possibility of a
worldwide substitution of up to 10 % of gasoline by sugarcane ethanol in 2025,
resulting in a huge expansion of sugarcane cultivation (Kaup et al. 2011). Never-
theless, a substitution of fossil fuels can only be partial and in most countries
realized in single or low double digit numbers.
1.1 Biofuels at the Focal Point of Energy, Agriculture and Rural Development 5

Apart from being a possible item of trade, biofuels and supporting policies can
be considered direct support mechanisms for modern, more agro-industrial struc-
tures within agriculture, at least in the nations that promote and produce biofuels
(OECD 2008). In industrialized countries where agriculture, although often with a
very strong lobby, plays a less important part in the nation’s economy, biofuels and
bioenergy generate an additional demand for agricultural products and thereby
strengthen the overall importance of agriculture, increasing the flexibility of the
farmer and promising added value. For emerging and developing countries, espe-
cially for those who have a strong agricultural resource base, the potential to
generate and secure rural labor and thus promote rural development speaks for a
promotion of biofuels (Martin 2011).
According to de Moraes (2009), more than 530,000 people were employed in the
Brazilian sugarcane complex in 2006 and more than 600,000 when self-employed
workers, producers for their own consumption and non-remunerated producers
were included. An additional 200,000 indirect rural jobs are assumed to be directly
related to the sugarcane sector. Including labor derived from sugar and ethanol
production facilities more than one million jobs are provided by the sugarcane
complex (La Rovere et al. 2011). The sugarcane complex is by far the largest
employer in agriculture and accounts—within the main crops—for over 20 % of the
agricultural jobs, followed by coffee and corn (de Moraes 2010). However, poor
working conditions for workers that cut sugarcane manually and extreme physical
work demands are being found in the sugarcane complex. Due to an increase in
mechanization of the sugarcane harvest in recent years, a reduction in the labor
force can also be expected. The situation of the working conditions in the sugarcane
complex and the impact of mechanization will be discussed in detail in Sects. 4.3.1
and 4.6.4. And although sugarcane is characterized as the agricultural crop with the
highest level of employment, in 2006 there were more than four million (more or
less) independent smallholders, so-called ‘family farmers’3 (agriculturas
familiares), which represent over 80 % of all farms in Brazil and thus the vast
majority. These family farms controlled over 70 million hectare representing over
20 % of the total landholdings in Brazil (Berdegué and Fuentealba 2011).

1.1.3 Biofuels, Food and Agriculture

Another aspect central to the understanding of debates about biofuels is the

agricultural origin of the biomass used as input feedstock for the biofuel and
bioenergy production processes. As long as there is no explicit use of biomass
residues such as husks, straw or other byproducts of the final agricultural product,
crops have to be cultivated for the generation of energy. Looking at the first

3
The terms ‘family farmers’ or ‘family farming’ (agriculturas familiares) are used synonymously
with the term ‘smallholders’.
6 1 Introduction

generation of ethanol the most common input feedstocks are maize (corn), grains
such as wheat, sugar beet and sugarcane (Nass et al. 2007). In the production of first
generation biodiesel, vegetable oil from soy beans, rape seed or oil palms are the
most common crops. But co-products such as soy bean or rape seed protein cake for
animal feed that can be produced simultaneously to the biofuel feedstock are an
additional important driver for cultivation, depending on the respective crop.
Nevertheless, this implies that the so-called ‘energy crops’ are cultivated on the
same agricultural area designated for the production of foodstuffs, animal fodder,
and fiber. Thus, the limited agricultural area answers to the additional demand of
biomass for energetic purposes and competition for land is the consequence. The
scale of this rivaling demand and the impact on regional and world market prices
for the different food crops are therefore fiercely-debated subjects.
In 2007, price increases of basic food staples led to food riots across the world.
Within that context the so-called ‘tortilla crisis’ in Mexico was publicly the most
perceived incident of such kind. During 2006, the prices for yellow and white maize
in the US increased by 58 % and 87 % respectively and culminated in peak prices in
February 2007 (Keleman and Ra~no 2011). One of several reasons was the produc-
tion of ethanol out of maize in the US that more than tripled between 2004 and
2008. 31 % of the corn produced was utilized for ethanol in 2008/2009 (Trostle
et al. 2011). This had huge repercussions for prices in Mexico, since almost 30 % of
the total maize demand was imported from the US (Keleman and Ra~no 2011). After
demonstrating an existing relationship between price increases and the additional
demand for biofuels, the catchphrases ‘Food versus Fuel’ or ‘Tank versus Table’
quickly found their way onto media agendas. On October, the 26th of 2007, the UN
special delegate on the right to food, Jean Ziegler, told reporters in New York:
It is a crime against humanity to convert agriculturally productive soil into soil which
produces food stuff that will be burned into biofuel (UN News Centre 2007).

Yet other factors which occurred at that time had similarly decisive impacts on
the scale of the price increases. Peak oil prices in 2008 generally had a strong
impact on prices in the primary sector, since fossil oil is needed as fuel for
agricultural machinery and for the production of mineral fertilizers and pesticides.
Population growth and rising per capita meat consumption, weather turbulence and
speculation on commodities are considered other factors that noticeably influenced,
and still today have an effect on, the price of staple foods (Trostle et al. 2011). In the
case of Mexico, the price increases in the retail sector were particularly extreme
regarding the staple tortilla product. This was quite unusual since generally basic
grains contribute only to a relatively small percentage of the increase in price of the
final consumer product (Keleman and Ra~no 2011).
Although the extent to which price increases for basic foodstuffs are attributed to
biofuels largely differs according to the various studies consulted, it should always
be assumed to be not negligible. According to a recent study from Ecofys
(Hamelinck 2012) which provides an overview over studies from the Worldbank
and the Institute for European Environmental Policy (IEEP), it can be generally
concluded that in markets which are already restricted due to low stocks, bad
1.1 Biofuels at the Focal Point of Energy, Agriculture and Rural Development 7

weather and/or speculation, additional demands—for example from biofuels—lead

to a quick increase in prices. Some experts consider certification schemes as
possible mechanisms for removing the contradiction of promoting sustainability
of an alternative energy carrier which has negative effects in countries where social
and environmental impacts are more clearly felt. Others think that the additional
pressure on agriculture and the competition to food products clarifies the necessity
of general, profound adaptations and improvements of the global food regimes and
their production and distribution mechanisms (McMichael 2009).

1.1.4 Biofuels and the Environment

Yet having briefly introduced motives for the promotion of biofuels that have an
almost exclusively social and economic character, the aspect of GHG emission
reduction in the mobility sector and the diversification of the energy matrix are
likewise important objectives for some countries, especially the European Union
(Kaphengst et al. 2012). Subsidies for biofuels are legitimized, not necessarily by a
possible reduction of energy dependence, but also by the intention that the substi-
tution of fossil fuels by renewable biomass resource leads to a mitigation of
negative environmental effects, especially in the reduction of GHG emissions
(Nitsch and Giersdorf 2005).
The application of biofuels in order to mitigate GHG emissions is part of a larger
strategy by the European Union (EU) called the ‘renewable energy roadmap’. The
target is for a 20 % share of renewable energies by 2020 in the EU and a 10 % share
for the transport sector (European Union 2009a). The initial intention was for a
large share of first generation biofuels, since they were and currently are the only
alternative liquid fuel that can be produced on an industrial scale. Nevertheless,
biofuels could only partially fulfill the hopes since the energy as well as emission
balance depends largely on the feedstock and the cultivation as well as production
processes of the respective crop (Goldemberg et al. 2008; Hill et al. 2006).
As a consequence, the EU introduced sustainability criteria for biofuels.
Required minimum GHG emission savings of 35 % immediately, of at least 50 %
from 2017 on and of at least 60 % from 2018 on, were among the stipulated criteria
(European Union 2009b). Furthermore on September 11, 2013, the European
Parliament voted for a reduction of the 10 % share in the transport sector down to
6 % (European Parliament 2013) for conventional first generation biofuels.
Whether this proposal had been agreed upon at either national level or within the
European Commission was not yet decided at the time of publication.
Sugarcane ethanol from Brazil has the distinct advantage over most biofuels out
of oil seeds or other energy crops that the reduction of carbon emissions when
substituting for gasoline is more than 70 % (Crago et al. 2010). This already
qualifies sugarcane ethanol for the requirements of EU legislation in 2018; as a
consequence the US government has categorized the Brazilian ethanol as ‘advanced
biofuel’. That makes it eligible for the 21 billion gallon (78 billion liter) market that
8 1 Introduction

the Energy Independence and Security Act (EISA) determines for advanced
biofuels in 2022 (United States Government 2007). Additionally, the energy bal-
ance of sugarcane ethanol lies between 1:8 and 1:10 depending on the research
methodologies of the various studies (Nitsch and Giersdorf 2005). This implies that
for 1 input unit, up to 10 can be produced—for example for 1 l of ethanol, up to 10 l
of equivalent ethanol can be produced. When looking at other fuels the energy
balance is no higher than 1:3 and some other biomass-based fuels are even
considered to have even a negative balance (Goldemberg et al. 2008).

1.2 Presenting the Research Puzzle

The Brazilian sugarcane complex is often displayed as an example for a successful

energy policy, inducing cooperation of institutions and technology innovation
(Meyer et al. 2012). Brazil seems naturally suited for agricultural (energy) produc-
tion. Nevertheless, other Latin American and African countries are similarly
endowed with climate, soil and topography. So it is interesting to identify and
fathom what is different about Brazil. What promotes the developments and
induces change in Brazil, the laws, institutions, technological developments, inno-
vations, or all together? Where can aspects be identified that might be adapted and
improved in order to continue with the success story into the second generation of
biofuels and other products and appliances of sugarcane. In general, the research
scope is a macro perspective on the national level while a meso-perspective is taken
when state or regional levels are considered; for example when São Paulo state, as
the dominating sugarcane producing federal state, is being referred to. Basing the
analysis of empirical research on expert interviews and a complementing literature
analysis, a micro perspective is inevitably taken when discussing practical
examples.
When trying to fathom the specific characteristics of Brazil’s sugarcane com-
plex, it should be noted that the possibilities of innovation at the upstream and
downstream ends are unique in the agricultural sector. Upstream innovations may
be technologically driven and occur within agricultural and industrial processes, as
is the case with fertilizers, seeds, machinery or production technology. On the
downstream end, the innovations are rather organizationally driven, such as the
development of agri-business and new types of cooperation and global marketing as
well as financial aspects such as the internationalization and concentration of the
sector (Gallagher et al. 2011). Furthermore, the innovations may indicate a will-
ingness and capability of the sugarcane complex to induce a transition towards
sustainability. This aspect is of importance because the whole biofuel complex is
dependent on government intervention, not only on the Brazilian side but also on
the side of the international markets. And these interventions are often justified,
especially in Europe, by sustainability considerations.
Additionally, interactions and influences of different actors and stakeholder
groups are of relevance. What kind of support is the sector experiencing from
1.2 Presenting the Research Puzzle 9

governmental and private institutions, how do the external influences of domestic

and foreign markets affect the demand and supply of the various sugarcane products
and what other developments have an impact on the competitiveness, productivity
and efficiency of the sugarcane complex? The research questions posed will attempt
to structure, evaluate and answer this variety of questions:
Which areas within the ‘setor sucroenergético’ can be identified as particularly
dynamic? What do these identified dynamic developments reveal about important
actors, technologies and markets, can the sugarcane complex be considered an
innovation system in the light of this? Finally, do the developments and innovations
within the sector pay attention to ecological, economic and social aspects, too, and
as a consequence do they promote a transition to sustainability?
Basically, there are three main objectives within the research puzzle presented
here. These objectives will be approached using a three-step process. First, impor-
tant developments of the sugarcane complex in recent years will be documented
and further analyzed by conducting semi-structured interviews with experts from
the Brazilian sugarcane sector. A software program for qualitative data analysis is
thereby included in the analysis. With its help, as will be elaborated in Chaps. 3 and
4, technological developments and legislative and institutional matters might be
identified as drivers of and barriers to such dynamics. The second objective is to
assess to what extent the identified dynamics and developments affect the capability
of the sugarcane complex to evolve into, and function as, an innovation system.
Analyzing the relevant developments according to the theoretical concept of
Energy Technology Innovation System (ETIS) requires a study of the product/
process level as well as the institutional level and the current developments. The
third objective is to assess to what extent the identified and analyzed technological
and institutional developments and innovations might contribute to a transition
towards sustainability. In order to find answers to these questions and identify
crucial technological, political and social developments and innovations, the pri-
mary empirical approach applied within this thesis is the analysis of semi-structured
expert interviews with Brazilian stakeholders of the sugarcane sector. To review
and validate the findings, extensive literature review and document analyses are
conducted.
After this chapter, where a brief introduction is given into the subject of
alternative fuel production out of biomass and the presumed strategic value of
biofuels and concomitant policies and debates, Chap. 2 presents the concepts and
theories that constitute the scientific framework of the present work. ‘Sustainable
development’, adopted by scientists from various disciplines and still considered a
contested concept (S€oderbaum 2011), is discussed specifically in relation to energy
issues, transition and innovation theories. Then an overview is given of the different
strands of economics, and how they approach the issues of sustainability, resource
scarcity and innovation. Path dependency, lock-in effects and the importance of
institutions are discussed, with reference to innovation-induced technological
change. The chapter closes with the presentation of innovation systems namely
energy technology innovation systems (Gallagher et al. 2012; Meyer et al. 2012)
and an explanation of how this specific innovation system concept is used in order
10 1 Introduction

to assess and evaluate the Brazilian sugarcane sector. The research design and
empirical methods are presented in Chap. 3. The reasons for applying qualitative
research are explained within the ‘triangulation’ and the ‘mixed method’ approach.
Philipp Mayring’s (2000) ‘Qualitative Content Analysis’ is portrayed in detail, and
an explanation is given for why this analysis was chosen for evaluating and
analyzing the more than 40 semi-structured expert interviews collected in the
field studies.
In Chap. 4, at first the application of the computer software for qualitative
analysis (ATLAS ti) is explained in detail as well as the development of the
higher-ranking categories and the assignation of their respective codes that are
the empirical basis for a thorough and detailed analysis of the interviews in this
chapter; followed by a short overview of the history of sugarcane in the last four
decades. Statements from the expert interviews will be extracted and quoted in
order to get an understanding how the experts assess certain developments and
elements of innovation. The statements are derived from coding the interviews with
the ATLAS ti software, which refer to the product/process or the institutional level,
the two aspects of ETIS’ innovation system theory. The statements of the Brazilian
experts with regard to the discussed issues are contrasted with data and further
findings from a literature review and document analysis. Analyzing the empirical
data, this chapter will conclude whether the sugarcane complex can be considered
an innovation system and in what way that impacts aspects of sustainability.
In Chap. 5, the conclusions will be presented, summarizing the findings and the
results from the empirical analysis and comparing those with the initial research
questions. This final chapter closes with remarks and assumptions on likely and/or
desirable developments within the Brazilian sugarcane complex, based on the
empirical findings.

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Chapter 2
Theoretical Framework: Sustainability
and Innovation

Abstract The theoretical chapter looks at the concept of sustainability with regard
to the main objectives of biofuel policies while it considers the importance of
innovation and technological development in order to reach a transition towards
sustainability and sustainable mobility. The Environmental Kuznets Curve is
quoted in order to explain technological optimism with regard to innovations
which imply that a transition towards sustainability can be reached. Different
strands of economic research are concisely presented in order to identify a theoret-
ical framework where innovation is put at the center of attention. Evolutionary
economic theory is hereby considered as the most applicable approach that provides
an explanation for technological development and innovation. Different concepts
that reflect on the importance of innovation and technological change are subse-
quently presented. The strong connection between institutional economics and
evolutionary economic theory is referred to in detail in especially with regard to
the concepts of innovation systems. The technicalities and attributes of Technology
Innovation Systems are introduced as the concept of Energy Technology Innova-
tion System (ETIS) is being introduced and further elaborated upon. The feature of
product/process level and institutional level analysis that provides comprehension
of physical technologies and social innovations is explained in more detail since the
ETIS concept is applied to the analysis of the Brazilian sugarcane complex.

According to a study by the International Energy Agency (IEA 2004), the decisions
to promote the production of biofuels were based on a variety of economic,
ecological and political benefit analyses. Among the main objectives of biofuel
policies are (1) security of energy supplies, (2) reduction of GHG emissions and
(3) the promotion of agriculture and rural development. Here the strategic position
of energy touches strategic aspects of land and agriculture (as elaborated in the
previous chapter). Since biofuels are located at the intersection of these strategic
issues the likelihood of interference by the state and a variety of stakeholders can be
considered high.
During the initial years of its promotion, biofuels were promised to be a kind of
panacea and one of the technologies on the way towards a sustainable and renew-
able energy matrix. In the light of the contested issues over which they are
questioned today, one can understand the seesaw of promotion and abandonment
the sector has seen in recent years. But still the arguments for the promotion of

© Springer International Publishing Switzerland 2015 13

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7_2
14 2 Theoretical Framework: Sustainability and Innovation

biofuels are closely connected to the assumptions that ecological, economic and
social benefits arise out of their production and use. Therefore, in order to put the
research presented here in perspective, the subsequent chapter, Sect. 2.1, com-
mences by considering the concept of sustainability as the point of origin setting the
perspective for a discussion of different economic strands on natural capital and the
environment, and finally the inclusion of concepts on technology and innovation in
order to cope with the requirements a sustainable transition poses.
It should be mentioned here that the author does not regard the discussion on the
sustainability of biofuels that often claims to be guaranteed by certification systems
as a practical approach. Since the scope of interpretation of the phrase ‘sustainabil-
ity and sustainable’ is multi-faceted it is essential to address the issue of varying
sustainability concepts and elaborate on them. Orthodox environmental and natural
economists, or rather, heterodox ecological economists, have relatively divergent
assumptions on what sustainability is and how it can be reached. The relevant
strands of economic research that touch the issues of sustainability and resource
scarcity are introduced in Sect. 2.2.
Delving into the subject literature quickly reveals the issues of ecological
pessimism and technological optimism when considering whether and how future
economic growth is still viable under the different constraints of sustainability.
Current and future challenges of energy security, energy poverty, air and water
pollution, and global climate change call for new technologies and innovative
approaches of energy use, supply and conversion, and therefore it is necessary to
analyze innovation systems in order to get a better understanding of those complex
processes. Innovation-induced change, the setup of innovation systems, and the
development of various types of technologies are of great importance and are
discussed and presented in Sects. 2.3 and 2.4. Out of the theoretical framework
presented and discussed in this chapter, a mixed research approach becomes
plausible since the connectedness of an industry or the interdependencies between
physical technologies and actors, networks and institutions can only be measured
insufficiently in a quantitative and numerical manner; it needs an additional anal-
ysis of the soft and tacit factors as well, which will be applied when referring to the
innovation systems.
It is not the goal of the thesis to present a final verdict on whether sugarcane
ethanol can be a ‘sustainable’ product but rather to understand in which ways the
setor sucroenergético is looking to the future, in terms of an implicit endeavor for
technological and social improvements. Can the Brazilian sugarcane complex be
considered an innovation system? Are these innovations not only economically
beneficial but do they also have positive environmental and social impacts that can
contribute to a transition towards sustainable mobility? To study agricultural
systems means to study technical elements, physical inputs such as pesticides,
harvesting technologies, transport and logistics, crop processing as well as com-
mercial, economic and fiscal aspects. The interactions of the social and technical
systems determine the way the biomass/energy processing system is structured and
how it performs. Identifying these socio-technical interdependencies and
2.1 Sustainability and the Transition Towards Sustainable Mobility 15

combinations helps to understand how and whether system innovation can induce a
transition to other, potentially more sustainable systems (Smith et al. 2010).

2.1 Sustainability and the Transition Towards Sustainable

Mobility

Current fossil fuel based systems have been successful in meeting consumer demands for
energy, transport and heat services at relatively low private costs, but to the neglect of some
potentially serious environmental and social costs (Foxon et al. 2007).

Thus, sustainable development principles are to be adhered to in order to reduce

the exacerbating impacts of continuous economic growth.
Freeman (1996) points out on the Environmental Kuznets Curve (EKC), at least
on the first half of the parabola, that innovations led to mass production, mass
tourism and mass consumption (see Fig. 2.1) and thereby to environmental degra-
dation. In the 1970s this resulted, after 30 years of rapid growth, in questioning
more rigorously the pursuit of continuous economic growth at the expense of nature
and its resources which would ultimately lead to irreparable social and environ-
mental global damage. These kinds of questions were posed for example by the
‘Club of Rome’ and his bestselling ‘Limits of Growth’ (Meadows et al. 1973).
But no Malthusian scenario occurred, and technical changes and innovations as
well as adapted modes of living promised an escape from the downfall of civiliza-
tion. The widespread concept of sustainability and the escape route of sustainable
transition combined with technological optimism gave reason to hope for different
patterns of growth and development in the 1990s. Yet the second half of the curve
only assumes that in the long run economic growth might be beneficial for the
environment due to innovative technologies, smarter consumption patterns and
policies that promote environmental protection after the basic needs are satisfied.

turning point

environmental environmental
Environmental deterioraon

decay improvement

Fig. 2.1 Environmental

Kuznets curve. Based on
information from Siebert
(2005) Per capita income
16 2 Theoretical Framework: Sustainability and Innovation

The increasing industrialization of the BRIC countries and their aggregated con-
sumption behavior has counteracted these positive assumptions (Tamazian
et al. 2009). Thus, the need for radical physical, social and ecological innovations
and a sustainable transition has become more urgent and is one of the central issues
of sustainable development that questions whether (human) development can be
separated from the utilization and exploitation of the environment or not. As Radke
(2004) puts it:
Poverty is simultaneously one of the main reasons and main consequences of global
environmental problems.

According to Beder (2011), it has to be understood that ecosystems are not like
economic systems, where trends can be plotted in smooth continuous lines. Rather,
such systems may withstand a multitude of assaults and then collapse suddenly
once a threshold is crossed. And to calculate or model these tipping points still is
extremely difficult and vague, despite the capacity of modern data processing
(Lenton et al. 2008; Kriegler et al. 2009). As Ostergard et al. (2010) point out, it
is a challenge to develop an economy that does not undermine the long-term
productivity of agriculture and natural ecosystems by depleting the natural capital
that is the basis of the productivity. A systemic approach that does not ignore the
consequences of substituting the consumption of finite resources with bio-based and
other renewables is needed.

2.1.1 The Quest for Sustainable Development: Challenges

of Transition

The most famous definition of sustainable development can be found in the

so-called Brundtland Report of 1987 (United Nations 1987) where it is stated:
Sustainable Development is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.

This definition contains two key concepts. First, the concept of needs, supposed
to be understood as including the essential needs of the world’s poor, and second,
the circumstance of limitations that are imposed on the environment’s ability to
meet present and future demands by current technologies and social organization.
In 1992, delegations from over 170 countries gathered in Rio de Janeiro. The
United Nations Conference on Environment and Development sought to lay the
groundwork for solving environmental problems. The central focus was sustainable
development. One central element was that current generations affect the sustain-
able welfare levels of future generations by exploiting the planet’s resources. The
volumes of resource consumption and exploitation had increased palpably during
recent decades, raising the necessity for a new strategy and a holistic concept. One
argument as to why sustainable development is promoted and supported is the
conviction that incremental advances in sustainable mobility and in technological
2.1 Sustainability and the Transition Towards Sustainable Mobility 17

innovation are not likely to solve the amount of environmental and social problems
that our society is facing and that more ‘radical’ changes and innovations are
needed. One example which is always quoted is the goal to reduce CO2 emissions
by 80 % by 2050 (80 % of the emission levels as in 1990) (Geels et al. 2008).
And yet by accumulating capital stock for example, current generations can
provide future ones with technologies, machinery, buildings etc. But this type of
physical capital does not last forever, and even financial capital might become
obsolete. More lasting and most beneficial might be investments in human capital:
namely knowledge, Know-how, experience and expertise. Here innovation plays a
decisive part. To create knowledge and innovation, specific social capital and
correlating institutions have to be developed. The World Development Report of
1992 (The World Bank 1992) states on sustainable development that societies may
choose to accumulate man-made or human capital in exchange for converting
natural capital. Within that substitution it is of importance that the overall produc-
tivity of the accumulated capital more than compensates any loss of natural capital
since human capital has been often exaggerated in the past while the value of
natural capital was not considered completely.
According to Tietenberg and Lewis (2012), the sustainability concept is often
criticized due to its vagueness. Mace (2012) claims that the discussions about
sustainable consumption, developments and objectives, although presenting a
holistic approach, often omit the problem that frequently what is sustainable for
the human society at one time has either a negative impact on other resources and
the environment or no impact at all. The concept of sustainable development has
been increasingly used in policy rhetoric and the media over the last 20 years, but a
genuine transition towards sustainability has not yet begun (Rauschmayer
et al. 2011).
Thus, since current concepts of sustainable development are often vague, it is
understood within this thesis as rather problematic to talk about ‘sustainable’
biofuels in a categorical manner. It is argued here that biofuels are not in themselves
sustainable or at least that it is questionable to consider only one individual
technology and attribute sustainability. But it is assumed that innovations, societal
and technological developments and regulations that result from biofuel promotion
can affect various aspects of sustainability and therefore can play a role in a
transition towards sustainability.

2.1.2 Sustainable Mobility and Related Energy Issues

With reference to developments in the mobility and energy sector there are,
according to Gallagher et al. (2006), three great challenges on the way towards a
sustainable transition within energy innovation systems: (1) The dependence on
fossil oil has to be reduced. Being either close to or already after ‘peak oil’, implies
dwindling resources of one of the primary fossil energy carriers. Importing coun-
tries often face a negative balance of payments and the supply is often only possible
18 2 Theoretical Framework: Sustainability and Innovation

from unstable producing countries and regions. (2) The energy services provided to
the world’s poor have to be drastically upgraded in order to prevent further and
more future health problems, more inefficiencies as well as environmental and
social degradation. (3) Future provision of energy requires increasing and sustain-
ing prosperity everywhere without wrecking the global climate with emissions from
fossil fuel burning. Challenges two and three are strongly linked to each other. The
last challenge can be understood as a clear statement for the necessity of a transition
towards sustainability that the energy as well as mobility sector has to contribute to.
However, as the most established fossil fuel burning technologies have a very
slow turnover such as cars (15 years) and power plants (50 years), new low
emission technologies are only very slowly replacing existing ones. Furthermore,
the immense volume of fossil-fuel based energy technologies means that the
transformation of the current fossil-fuel based global energy system into a more
sustainable one requires massive efforts (Geels et al. 2008). Looking at these
challenges and obstacles, instruments and approaches need to be identified in
order to cope with such temporal and ecological challenges.
According to Tamazian et al. (2009), the Environmental Kuznets Curve illus-
trates a solution to this dilemma of environmental degradation resulting from
continuous economic growth. The curve was mentioned above explaining how
industrial innovation led to mass consumption and therefore to negative environ-
mental impacts. However, it suggests as well that a continuous economic develop-
ment might ultimately promote environmental protection (see Fig. 2.1). The
evolution of a self-correcting mechanism is assumed possible. Thus, a transition
towards sustainable mobility might be possible if the income level is above the
turning point.
But Tietenberg and Lewis (2012) argue that environmental damage such as
pollution is exported to other countries instead which implies a transfer, not a
reduction of pollution. This is important to keep in mind since in a finite world it
is questionable whether developing countries may ever reach their turning point on
the curve. Moreover, the recent ‘sustainability-of-biofuels’ debate, which was
initiated and dominated by stakeholders from developed countries (mainly from
Europe), has identified several potential transnational negative environmental and
social impacts. Such negative effects which might be triggered by biofuel produc-
tion need to be identified and overcome. Nevertheless, Janssen and Rutz (2011)
point out that while avoiding any detrimental impacts was paramount, development
opportunities should not be blocked on assumptions.
Envisaging a green economy and sustainable mobility requires a holistic
approach and innovation not only of energy technologies but also new modes of
transport and mobility and new approaches for industrial and agricultural produc-
tion. New methods of mobility, that promise lower environmental impacts and
smarter human capital resulting in lower rates of substitution, are needed. Since it is
questionable whether the evaluation of the sustainability of an isolated technology
makes sense, the analysis of the sugarcane complex goes beyond isolated products,
processes and technologies. This thesis will thus consider whether the sugarcane
2.2 Economic Research: Strands and Trends 19

complex can be thought of as an innovation system and if as such it can contribute

to the sustainable development of mobility and energy services (Smith et al. 2010).

2.2 Economic Research: Strands and Trends

The economic discussion on sustainable development is dominated by repeatedly

verbally opposing, yet often complementing, points of view of environmental and
resource economics and ecological economics. Since economics are useful for
understanding and/or modifying human behavior in the face of scarcity, alternating
patterns of behavior might be explained by different economic approaches. For
example the availability of resources and possible constraints of their consumption
are regarded quite differently when analyzing the different strands of economics.
Broadening the analytical perspective—from (neo-classic) environmental econom-
ics to ecological and evolutionary perspectives not only expands the understanding
how the scarcity of resources is considered differently, but might also help to
understand how innovation embedded in economic systems can address questions
of dwindling resources and environmental degradation, thereby promoting sustain-
able development (Smith et al. 2010).
Innovation and technological advancements were already considered by Joseph
A. Schumpeter as the propelling forces for economic progress. Many economic
strands agree on the necessity of innovation for economic growth, though there are
distinct assessments regarding its aptitude to solving prospective environmental and
social troubles. The innovation capability was the central issue of critical response
to the Malthusian ‘Limits of Growth’ in the 1970s (Meadows et al. 1973). Innova-
tion and technological advance offers the possibility to stretch and redefine ‘limits’.
This conviction expresses a deep belief and trust in human ingenuity and
adaptability, and its ability to buy time and provide solutions in order to overcome
resource limits. This can be characterized as ‘technological optimism’ (Mace
2012). Technological change seems to have refuted the Malthusian assumptions
until now and still occurs within distinct areas and sectors such as Information
Technology (IT) at such rapid speed that ‘technological optimism’ is the basis for
many assumptions on economic growth. The logic is often the following: Scarcity
leads to a substitution of resources by other, more abundantly available materials
and if there is no existing substitute then higher prices for the resources are the
consequence. Hence these increased prices facilitate and encourage investment and
the promotion of new technologies and innovations.
But feedback loops that may cause recursive negative effects have to be kept in
mind. Scarcity of resources might result in hoarding, which may result in an
exponential shortage of the resource that there will be no time for finding sub-
stitutions or more efficient technological solutions for according to Tietenberg and
Lewis (2012). That escalating rates of resource use per capita, along with increasing
human population, must lead to limits in the availability of energy and other
resources is undeniable. Ultimately, all technologies and substitutions might only
20 2 Theoretical Framework: Sustainability and Innovation

postpone the downfall of civilization. To expect constraints due to the anthropo-

genic consumption can be understood as ‘ecological pessimism’. Since it is empir-
ically impossible to identify the indispensable resources of the future, ecological
economists argue that this uncertainty means a large variety of natural resources
needs to be preserved (precautionary principle). The goal is to achieve an ‘ecolog-
ical modernization’ that enables the decoupling of economic growth from environ-
mental degradation and the redirection of production to environmental objectives
(Smith et al. 2010). By the interaction of technical and institutional changes,
catastrophic scenarios may prevented indefinitely (Freeman 1996).

2.2.1 Neoclassical Views on Environment, Sustainability

and Innovation

It is interesting to note that for some of the most renowned classical economists the
dependence of economic activity on the available resources and material bases was
of central concern (Perman et al. 1996). In his ‘Essay on the Principle of Popula-
tion’ which was first published in 1798, Thomas R. Malthus (1989) was concerned
with the limited agricultural yields and the carrying capacity of nature, and assumed
hunger and other massive constraints resulting from the limited natural resource
base. John Stuart Mill expected the natural development of an economy to reach a
‘steady state’ where a limited volume of possible growth leads to resource con-
sumption and resource exchange with nature on a constant level according to
Costanza et al. (2001).
In neoclassical economics, these topics and constraints vanished from their
agenda for quite some time. Neoclassical economists consider economics more as
a closed system, detached from nature, for calculating market allocation mecha-
nisms, interest rates and exchange rates, assuming perfect market conditions
(Hobbensiefken 1991; Siebert 2005). Neoclassical economists therefore conclude
that today’s resources do not need to be limited because once those resources are
scarce this will lead to increased prices and to technological innovations, finding
other ways to satisfy our needs. Markets are the instruments that are considered best
to solve environmental problems and resource scarcity.
Environmental Economics has adopted the dominant neoclassical paradigm,
power of the market to allocate natural resources efficiently and in a socially
optimal way. To let markets regulate resource consumption and environmental
protection avoids inefficiencies and requires that the environment and its resources
are properly priced, in order to reflect the relative scarcity of natural resources as
pointed out by Perman et al. (1996). Environmental degradation has resulted from
the failure of the market system to put a value to the environment, even though the
environment does serve economic functions and provides economic benefits. In
neoclassical theory, payments can be used to correct the environmental damage, the
extraction of resources and their use causes. This implies that there is a perfect
2.2 Economic Research: Strands and Trends 21

substitutability between benefits which arise from the environment and products
and services bought in the market. The solution at hand is to treat the environment
as an asset and a resource like labor or capital. As a commodity it can be sold,
traded, saved and invested in (Hobbensiefken 1991; Costanza et al. 2001). This
solution excludes any broader concept including spiritual and/or aesthetic
dimensions.
Environmental economists favor market instruments, for example a market for
pollution rights or ‘clean development mechanisms’ (CDM), which are eligible
even if they do not internalize the full costs of environmental damage because they
incentivize emission reductions and therefore technological change (Beder 2011).
Even economic determinism might occur when the right economic conditions lead
to the desirable technological change. The flexibility and responsiveness of markets
to scarcity can be an important component of the transition to sustainability
(Tietenberg and Lewis 2012), since neoclassic approaches promote innovation by
market mechanisms especially.
Environmental and resource economists interpret sustainable development as
development that maintains capital for future generations. Thereby capital is
understood as the total of human, man-made and natural capital. To keep the total
capital at least constant throughout generations, a continuous sustainable develop-
ment is necessary (The World Bank 1992). For example, higher rates of investment
into human capital lead to innovation which provides solutions and substitutions
during times of natural resource scarcity in the future (Tietenberg and Lewis 2012).
It should be considered that the first neoclassical concepts were developed more
than a century ago at a time when resources seemed plentiful, and the limiting
factors for economic growth were labor and man-made capital. Consequently, the
depletion of natural resources can be compensated for by using technology and
human ingenuity (Ostergard et al. 2010).
Yet if environmental goods and services are going to be priced in order to be
marketed they are valued the same way as man-made assets. But environmental
assets cannot always be ‘traded-off’ since some are essential life-support systems.
Additionally, it shows that despite the success of environmental economists in
having their proposed policies widely adopted, environmental problems continue
to grow in severity, as Beder (2011) points out. Markets and their allocation
mechanism do not always result in higher efficiencies and a sustainable valuation
of scarcity via price mechanisms, as is the case when non-renewable resources are
used up too rapidly and large volumes flood the markets, driving prices down
(Tietenberg and Lewis 2012). Still, fundamental changes in the economic system,
material restrictions of consumption and a general move away from the interna-
tional division of labor are not acceptable for most neoclassical economists (Illge
and Schwarze 2006).
Certain aspects of innovation have been approached with the neoclassical
perspective of rational choice (selection of R&D projects and allocation of R&D
resources). In an abstract neoclassical world, the production factors and resource
endowments will define the product specialization. Knowledge is not a factor that is
very much considered. But, for economic development, successful innovation is
22 2 Theoretical Framework: Sustainability and Innovation

more important than efficient allocation (Lundvall 1998). According to Foxon

et al. (2007), a systemic approach is required to understand innovation. This
understanding goes beyond linear models where investment in R&D automatically
results in new products and services. Uncertainty and ‘bounded rationality’ are key
assumptions within innovation systems and constitute principal stimulations for
learning effects and change. Since no companies have perfect knowledge, how and
what they learn becomes central to innovation processes.
Richard Norgaard (1989) wrote that the so-called ‘universal laws’ of the neo-
classical economists have proven to be far from universal and thus it is too early to
limit the methodologies used in economics. Other disciplines that are complemen-
tary to economics are needed, especially the natural and social sciences, and to face
the complexity of economic research needs methodological pluralism. According to
Nelson (2012), Schumpeter’s broad appreciative theory of how capitalism and
creative destruction works provides a much more persuasive characterization of
technological change and innovation than does neoclassical theory.

2.2.2 Ecological Economics

According to Jens (2010), central to ecological economics is the paradigm of

sustainability which refers to the ‘theory of depleted resources’, thereby
constraining the applicability of neoclassical theory. The individual represented
within neoclassical theory as the ‘homo oeconomicus’, which has unlimited infor-
mation processing capacity, complete information and bases decisions strictly on
rational self-interest, is seen differently within more heterodox economic strands
(Costanza et al. 2001). The ‘homo oeconomicus’ follows rather short-sighted
individual interests and according to Faber et al. (2002), his behavior and actions
do not necessarily follow the concept of sustainable development. Ecological
economics does not consider the environmental and resource problems as external
market failures, rather it tries to answer problems of the public commons and
understands humans and their economies and societies as part of the global ecology.
The idea of sustainable development unifies already existing strands of econom-
ics under the roof of ecological economics. One central aspect is whether substitu-
tion of natural resources by other resources or capital (natural or human) is possible
and admissible or not. If that is negated, it would imply the conservation of stock of
each single component of natural resource and capital. This would obviously lead to
an end of any economic activity and therefore is considered too radical (Radke
2004).
Nevertheless, the Earth is materially finite and non-growing as is often portrayed
by using the analogy of ‘spaceship earth’ (Perman et al. 1996), and the economy is a
subset of this finite global system. The natural capital and the human or anthropo-
genic capital are considered complementary rather than substitutive. As a conse-
quence, many ecological economists shied away from economics’ central reliance
on individual preferences as the nucleus of all value, stressing social and
2.2 Economic Research: Strands and Trends 23

community values instead. Social, political and ethical considerations within eco-
nomic analysis have thus intensified. And while some ecological economists
attempt to price the environment and biodiversity in monetary terms, others dis-
agree and insist on complementary measures such as multi-criteria based decision
processes (Beder 2011).
When pricing the environment, ‘ecosystem services’ are applied to generate an
understanding for the goods provided. They include provisioning services (such as
food, fiber, water), regulating services (carbon sinks, flood mitigation, waste treat-
ment), cultural services (spiritual, aesthetic, recreation) and support services (soil
formation, nutrient recycling). These services constitute a commodification of
nature’s free and publicly available resources and therefore are viewed as substi-
tutable and exchangeable. The assumption of substituting environmental services
implies that there has to be a monetary valuation of nature which ultimately lies
within the sphere of neoclassical theory. Thus, strictly speaking, the ecosystem
service approach contradicts the strand of ecological economics since a bio-
physical valuation of nature is a central aspect of its self-conception (Illge and
Schwarze 2006). Furthermore, the narrow concept of ecosystems services, which
can be completely monetarized and thus neglects to see ecosystem services in their
complexity, is fundamentally criticized (Costanza et al. 2001). According to Beder
(2011):
The founders of ecological economics argue that, rather than creating a new disciplinary
‘paradigm based in shared assumptions and theory’, ecological economics ‘represents a
commitment among economists, ecologists, and others, both as academics and as practi-
tioners, to learn from each other, to explore new patterns of thinking together, and to
facilitate the derivation and implementation of new economic and environmental policies’.

2.2.3 Evolutionary Economic Theory, Innovation and Path

Dependency

Having discussed both neoclassic and ecological economics, evolutionary eco-

nomic theory seems to promise an additional route towards sustainable develop-
ment. The rigid neoclassical theory that pertains to continuous growth scenarios and
considers most parts of the natural resource base as substitutable seems to be stuck
too much on profit maximization and individual preference. Ecological economics
on the other hand, if the precautionary principles of natural resource substitution are
adhered to, might be too complex to offer practical and applicable solutions for
further economic and social development.
Evolutionary economic theory addresses the processes of economic progress and
development. The processes that induce progress and growth require disequilibria
and are driven by technological change (Nelson 2002). They are open-ended
evolutionary processes, hence, the term ‘evolutionary economics’. Within evolu-
tionary economic theory, innovation is the central feature intensifying the compe-
tition between economic actors and leading to repeated disequilibria from the
24 2 Theoretical Framework: Sustainability and Innovation

introduction of technological or social innovations. According to Dosi and Grazzi

(2010), these disequilibria show either incremental dynamics or more radical
ruptures and are of central concern to the evolutionary theory of innovation.
Schumpeter referred to the downside effects of these ruptures as ‘creative destruc-
tion’ (Nelson 2012). Furthermore, according to Amendola et al. (1993), evolution-
ary economic theory appears to be better equipped to deal with issues of dynamics
in the context of change and development.
Evolutionary economic theory has a strong connection with institutional analy-
sis, and the idea of innovation systems that will be presented below is closely
related to institutional concepts. Since this institutional aspect is so strong within
the theory presented here, Nelson and Nelson (2002) even propose that institutional
economics and evolutionary economics should join forces. Nelson (2002) refers to
‘physical’ technologies as routines and recipes of production and to ‘social’ tech-
nologies as coordination and interaction of those production processes, leading to
the formation of institutions. Bringing ‘physical’ and ‘social’ technologies together
has an enormous advantage since the institutions are directly relevant to the
performance of the ‘physical’ technologies.
Yet evolutionary processes are not easily initiated, since they are sensitive to
changing needs and conditions. The process of evolving institutions is often more
erratic than the way physical technologies evolve. The ability to design institutions
that work as planned tends to be more limited than the ability to design new
physical technologies. Therefore it is important to see the dynamics of economic
growth driven by technological advance as an evolutionary process within a set of
institutions (Nelson 2008).
The strong focus on innovation and technological advance that is inherent to the
concept of evolutionary economic theory complies with the requirements of incre-
mental and radical changes deemed necessary for a transition towards sustainable
development and mobility. Additionally, evolutionary economics offers a theoret-
ical framework that may be considered a starting point for a more systematic
theoretical underpinning of the concept of innovation systems according to
Lundvall (1998).
Evolutionary economics is largely concerned with the general forces and vari-
ables that are shaped by specific historical developments and their present mani-
festation. Processes are a central aspect of evolutionary economics and therefore,
according to Nelson (2012) the principal aim is to provide a convincing explanation
for what is going on. Thus, to understand actions not as singular events but as
activities in an ongoing process clearly constitutes a vicinity to the ‘path depen-
dence’ approach (Maréchal 2010). Furthermore the concepts of ‘path dependence’
and ‘evolutionary economics’ are connected by the idea of ‘bounded rationality’ of
economic behavior. The ‘evolution’ in ‘evolutionary economics’ does not guaran-
tee optimal outcomes but rather constitutes continuous change. In evolutionary
economics, processes are often initiated without precisely knowing the outcome
and because of such limited capabilities, routines are established and bounded
rationality is accepted. Thus, the bounded rationality argument and the evolutionary
2.3 Innovation, Technologies and the Dynamics of Socio-technical Systems 25

economics approach partially explain the existence of path dependent, suboptimal

developments as a consequence of prior behavior.
The ‘path dependency’ approach deserves a mention, since it is often referred to
in order to explain the development of technologies, and more specifically their
hegemony, as well as reasons for their ongoing application. Furthermore ‘path
dependency’ gives an explanation as to why sometimes inferior—in whatever
characteristic—or less desirable technologies dominate production or even social
systems and are likely to prevail (Alkemade et al. 2009). This specific situation is
referred to as a technological ‘lock-in’ and will be elaborated in Sect. 2.3.2.
‘Path dependency’ is quoted as an explanation particularly when analyzing the
dependence of industrialized economics on fossil fuel-based energy systems. Unruh
(2000) for example refers to a carbon lock-in of most current energy systems:
. . . that perpetuate fossil fuel-based infrastructures in spite of their known environmental
externalities and the apparent existence of cost-neutral, or even cost-effective, remedies.

In that case, ‘path dependency’ implies that a country or a region has started
down a certain track, be it the support of a distinct technology or infrastructural
projects, and that the costs of reversal are very high. Such a path even could have
been chosen unintentionally by random selection and then when followed for a
while it establishes itself by self-reinforcing mechanisms. This might result in a
quasi-irreversibility. This lock-in situation can only be vanquished by dissolution of
the path which requires so-called external shocks (Kramer 2013).
These shocks that enable the changing of a path require radical, innovative
changes or ruptures. Often incremental innovation and technological advances are
not sufficient, so radical changes and innovations are needed to change the struc-
tures that protect a potentially inferior technology. Overall, it can be said that a
transition process towards sustainable mobility and energy systems presents a
complex challenge decelerated by the inertia of path dependence, lock-in effects
and an extremely slow turnover of fossil-fuel based technology (Contestabile
2009).

2.3 Innovation, Technologies and the Dynamics

of Socio-technical Systems

In the 1950s, Solow used a standard economic production function to analyze the
factors that were the largest contributors to growth in productivity. Increases in
labor or capital productivity did not provide the largest share but a factor which
Solow identified broadly as ‘technical change’ did. Subsequent estimates stated that
two fifths of the total increase in US national income (per capita) derived from
technological change (Foxon et al. 2007). This impressive figure shows that inno-
vation and the resulting technological advancements are highly influential factors in
almost any economic activity (Kim and Nelson 2000).
26 2 Theoretical Framework: Sustainability and Innovation

Schumpeter considered according to Nelson (2012) in his ‘Theory of Economic

Development’, innovation as the most important feature of capitalist economies.
Nelson (2008) citing Schumpeter states that
. . . by far the principal benefit that society gets from market organization and economic
activity, and competition, is innovation and economic progress.

Nowadays significant economic development is often attributed to effective

learning and innovation rather than high rates of investment. Various scholars
(Kim and Nelson 2000; Nelson 2012) consider technological innovation as the
key driving force when studying economic growth.
Innovation is defined differently regarding the background of the scholars and
the purpose of their studies and analyses. Some scholars have a quite narrow
definition: for example Cheon and Urpelainen (2012) define innovation as
. . . the processes by which new energy technologies are invented and technically improved
for commercial purposes,

while Kim and Nelson (2000) define innovation as

. . . a pioneering activity, rooted primarily in a firm’s internal competencies, to develop and
introduce a new product to the market for the first time.

These definitions only grasp a singular meaning of innovation as opposed to a

more systemic specific innovation that can refer to a whole industry or sector.
Foxon et al. (2005) define an innovation system where innovation and technology
are inseparably connected as
. . . the elements and relationships which interact in the production, diffusion and use of
new, and economically useful, knowledge and consider. . . innovation as the principle
source of growth and a key source of new employment, opportunities and skills as well
as providing potential for realizing environmental benefits.

Yet positive effects of innovation and technological change on nature and the
environment do not necessarily occur and induce economic growth automatically.
But for many scholars climate policy and mitigation of environmental degradation
should not come at the expense of economic growth. They see growth as the only
way out of poverty and policies to reduce GHG emissions should only be consid-
ered within the wider dynamics of the global economy (Bailey and Compston
2012).
One the other hand, the paradigm of growth either has to be connected closely
with sustainable development or a decoupling of growth and advancement has to be
achieved in order to reduce the anthropogenic impact of economic activity on
nature and her specific environmental systems (Stamm et al. 2009). For example
De Freitas and Kaneko (2012) conducted a study in order to examine whether a
causal relationship exists between innovation and volumes of ethanol production.
And they identified mechanisms which indicated that innovation promotes larger
ethanol quantities. Yet within this study, technological innovation ‘only’ resulted in
higher economic efficiency, and additional aspects with regard to sustainability
were not considered.
2.3 Innovation, Technologies and the Dynamics of Socio-technical Systems 27

According to Amendola et al. (1993), one particular feature of technological

innovation is its inherently dynamic nature. To understand the definition of dynam-
ics in relation to innovation and technological development is of high importance
since those aspects of the possible innovation system for sugarcane that will be
analyzed in more detail below are based on the dynamics which have been
identified by the analysis of the expert interviews and the literature review.
The business dictionary (www.businessdictionary.com) defines economic
dynamics as
changes in an economic system over time, particularly those reflected in the behavior of
markets, businesses, and the general economy

while the Routledge ‘Dictionary of Economics’ (Rutherford 2002) defines

dynamic economics as
the study of the movement of an economy from a particular state at a particular date to
another state [. . .]

Etzkowitz and Leydesdorff (2000) refer to the relation between government,

academia and industry as the ‘dynamics of innovation’ because the institutional
arrangements between these three actors are crucial for establishing innovation
systems. They consider the generation of a knowledge infrastructure by the creation
of overlapping institutions as the final goal. University spin-offs, initiatives for
knowledge-based economic development, and strategic alliances among firms,
government laboratories, and academic research groups are a product of such
dynamics of innovation.
The dynamics, however, are mostly driven by individuals and groups who make
conscious decisions, but are sometimes also driven by unintended events. Taking
control over more dynamics is part of the innovation process according to
Etzkowitz and Leydesdorff (2000). The dynamic ‘system of innovation’ may
consist of increasingly complex relations across national borders and among
researchers from various institutions. There are different dynamics among regions.
The complex dynamics are composed of interacting sub-dynamics like market
forces, political power, institutional control, social movements, technological tra-
jectories and regimes. Those are understood as a dynamic as opposed to a static
development. Hence, dynamics within the sugarcane complex are understood as
alterations and changes that occur across the sector. Dynamics have no valuation;
they can be both negative and positive as long as they are not static.

2.3.1 From Linear to Systemic Innovation

According to Gillwald (2000), Schumpeter and his work on entrepreneurship and

innovation can be considered the first systematic attempt by an economist to
understand the development of innovation and its processes, although classical
economists such as Adam Smith or Karl Marx had already assigned technological
28 2 Theoretical Framework: Sustainability and Innovation

and institutional change a quite substantial role within the economy and society.
From the work of Schumpeter, Foxon et al. (2007) derive three sequencing stages
within the innovation process which are (1) invention, (2) innovation and (3) diffu-
sion. Those three stages are often referred to as the linear model of innovation.
This linear, sequential process implies that innovation begins with research,
proceeds to development, then to demonstration, and finally to diffusion in the
marketplace (Gallagher et al. 2006). A typical linear model begins with a discovery
in ‘basic science’. Then the discovery is developed towards a more distinct appli-
cability and functionality within ‘applied science’ and finally ends with an innova-
tion, be it a product or a process. Another linear characteristic is the direct causality
between the rate of investment and the ratio of innovation. As Freeman (1996)
points out, the concept that more expenditures on ‘research and development’
(R&D) imply a higher the ratio of innovation and new technologies dominated in
the 1940s and 1950s when research on atomic energy accounted for over half of
total government expenditure. This model of innovation was heavily criticized for
its technological determinism.
Nowadays the necessity of a systemic perspective in order to understand and
illustrate the complex interdependencies between different innovation stages, pro-
cesses and drivers is generally agreed upon (Wilson et al. 2012). Systemic innova-
tion is considered to be embedded in the environment of the company and the
society where this innovation takes place. Interdependencies and feedbacks
strongly influence the evolution and the success of innovation. The systemic
model recognizes the interdependence of market demand and advances in technol-
ogy and science. Systemic innovation and interaction acknowledges the importance
of learning processes, the role of institutions and a framework of rules (Foxon
et al. 2007).
Taking mutual interdependencies and feedbacks into consideration, it can be
stated that innovation extends to embrace institutions, networks and social relations
and that technology is shaped by social, political and economic forces. The insti-
tutions or their respective representatives interviewed during the empirical research
phase are all part of the Brazilian sugarcane complex. Hence their social structures,
their networks, and their opinions relating to the sugarcane complex are among the
defining elements of these innovative patterns or innovation systems. The impor-
tance of the institutions interviewed was unwittingly confirmed by Furtado
et al. (2011) who wrote an article on the Brazilian sugarcane innovation system.
Most of the institutions they assessed were visited for an expert interview during the
various research stays in Brazil.
Multiple inputs to innovation from a variety of sources other than the hard
science community have to be taken into consideration. The importance of knowl-
edge transfers between companies, within companies and to and from users of
products and processes is acknowledged by the systemic perspective. Thus, it can
be said that the success of innovation research led to a refusal of the linear model of
innovation and replacement of the concept with more complex models that incor-
porate a variety of interactions and the necessity of feedback loops during innova-
tion and diffusion of the respective technologies (Freeman 1996).
2.3 Innovation, Technologies and the Dynamics of Socio-technical Systems 29

It is important to mention that there is no indication that the impacts and

workings of innovations are in any way optimal (Nelson 2012). Yet the systemic
model of innovation and its self-reinforcing processes can either result in beneficial
effects such as new technologies, reduced costs and reduced resource consumption,
or in the dependence on a declining industry or an inferior technology—summa-
rized as technological lock-in in the Maastricht Memorandum of European inno-
vation and technology diffusion policy (European Commission 1993). A scenario
which refers to such a problem might be the hegemony of (rapid) economic growth
that favors the continuous promotion of ‘best practice’ appliances and the rapid
diffusion of innovations over more radical innovations that may lead to fundamen-
tal and more sustainable changes in the long run.

2.3.2 Overcoming Lock-In: Radical and Incremental

Change

The question of technological lock-in is essential regarding the promotion of

innovation towards sustainable development. It explains with reference to the
concept of path dependency why technologies that offer higher efficiencies or
lower environmental degradation are ‘locked-out’, or are not necessarily the ones
applied or diffused more rapidly (Kramer 2013). Instead technological lock-in is
displayed by holding on to inferior energy technologies with regard to the aspiration
towards sustainability. Current fossil fuel-based energy technologies present
today’s dominant energy systems that established their hegemony by self-
reinforced mechanisms. Unruh refers to this system as the ‘carbon lock-in’
(Unruh 2000, 2002). Those lock-in situations can either occur on a technological
or an institutional level. The interaction within and between those levels reinforces
the lock-in effect just as these manifold interactions within and between levels can
induce technological change and innovation and thus dissolve path dependency as
mentioned in Sect. 2.2.3.
Some technologies, even though they do not present the most optimal solution,
are considered ‘bridge technologies’ that are expected to make a transition towards
a sustainable application, while others are prone to lead towards a lock-in situation
making the development difficult and costly to reverse. While first generation
biofuels are considered ‘bridge technologies’ since they imply further develop-
ments towards second and third generations of biofuels (Hekkert and Negro 2009),
other technologies such as Carbon-Capture and Storage (CCS) are understood by
many scholars to be single path developments that lead to a technological lock-in
(Vergragt et al. 2011; Unruh and Carrillo-Hermosilla 2006).
Primarily institutional funding bodies such as ministries and research institutes,
and also private actors, have to consider that their supporting measures such as
subsidies and tax exemptions might not necessarily lead to the development of
technologies and innovations that in the long run will prove best for society and the
30 2 Theoretical Framework: Sustainability and Innovation

environment (Foxon et al. 2005). In energy technologies it is especially difficult to

select the technologies that should be promoted or not. Thus the technological
trajectories and paradigms have to be aimed even more clearly at a future sustain-
able prosperity and mobility (Dosi and Grazzi 2010), and the appropriate innova-
tions have to be found that give a long lasting push towards sustainable mobility, be
it by radical or incremental steps. However, it should be kept in mind that the ease
of implementation does not necessarily equate to the superiority of the chosen
technology (Unruh and Carrillo-Hermosilla 2006).
As the famous phrase “Necessity is the mother of invention” states (Freeman
1996), it may be that an inferior technological or social lock-in is a prerequisite for
creating the momentum that induces change and that radical innovation wouldn’t
occur without pressing social or environmental problems. So, if a future societal
goal is to overcome current technological and social lock-in effects and to reach
sustainable mobility and transition, questions have to be asked on how innovation
can contribute and whether either incremental or radical innovation is necessary.
Freeman (1981) reflected in the 1980s on the fact that it is highly probable that
new, fast-growing industries are the main drivers of economic progress since these
are open to new technologies whilst also being able to realize economies of scale to
a larger extent than traditional, established industries and technologies. These new,
fast-growing industries often start as either niche processes or products. But, as
Freeman argues, innovation may as well appear in established or even declining
industries. Pressures to reduce costs or labor require more efficient processes and
products and might result in innovation and technical change in later phases of the
cycle.
Some scholars lay great stress on the Schumpeterian idea of clustering innova-
tions. They argue that basic innovations are clustered in decades of deep depression
and that these basic innovations are a main stimulus for the next upswing of the
economy (Freeman 1981); that during depression, entrepreneurs can realize more
radical solutions that might have been considered too risky during the time when
business was booming. Generally in economic crises the investment climate is more
favorable to radical ideas and innovations, and these changes are the starting point
for the next possible economic boom. Confirming this, a recent study by Cheon and
Urpelainen (2012) states that increasing oil prices are likely to reinforce positive
effects on innovation and public R&D expenditures in renewables in countries that
have started previous innovation trajectories.
Yet Lundvall (1998) states that certain technology areas can only be developed
into commercial success by actors who operate with a long-term perspective. These
are often institutionally funded projects, for example within the energy sector,
which is prone to long-term strategies and investment plans particularly with regard
to fossil energy projects. Other experience shows that a more sustainable product is
often based on the long-term competencies of the respective company rather than
resulting radical new technological products or process design (Llerena and Wag-
ner 2012).
According to Freeman (1996), incremental changes are applied to current
technological trajectories and might work rather well when retrofitting
2.3 Innovation, Technologies and the Dynamics of Socio-technical Systems 31

technologies, for example. Incremental innovation might lead to more efficient

technologies, products and consumption patterns. But since incremental change
often does not occur fast enough it might end up in an ‘efficiency trap’ (Wilhite and
Nørgaard 2004). For example, the industrialization of the BRIC countries and their
aggregated increased consumption behavior counteract efficiency gains regarding
CO2 emission reduction and reduced natural resource consumption. Furthermore,
incremental innovation might give a misleading security of progress by continua-
tion of business-as-usual (BAU) scenarios (Hallett 2013). Consequently this might
lead to a situation where lock-in mechanisms and inertia in established systems are
too strong to induce further radical innovations and change.
To overcome incremental steps of innovation that are more likely to strengthen
technological lock-in, radical or disruptive innovation-inducing ‘creative destruc-
tion’ is needed. Dynamics that initiate such innovation processes often derive from
partially autonomous developments, often in niches. Within that context it has to be
considered that those transitions towards sustainable mobility are planned or
thought to occur over a much tighter time-frame than any historic examples
(Smith et al. 2010). A reduction of anthropogenic carbon emission by 80 % within
40 years implies highly ambitious goals that probably require radical innovation
processes. As Freeman (1996) puts it:
What is required for the worldwide transition to a ‘green techno-economic paradigm’ is
something more fundamental than incremental change to an information technology
regime. The transition to renewable energy systems in the twenty-first century will not be
possible without some major institutional changes in public transport systems, tax systems,
and automobile and airplane culture.

When evaluating the possible innovation systems of sugarcane it might be

interesting to consider the type of technological change and innovation that actually
is occurring within the industry. Can aspects be identified that relate to the concept
of technological lock-in and are the technological developments more prone to
incremental or radical change? To assess whether mechanization, certification or
new regulations display more radical or incremental elements of innovation, might
additionally provide an insight as to whether the sugarcane complex can be
considered an innovation system. Furthermore, radical innovations within the
setor sucroenergético might be an indication for the likelihood of a transition
towards sustainable mobility.

2.3.3 Innovation Systems and Institutions

To understand innovation processes as systemic and non-linear based on complex

interdependencies already indicates the forming influence of institutions. Taking
the preceding discussion on incremental and radical innovation into account already
illustrates the importance of institutions, especially regarding impulses for radical
(technological) change. Additionally, the concept of innovation systems has a
32 2 Theoretical Framework: Sustainability and Innovation

strong institutional touch according to modern evolutionary economic theory as

pointed out in Sect. 2.2.3.
When it comes to promoting innovations and technological change, most coun-
tries have begun to use a combination of public research, economic incentives, and
legal regulation. Freeman (1996) states that the effectiveness of most of these
methods depends on the degree of public support for the policies. Kaup and
Selbmann (2013) showed in a recent article on biofuels in Germany how public
opinion and media coverage influence legal regulations in favor of, or against, the
support of an alternative fuel. Institutions should be understood as the ‘basic rules
of the game’. According to Nelson (2008) the term ‘institution’, in reference to
innovation systems at least, whether national, regional or sectoral, tends to be used
as a reference to relatively concrete entities.
Thus, innovation processes in socio-technical systems can be regarded as a set of
activities involving developments on a technological as well as on an institutional
level. Kern and Smith (2008) who analyzed energy transition policy in the Nether-
lands concluded that various Dutch energy restructuring programs exemplified that
non-technological factors such as institutions and cultural factors were important
preconditions for innovation and sustainability. Although technology is vital, it was
acknowledged that there is a need for a system perspective that incorporates the
dynamic interrelation between technological, structural and cultural innovation.
The concept of innovation system research considers innovation as the principal
factor for economic growth and an increase in competitiveness, and as a stimulus
for technological and social change. But according to Stamm et al. (2009) the
concept has so far often neglected sustainability dimensions. Thus, sector/techno-
logical innovation systems should comprise requirements for a transition towards
sustainability. A strong institutional perspective might help to integrate such
requirements because not only are technological processes considered but also
actors, networks and other social aspects. That implies that economic benefits are
not the only purpose of innovation systems. Looking at developments and innova-
tion in energy technology innovation systems, it can often be found that such
technologies have a positive impact on sustainability; for example, by both reduc-
ing the energy input needed as well as emissions, consequently reducing the impact
on the natural resource base, increasing efficiency and even promoting social
benefits such as increased employment.

2.3.4 ‘Physical’ and ‘Social’ Technologies

In order to have a coherent language when talking about innovation systems,

Nelson and Nelson (2002) propose the conception of ‘physical’ and ‘social’ tech-
nologies. The former can be understood as a recipe, as procedures that form and
create a final product, such as a production process. Physical technologies are prone
to sharp specification and control, and are easier to replicate and duplicate more
precisely. Social technologies can be understood as the coordination that organizes
2.3 Innovation, Technologies and the Dynamics of Socio-technical Systems 33

the appliance of technologies and processes referred to when using the term
‘institutions’. The evolution of social technologies and institutions is often more
erratic than the way physical technologies evolve. Social technologies are more
dependent on human behavior and whims and are therefore less easy to fathom,
imitate and control. The ability to design institutions which then work as planned is
considered quite limited and it seems far more difficult to prove the effectiveness of
new institutions than of physical technologies (Nelson 2008).
Social technologies, like physical ones, are likely to progress over time by
accumulating and deliberately sharing experience. When it comes to physical
technologies, learning by doing and learning by using further enhances their
effectiveness (Nelson 2008), which theoretically implies a response towards mis-
takes and adaptation. Social technologies and institutions might have a higher
tolerance for mistakes, but once they are made they can last a long time and even
be considered as path dependent. These assumptions have to be kept in mind when
questions of radical or incremental change occur. Social innovations are necessary
to induce radical change but to design institutions and to assure effectiveness and
the needed functionality seems to be quite difficult when it comes to going beyond
incremental change.
Generally, innovation-driven economic growth needs to comprise the
co-evolution of physical and social technologies (Nelson 2008). For Nelson
(2008), the evolution of Biotech companies clearly shows the necessary and
effective intertwining of the development of new physical technologies, and the
emergence and development of new social technologies. Throughout the thesis, the
distinction of physical and social technologies will be applied and sometimes even
referred to as physical and social innovations.

2.3.5 National and Technological Innovation Systems

Current research on innovation systems focuses on two principal areas which are
‘National Innovation Systems’ (NIS) and ‘Technological Innovation Systems’
(TIS). The distinction between these two systems is necessary since the research
approaches, as well as the foci, are quite different. According to Lundvall (1998)
and Lundvall et al. (2002), national innovation systems (NIS) look at the overall
incentives for innovation within particular countries. A distinction has been made
between a ‘narrow’ and a ‘broad’ definition of NIS, where the narrow approach only
concentrates on institutions that directly promote innovation and knowledge trans-
fer, while the broad approach recognizes the wider socio-economic context in
which innovative activities occur (Freeman 2002).
The comparison of NIS between countries is a quite common research approach.
The OECD, for example, has developed an approach towards NIS that is used to
understand the development of a wide range of technologies (Foxon et al. 2005).
Nationally-organized institutions are considered crucial when determining the
direction and degree of innovation (Lundvall et al. 2002). However, the occurring
34 2 Theoretical Framework: Sustainability and Innovation

innovation might likewise influence the institutional setting. Generally, NIS do not
look into specific technologies or particular sectors and industries. Furtado
et al. (2011) for example, analyzed key aspects of the Brazilian sugarcane innova-
tion system. Their study was based on the ‘National Innovation System’ approach,
looking distinctively into institutional actors while particular technological devel-
opments were not taken into account.
In contrast, ‘Technological innovation systems’ (TIS) analyze mechanisms and
dynamics of innovation in relation to particular technologies of a sector or industry,
either within a regional, national, or global level (Foxon et al. 2007; Suurs and
Hekkert 2009). Within TIS, the determinants of technological change are likewise
not (only) found in individual firms or in R&D networks but are embedded in
broader social structures. The structure of an innovation system consists of actors,
institutions and the network of relations through which these are connected. The
better actors, institutions and networks are arranged and connected so as to realize a
higher level of system function activity more easily. The research presented here is
based on ‘Technological Innovation Systems’ which allows a more technology-,
sector- and industry-related approach to innovation systems.

2.4 Technology Innovation Systems

The previous sections showed that the model of system innovation comprises the
combined efforts of ‘physical’ and ‘social’ advancement to initiate either incre-
mental or radical innovations and technological developments. Within the follow-
ing section, the characteristics and the functioning of TIS will be discussed in detail.
First, the different forces that have an effect on the development of innovations and
are either induced by demand-pull or by supply-push mechanisms will be elabo-
rated upon. Then specifically Energy Technology Innovation Systems (ETIS) as
well as their processes and characteristics will be presented. Since the principal part
of the research question tries to answer whether the Brazilian sugarcane complex
can be considered such a technological innovation system, it is necessary to explain
in detail what characteristics constitute an ETIS and what instruments are involved
in such an analysis. The mechanisms that are at work will then be used in Chap. 4 to
analyze the sugarcane complex accordingly.

2.4.1 Supply-Push and Demand-Pull Mechanisms

Within TIS, the forces that push innovations are twofold. The one impulse derives
from increased investments in inputs such as human capital or funding of innova-
tion (Gallagher et al. 2012). There is still a linear notion within this approach as
described in Sect. 2.3.1 when the output of new innovations is supposed to be
increased by putting more resources in R&D for example. Nevertheless the
2.4 Technology Innovation Systems 35

possibilities of inputs are decisively bigger than within the linear approach since it
is expanded by an institutional perspective. This practice is often called the process
of ‘technology/supply-push’ (Foxon et al. 2007).
The other impulse emphasizes market drivers and considers the demand for
products and services more important in stimulating innovations than advances in
expertise and knowledge. This is called a ‘market/demand-pull’. Following this
perspective, it is assumed that a change in production costs is already an impulse to
innovation because it leads to an attempt to economize the use of the factor that has
become expensive. If labor costs increase, innovation will be directed to the
development of technologies or processes that reduces the level of labor intensity
(Foxon et al. 2007). Some scholars regard the flexibility and responsiveness of
markets to scarcity or price increases as an important component of the transition to
sustainability (Tietenberg and Lewis 2012).
Most scholars agree on the important roles of both supply-push and demand-pull
but they stress the importance of feedbacks between the demand and supply side.
The presented technology-push and demand-pull policies can be considered as
complements rather than substitutes (Gallagher et al. 2012). Thus innovation can
be thought of as the process of matching technical possibilities to market opportu-
nities. For example, technology/supply-push drivers such as education and research
reduce the cost of innovation while market/demand-pull drivers improve the accep-
tance of new technologies into the market (Wilson et al. 2012).
According to Gallagher et al. (2006), Fig. 2.2 gives an idea of the possible
impulses that can be referred to as the mechanisms that might result from supply-
push and demand-pull drivers when a strong institutional perspective is taken.
Different actors, institutions or networks and their mechanisms of promoting
innovation are depicted within this figure as well. The analysis of different
supply-push and demand-pull mechanisms is supposed to help to understand the
factors that influence and induce innovation. But the figure does not portray the
complete supply-push and demand-pull flows that occur, for example financial
flows from company level to the investors and financiers are missing.
Various studies analyze TIS and their importance to the governance of global
energy crises and to the transition towards sustainable mobility. Cheon and
Urpelainen (2012) investigate whether high international oil prices (demand-pull
impulse) induce innovation in countries that already have previously established
innovation systems. Within their research, they conclude that as energy prices
increase, private companies and public institutions have stronger incentives to
develop new energy technologies. Furthermore, to break up or overcome the
‘carbon lock-in’ that industrialized countries have become stuck with, energy
technology innovation and feedback loops are crucial (Cheon and Urpelainen
2012).
Compeán and Polenske (2011) conducted a study comparing the effect of an
institutional technology-push on different sugarcane producing regions in Brazil;
one region with a more labor intensive and the other with a more capital intensive
production process. They showed that proximity to relevant institutions and the
36 2 Theoretical Framework: Sustainability and Innovation

Supply-Push Policies Demand-Pull Policies

Government Direct/Cost Shared Regulatory
Tax
Naonal Lab, R&D Funding & Tax Changes,
‚Marktes‘ Incenves,
R&D tesng Incenves, Technical
Subsidies
Subsidies Standards

Financiers, Parent
Other Actors University, R&D Consumers, Users
Companies

New Technologies/ R&D Aspects

Product/Process 2nd
Mechanizaon Cogeneraon GMO
Level generaon

Further technologies

Financial Flows Knowledge/Informaon Flows

Fig. 2.2 Supply-push and demand-pull mechanisms. Based on information from Gallagher
et al. (2006)

reduction of production costs had a positive effect on mechanized production

technology (Compeán and Polenske 2011).

2.4.2 The Energy Technology Innovation System (ETIS)

Approach

The concept of Energy Technology Innovation Systems (ETIS) constitutes a sys-

temic perspective on innovation within selected energy systems. Thereby ETIS
applies a comprehensive approach by trying to combine aspects of supply-push and
demand-pull effects to analyze all stages of the development cycle (R&D, demon-
stration, market formation and diffusion). ETIS is a general conceptual framework
rather than a predictive model. ETIS can be regarded as a set of processes by which
developments and improvements in energy technology by innovation are under-
stood and analyzed. Understanding the processes of innovation and knowing how to
apply them by using ETIS brings new insights. This knowledge might lead to a
promotion or development of new energy technologies that help to sustain energy
resources, or to improved institutional settings that reduce the economic, environ-
mental, or political costs associated with energy supply and use (Gallagher
et al. 2006).
2.4 Technology Innovation Systems 37

The analysis of ETIS is still a fairly young endeavor that often has a focus on the
national level of analysis, more on the supply-side of energy technologies because
of a strong institutional perspective. Thus, the understanding of mechanisms and
interdependencies that are at work in an ETIS is incomplete. ETIS research is still
weak in certain areas, such as feedback loops, interdependencies and cooperation
among components of the innovation system. The data is only partial; particularly
lacking are studies in developing countries (Gallagher et al. 2012).
By analyzing qualitative data—as will be elaborated in detail in the following
chapter—it is assumed that the various experts of the Brazilian sugarcane complex
will provide particular and distinct insights which will contribute to a better
understanding of feedback processes and other structural aspects within ETIS.

2.4.2.1 Product-Level and Institutional Level Effects/Policies

Within ETIS

Figure 2.3 presents the set-up of an Energy Technology Innovation System and its
environment. According to Gallagher et al. (2012), ETIS considers every stage of
the technology development cycle (from research to diffusion) as well as all
innovation processes, feedbacks, interdependencies, cooperation as well as actors,
institutions and networks. ETIS can be applied to analyze energy technology
systems and its innovation potential on a regional, national or global scale. Within
the research presented here, ETIS is modified in order to analyze an industry,
namely the sugarcane complex, as has been done before in a similar manner
(Furtado et al. 2011; Meyer et al. 2012).
In order to structure the approach, two different levels of analysis are introduced
which are referred to as the product/process level and the institutional level, based
on elaborations by Morgan (2007). Thereby the analysis of the innovation system
might be facilitated and understood better. Very similar distinctions have been
made before. Meyer et al. (2012) differentiate between technological and institu-
tional innovations while Lundvall (1998) refers to embodied (tangible goods such
as products and processes) and disembodied (new marketing strategies, organiza-
tional and institutional approaches) innovation. Furthermore as mentioned above,
Nelson and Nelson (2002) relate to ‘physical’ and ‘social’ technologies.
On the product/process-level, innovation processes link the stages from
research, development and demonstration to market formation, and finally diffu-
sion. Parts of the innovation processes that were once considered linear and
unidirectional are the feedback, and therefore the knowledge transfer which is
regarded as essential for the success of any innovation system. The greater the
interaction between the stages the more efficient the innovation process, as for
example when improvements of one technology influence the development and
adaptation processes of another technology (Wilson et al. 2012). Innovation can be
reinforced on the product/process level by ‘feedback loops’ between different
stages of technological maturity as indicated in Fig. 2.3. Even pre-commercial
38 2 Theoretical Framework: Sustainability and Innovation

Product/Process - Level
Innovaon System

Research Feedback
Loops
Development
Demonstraon
Actors Market
Formaon
Diffusion
Networks

Instuons

Instuonal - Level

Fig. 2.3 The energy technology innovation system—ETIS. Based on information from Gallagher
et al. (2012)

innovations can influence fully commercial technologies by the alignment of

framework conditions (Foxon et al. 2005).
The strong connection of evolutionary economics with institutional economics
as discussed previously in Sect. 2.2.3 becomes obvious when looking at the
institutional level of ETIS. Institutional economics analyzes evolutionary processes
and the role of institutions in shaping economic behavior. A broader study of
institutions is emphasized by institutional economics and markets are considered
a result of the complex interaction of these various institutions (e.g., firms, govern-
ments, social norms). According to Ménard and Shirley (2005), institutions com-
prise of so-called formal institutions (laws, contracts and regulations) and informal
institutions (norms of conduct, beliefs and habits of thought and behavior).
On the institutional level of ETIS, actors, networks, and institutions are part of
the innovation system, influencing the product/process level (and vice versa). The
notion of actors, networks and institutions is applied in order to describe the variety
of stakeholders. Actors can be considered as economic actors in the sense of
entrepreneurs, academics and scientists while networks are understood as relation-
ships of actors, and institutions for example as business associations and regional
technological or economic clusters. Actors and networks ‘create’ institutions (laws,
regulations, etc.) as the result of their cooperation. Looking at ETIS, Gallagher
et al. (2012) do not make a clear distinction between actors, networks and institu-
tions and with regard to the institutional level of ETIS that need for a clear
distinction is negligible. Therefore actors, networks and institutions are regarded
almost as synonymous within this thesis.
The relations between the institutional level which is represented by actors,
networks and institutions and the product/process level illustrated by technological
as well as market processes are understood as ‘interdependencies’ (see Fig. 2.3)
within this thesis. These interdependencies can be regarded as mechanisms such as
2.4 Technology Innovation Systems 39

supply-push and demand-pull policies by which actors, networks and institutions

influence the development of technologies and physical innovations as well as the
impacts that new and innovative technologies have on actors, networks and insti-
tutions. Supply/technology-push policies that are rather ‘science-driven’ or
demand-pull ‘market-led’ effects or policies are interdependencies that represent
influences from the institutional level on the product/process level. Self-reinforcing
interdependencies or feedback loops are desirable effects. For example, the height-
ened public perception and demand for clean energy technologies causes govern-
mental institutions to promote and incentivize R&D endeavors.
The resulting innovations may lead to new, more efficient and cleaner technol-
ogies which reinforce public opinion anew. Looking at the interdependencies
between the two levels, different effects have to be induced and policies promoted
during the various stages of innovation development. In general, the initial pre-
market phases are mostly induced by a technology supply-push because the main
impetus derives from either governmental institutions, a respective legislative
framework or from entrepreneurial and business decisions. The commercialization
and diffusion phases, at least when looking at a successful innovation, are deter-
mined more by demand-pull mechanisms from business or final consumers
(Agnolucci 2009).
On the institutional level the interaction between actors, networks and institu-
tions is defined as ‘cooperation’ as indicated in Fig. 2.3. The better the actors,
networks, and institutions cooperate, the higher the chance to increase the func-
tional activity of an innovation system (Suurs and Hekkert 2009). According to
Gallagher et al. (2011) different policies are applied on the various stages of
innovation. For example, as innovation systems increase in maturity, the impor-
tance of private actors increases, because entrepreneurship which can scarcely be
supplied by governmental institutions is needed. The establishment of associations
and research networks for instance are an indicator for strong cooperation within an
innovation system. But then again, actors such as NGOs, public interest groups and
other networks and institutions can be likewise part of an ETIS and can impede or
modify certain technological developments and innovations in order to prevent
often negative environmental and social impacts through political and public
lobbying (Gallagher et al. 2012).
Therefore, governmental institutions which induce supply-push and demand-
pull mechanisms to promote technological development and innovation have
mostly various sometimes even conflictive objectives. First, a stable and efficient
energy sector is considered a prerequisite for economic growth and prosperity, and
therefore the government normally supports and promotes private and public
efforts. Second, the negative ecological and environmental impacts induced by
applying today’s energy carriers have to be mitigated. Third, the supply of energy
services satisfies human needs. Better services, such as reduced costs of access or
secure availability, therefore can improve welfare and well-being. These objectives
refer strongly to the challenges towards sustainable prosperity and mobility
described in Sect. 2.1.2, namely the reduction of fossil energy dependence, the
provision of energy services to the world’s poor, and the increase and preservation
40 2 Theoretical Framework: Sustainability and Innovation

of prosperity without wrecking the global climate with emissions from fossil
energies.
This illustrates once again the strong demand for sustainable characteristics of
physical and social innovations.
Thus the dynamics within an ETIS and the likelihood of establishing one can be
captured by pointing out feedback loops, interdependencies and cooperation on
each separate level or between levels. The interaction within and between levels
reduces the risk that technologies become stranded between development and
market formation or diffusion because of the lack of clear and predictable policies
(Gallagher et al. 2011).

2.4.2.2 Applying ETIS

One difficulty in applying the concept of ETIS is often insufficient data being
collected when trying to quantify aspects and key elements of the innovation
system. A quantitative analysis of ETIS often fails due to this lack of information
and data. Although a national state level analysis seems a proper scope, global
markets and other international effects also play a significant role for the Brazilian
sugarcane sector. And generally, data on R&D in the energy sector is not separated
into specific technologies. Additionally semi-state-owned enterprises and
subnational government investments make a distinction between private and public
sector pretty difficult. Furthermore, Gallagher et al. (2012) point out that there is a
lack of R&D statistics and other energy related data for non-IEA member countries
(such as Brazil). Thus, this limited data availability was one of the reasons to
conduct a primarily qualitative analysis of the sugarcane sector because it might
give an idea on the dynamics and the setup of the sector in relation to an ETIS.
Distinct characteristics, beneficial effects and shortcomings of the potential inno-
vation system that the sugarcane complex constitutes are thereby expected to be
identified. This methodological approach will be elaborated upon in the following
chapter.
Nevertheless, it has to be stated that even when identifying push and pull policies
and mutual influences between the institutional and the product level, there is no
guarantee that policy X or research approach Y will lead to the development of
technology/product A or the diffusion of technology B. The complexity within such
an innovation system expands beyond simple causalities, and external as well as
unforeseen forces that impact such a system only exacerbate this fact (Gallagher
et al. 2011). As mentioned at the beginning of this section, ETIS is first of all
applied in order to map the innovation system of sugarcane, in order to understand
the innovation inputs and outputs, to present the manner in which actors, networks
and institutions operate and develop pressure within those systems and how are they
are set up to promote or hinder further innovation and development of the sugarcane
sector in Brazil.
References 41

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Chapter 3
Research Design: A Case for Methodological
Pluralism

The ancient debates about singular or universal truths versus

multiple and relative truths or extreme mixtures are still
ongoing and find their place among the discussion about the
three major approaches (quantitative, qualitative and mixed
methods) of social research. (Johnson et al. 2007)

Abstract The third chapter starts with an explanation as to why the Brazilian
sugarcane complex was selected as the case study and how the field studies were
realized. Within this chapter the research design and the methodological approach
are discussed and a method set in order to structure and apply the data is compiled
and analyzed. Since there is no single conclusive final methodological principle as
argued by a variety of economists and other social scientists, methodological
pluralism is needed. Because the research focuses on innovation and technological
developments as well as on the dynamic aspects of the sugarcane complex a
qualitative approach is considered adequate. The dynamic nature and the reflexive,
empathic and holistic character of qualitative research speak for a qualitative
approach with the aim of understanding people and their opinions and not just to
measure them. Qualitative research is however time- and cost-intensive and objec-
tivity, validity as well as reliability are difficult to provide. Thus quantitative
approaches or as in the case of this research, descriptive statistics and numerical
data are included in order to check and review the results of qualitative research.
The concept of triangulation which implies research within multiple methods and
from different perspectives is referred to within this chapter in order to elucidate the
advantages of combining research approaches. Thus methodological pluralism, the
integration of qualitative and quantitative research approaches, is advocated within
this chapter.

In the previous chapter various approaches towards sustainability and a transition

towards sustainable mobility as well as concepts of technological innovation
systems have been presented and explained. The research design and the method-
ological approach, meaning the selection of a method set, are being discussed in this
subsequent chapter. It is explained in detail why it was decided to base the research
on the case of the Brazilian sugarcane complex and how (where and when) the field

© Springer International Publishing Switzerland 2015 45

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7_3
46 3 Research Design: A Case for Methodological Pluralism

studies were realized. The basic ideas behind the concept of a qualitative research
approach applying mixed methods and triangulation are presented as well as the
resulting expectations when structuring a research according to such requirements.
The crucial question is whether the selected research approach and methodology
is compatible with the chosen theories when looking at the theoretical framework
and its literature. The quality of this theoretical and methodological combination
will be accomplished by the close interlinking of collected data, the applied analysis
and the consistency of the scientific approach. The setup of the research design—
analyzing the dynamics and innovations within the sugarcane complex by applying
qualitative research based on semi-structured interviews and the collection of
numerical data (descriptive statistics)—might be a new approach for the analysis
of the Brazilian sugarcane sector.
Related research designs can be found in various studies incorporating innova-
tion systems and issues of dynamic transition (Freeman 1996; Kern and Smith
2008; Spetic et al. 2012). Though the Energy Technology Innovation System of
Brazilian ethanol was analyzed in a recent study by Meyer et al. (2012), their focus
was on historical rationales explaining the success of the sector. The extensive
research undertaken here, with over 40 semi-structured expert interviews and the
application of computer software for the analysis of these interviews in combina-
tion with document analysis and descriptive statistics, is hoped to be considered a
new piece of the puzzle leading to better understanding of the agricultural, techno-
logical and social developments and dynamics in the sugarcane complex in Brazil.
Nevertheless, it has to be mentioned that qualitative research is prone to very
distinct flaws and obscurities that lie in the nature of the approach itself. Even if a
researcher is following paths and guidelines on how not to be biased during
interviews and considers a traceable evaluation of qualitative data and the willing-
ness to objectiveness as a lighthouse of quality, the research conducted will never
be free of subjective perceptions and valuations. Expressing those challenges is
necessary because this thesis does not primarily want to provide a picture of the
opinions and beliefs of the Brazilian experts interviewed but has the entitlement to
analyze and present genuine dynamics and developments that occur within the
survey. This is the principal reason that a qualitative research approach in combi-
nation with more numerical methodologies was chosen and plays a decisive part in
the research design. The application of various methodologies, such as interview-
based scripts and descriptive statistics, originates from the opinion (Davis 2012)
that methodological pluralism draws from
the belief (. . .) of choice in the absence of a single conclusive final methodological
principal.
3.1 Why Brazil? 47

3.1 Why Brazil?

Before starting to elaborate on methodological details, a reflection on the arguments

for choosing Brazil as the case study is of importance since the selection of Brazil
had repercussions on the research approach. The Brazilian sugarcane sector is
inherently more dynamic and prone to palpable changes than similar agro-industrial
sectors in the US or in Europe with significant biofuel production volumes. The
reasons that make the Brazilian case so special will be elaborated upon later. For
now, it is worth bearing in mind that field research approaches are quite distinct
with regard to cultural traits, for example, and they have to build different types of
understanding of systems and their interactions compared to research that employs
mathematical and quantitative exploration in order to understand the nature of a
system’s dynamics (Norgaard 1989).
It is worth noting that Brazilian sugarcane is among the most successful agri-
cultural products worldwide. Brazil is by far the world’s largest exporter and the
largest producer of sugar (MAPA 2013). Sugarcane has been cultivated in Brazil for
more than 400 years and today remains one of the most commonly cultivated
primary products. Only soybean and corn cover larger cultivation areas in Brazil.
Modern breeding technologies, industrialization and mechanization have helped to
increase agricultural productivity and yields of sugarcane enormously, especially
during the last 60 years (Kaup et al. 2011). Huge progress has also been made in
industrial processes, where efficiency and productivity have steadily increased and
innovations and new technologies have enhanced the choice of products.
Throughout the existence of the sugarcane sector strong ties and an intensive
collaboration between governmental institutions and private actors have been
common. Yet the agricultural and biofuel producing sector is not completely
dependent on governmental subsidies as it is in the United States or in the
European Union for example. So the Brazilian sugarcane complex can be consid-
ered one of the most modernized and technologically developed agricultural indus-
tries. Nevertheless, even now, the sugarcane industry still employs more rural
workers than any other agricultural business in Brazil and a great deal of human
labor is still used in cane-cutting (de Moraes 2009; Neves et al. 2010). In addition to
the economic, ecological and technological aspects, there are important social
aspects of the sugarcane complex, such as the competition of manual labor with
mechanized harvesting which is often accompanied by an over-exploitation of
workers, which led to Brazil being the selected case study.
The direct dependence on the commodity world market prices for sugar that
influences the industry decisions on whether to produce sugar rather than ethanol,
and the blending quotas issued by the Brazilian government which influence the
domestic demand for ethanol, are likewise crucial. Thus indirect subsidies granted
by the government have a huge impact on the economic viability of ethanol and are
of importance for other products processed out of the sugarcane plant, such as
electricity generated out of bagasse (the residue after crushing the cane). Therefore
48 3 Research Design: A Case for Methodological Pluralism

with respect to the Energy Technology Innovation Systems, Brazil is considered an

exceptional case.
For the last couple of years the sector faced shrinking investments and none to
minimal increases in productivity and area, compared to the booming years of the
first decade in the new millennium (BNEF 2013). Therefore the sector currently
hopes for stronger support from the government. Nevertheless a multitude of
investments by private companies and public institutions have been made, which
target soil recovery and new plantations as well as development of new technolo-
gies and innovations such as second generation ethanol or genetically modified
sugarcane cultivars. It is likely that future demand of biofuels and other biomass-
based products such as bioplastics and other alternatives to fossil hydrocarbons
from the EU, the US or elsewhere can, and will to a large degree, only be satisfied
by the Brazilian sugarcane industry (UNICA 2010).
Last but not least, it should be made clear that the research which has been
carried out within this thesis is part of a larger project on biofuels with a focus more
on social impacts. The author is employed within the ‘Biofuels as Social Fuel’
project that started at the end of 2009 and is financed by the German Federal
Ministry of Education and Research. During the period of application for funding,
Germany and Brazil were already regarded as the focal points of the project’s
research. The selection of case studies was discussed in detail by the researchers of
the project and due to the above-mentioned reasons, Brazil was considered as the
most apt case study for this thesis.
The likelihood of new technologies and innovations and the additional capability
of area expansion (although probably accompanied by severe impacts) mark Brazil
out as the most important nation worldwide when analyzing the dynamics and
developments of a biofuel industry. Economic, ecological and social impacts, the
interaction of different actors, networks, and institutions as well as domestic and
international demand and the relatively fast pace of such developments call rather
for a less rigorous approach, and therefore favor a combination of different meth-
odologies, as is the idea behind this research approach and the concept of triangu-
lation presented here.

3.2 Selection of the Research Approach

If one considers the different research strands and schools of thought in economic
sciences the different degrees of openness towards new ideas become quite obvi-
ous, and they were discussed in more detail in Chap. 2. The formulation of the
research puzzle and the selection of the research approach inevitably touch a range
of questions which ultimately lead to a certain affinity towards methods and
theories with either orthodox or heterodox tendencies. For example should eco-
nomic theory be first of all coherent, cohesive and comprehensible, or does it rather
need to be flexible, multi-faceted and ambiguous in order to be functional towards
describing a world with a similar character (Davis 2012)?
3.2 Selection of the Research Approach 49

Working in an interdisciplinary team, a trans-disciplinary environment and

investigating a dynamic industry when researching this thesis made it necessary
to originate the research from an economic background that allows for open
approaches. As this chapter elucidates, there are a variety of economists and social
scientists that favor methodological pluralism, a mix of methods and the coopera-
tion and integration of qualitative and quantitative research approaches. Davis
(2012), writing on the work of Samuels, argues that open theories are necessary
and refers to the so-called ‘matrix approach of meaningfulness’, where the mean-
ingfulness of theories and schools resides in the matrix formed by the totality of
views on the respective issues. Since in his exposition there is no single conclusive
final methodological principle, methodological pluralism is needed. Thus the con-
cept of methodological pluralism requires other disciplines, especially natural and
social sciences, which are complementary to economics to be applied in order to
broaden the perspective of economic research.
For example, qualitative research where explanation comes to the fore and
replaces measurement (Bowen 2005), yields more than numerical data in order to
provide a more detailed and in-depth understanding of the research phenomena or
puzzle. The description of the research and reflection process might lead to the
research being less prone to hidden and unconscious assumptions (Starr 2014).
Furthermore qualitative research is more likely to be open for approaches of
methodological pluralism. In the following, the reasons why a researcher would
choose a qualitative empirical research method are elaborated upon, as well as the
advantages and disadvantages and the quality criteria of such a qualitative
approach.

3.2.1 Assessing Qualitative Research in Economics

The field research conducted here is, as has been alluded to often, primarily based
on a qualitative research approach. In order to answer the research puzzle of the
thesis and of the broader research project with respect to the dynamics and
innovation potential of the sugarcane industry, the qualitative methodology of
semi-structured expert interviews is considered to be the main empirical basis of
this dissertation. It should once again be clarified that the empirical data gathered
from the expert interviews is analyzed and evaluated to understand tendencies and
possible developments within setor sucroenergético that might be looked upon as
an innovation system. The opinions and statements of the experts are then again
confronted with descriptive statistical data from the literature review. This process
of (soft) qualitative research and its validation and revision by hard facts from the
review of the respective scientific literature is understood as a methodologically
pluralistic approach.
As pointed out by other economists (Starr 2014), case-study research into
innovation, R&D and technological diffusion refers to research areas (among
them studies on social programs, studies on willingness to pay for environmental
50 3 Research Design: A Case for Methodological Pluralism

interventions and studies related to poverty and health) where qualitative research is
increasingly applied. Nevertheless, descriptive statistics (data series and other
numerical data) were collected as well, analyzed and interpreted. Because a fair
amount of the research that has been conducted with qualitative approaches arises
from social sciences such as sociology, educational sciences, and anthropology, it
has to be noted that whereas there are quite broad definitions of quantitative data
referring to any numerical data set applied to a piece of corresponding research, the
common understanding of a ‘quantitative approach’ differs in economics.
When it comes to economics, the simple interpretation and analysis of data is
unlikely to be called quantitative research, although the application of data from the
literature and previously-conducted research is the basis for all future research, be it
quantitative or qualitative. Only Large-N statistical regression analysis, the appli-
cation of modeling approaches such as general equilibria models or econometrics to
the end data that has a mathematical science base and variable-oriented research
approach (as opposed to a case-oriented qualitative approach), is generally under-
stood as a quantitative approach (Lieberman 2005).
This distinction is of importance in order to clarify that for economists the
research approach chosen here is understood more as a qualitative one, although
various different methodologies such as semi-structured interviews, data series and
document analysis are applied including a wide set of numbers. In respect of the
‘matrix approach of meaningfulness’ introduced above, quantitative and qualitative
research should be considered of more or less equal importance since both are
instruments that contribute to the generation of knowledge. It has to be remembered
that these different understandings within social science and economics will play a
role when talking about triangulation and mixed method research, as will be done in
subsequent sections.
Yet not all of the economic and social researchers endorse the distinction
between qualitative and quantitative research approaches and propose other
modes of distinction. Ragin (1997) classifies case-oriented (qualitative, small-N
samples) research and variable-oriented (quantitative, large-N) research, wherein
the flexible analytical framework and thereby possible theory construction is
promoted. Starr (2014) talks about ‘close’ and ‘open-ended research’ rather than
quantitative and qualitative approaches that can be applied to research. Quantitative
researchers gather data within a fixed set of dimensions that they mostly know in
advance and want to confirm or rebut, whereas in qualitative studies researchers
who conduct field studies have open-ended questions and less rigorous analytical
methods, therefore they have to apply equally clear and detailed, but different,
guidelines (Starr 2014).
Although quantitative models are more common in economics the thesis
presented here promotes the rationale of methodological pluralism. That is, in the
absence of meta-criteria by which one methodology can be shown to be unequiv-
ocally superior to all others, analyses should not be rejected solely on the basis of
methodological considerations (Davis 2012).
3.2 Selection of the Research Approach 51

3.2.1.1 Characteristics and Advantages of Qualitative Approaches

Qualitative data typically are not easy and straightforward to analyze since they
often take the form of large amounts of unstructured material most commonly from
interview transcripts, field notes such as participant observation, or other docu-
ments. The richness of that recorded data is attractive and tempting but it exacer-
bates the difficulty of finding an analytical path that provides meaningfulness. In
comparison to quantitative data, there are few well-established rules for the analysis
of qualitative data. Applying the instruments of quantitative research means that
one can work with unambiguous tools and a set of rules that is explicitly defined.
While in the analysis of qualitative data the interpretation of the collected data is
still necessary and part of the appeal and the characteristic of that research
approach; at least there are some relatively clear rules for diligent and scientific
qualitative research (Bryman 2004). However qualitative, unlike quantitative,
methodology is pluralistic, diverse and potentially faced with internal contradic-
tions. There is no objective reality and no absolute truths exist, as opposed to the
quantitative research approach. People construct their reality and interpret it. Hence
for example the analysis of semi-structured interviews is the re-interpretation of a
reality that has been constructed by the interview partner (Sarantakos 2005).
The (re)interpretation of the research topic and the environment studied follows
a different understanding in qualitative research. The approach is inductive, pro-
ceeding from the specific to the general (Sarantakos 2005). According to various
scholars, qualitative research approaches have certain strengths and distinct advan-
tages in comparison to other forms of data collection (Piore 2004; Lamnek 2005;
Bitsch 2001). Qualitative Research is dynamic, it tries to capture reality by inter-
action and intense field studies and it focuses on processes and structures. It is
detailed and informative since it works with extensive descriptions and presents the
information and data gathered in detailed and comprehensive verbal or written
form, not statistical analysis. Furthermore, qualitative research is reflexive,
empathic and holistic. It values self-awareness and reflexivity of the researcher,
tries to look at the whole study object, and the aim is to understand people not to just
measure them.
As Starr (2014) describes it in her paper on ‘qualitative and mixed methods
research in economics’, most economists tend to apply qualitative methods when
there is a clear need for extra richness of the information and complexity. This is
mostly in any or all of the following cases: (a) very little is known, (b) there has
already been a lot of quantitative research on the subject, (c) when the back-and-
forth with an interviewer promises to elicit additional information, (d) when the
topic under investigation has some inherent complexities, and (e) when the respon-
dent’s view is of importance. For example, expert knowledge and insights do not
need to be necessarily objective but it might enable an indication of possible
interdependencies within the research environment. The trust only in findings that
are numerical and therefore seemingly ‘objective’ is substituted by the reflexive
process of describing and explaining the research work in detail. This reflexive
52 3 Research Design: A Case for Methodological Pluralism

element is a lot more established in qualitative than in quantitative research, and it

enables the detailed analysis of one topic from various angles. According to Corbin
and Strauss (2008) quotes like ‘never’ and ‘always’, only represent one point along
a continuum of diverse opinions. Therefore, a multitude of interviews with hetero-
geneous stakeholders and experts from different backgrounds are conducted within
this research.
Furthermore, qualitative research brings the instantaneous perspectives of the
actual economic actors more directly into the process of producing economic
knowledge and thereby research results. This aspect might lead to an increase in
scientific validity, an objective requested from every serious research, whether
primarily quantitative or qualitative, or a combination of both. According to Flick
(2004), research which only relies on small-N cases and qualitative descriptions
will probably fulfill certain important functions such as the identification of rela-
tions, cause and effects and even the dynamics of social processes. As elaborated
upon in the previous chapter, one side of the analysis of innovation systems refers to
the evaluation of actors, networks and institutions without much history which
might be statistically formatted. Thus qualitative approaches are often considered
especially suitable for research on innovation.
Quantitative research otherwise needs rigid assumptions and conditions that
limit the value of the results. Models and calculations are not always helpful
when it comes to assisting and consulting companies, politicians and other more
practical actors. The approach of the rational decision-making ‘homo oeconomicus’
cannot necessarily be applied when looking into real life issues and problems
(Bitsch 2000). Yet when trying to understand the development and success of
innovation systems, it is necessary to evaluate the (often) personal relations
between actors, networks, and institutions—an aspect which quantitative research
normally neglects.
Another advantage, or at least characteristic, of case-oriented and qualitative
research is causal heterogeneity. Because the researchers conduct in-depth investi-
gations of individual cases, case-oriented researchers are able to identify complex
patterns of causation (Ragin 1997). In the end though, the approach of methodo-
logical pluralism was chosen because pure qualitative research has distinct flaws.
And with the help of descriptive statistics and other numerical data, validity and
reliability of expert statements from the empirical qualitative research can be
backed or rebutted.

3.2.1.2 Criticism and Shortcomings of Qualitative Research

There are several areas of criticism regarding qualitative research worth keeping in
mind. Among the most common criticisms are representativeness and generaliza-
tion; the claim that qualitative research is based on small samples and thus cannot
present representative results, nor can the results be generalized. The findings might
be questionable, especially since neither objectivity nor validity and reliability can
be ensured (Denzin and Lincoln 2005). Nevertheless, even quantitative research
3.2 Selection of the Research Approach 53

does not automatically comprise objectivity. With qualitative research, not only is
the nature of the data often uncertain but also large amounts of useless information
are produced during the process. Qualitative research is, compared with other
methodological approaches, rather time- and cost-intensive. The comparability of
research and data is not always given, just as the interpretation of the data does not
necessarily capture the true meaning of the research objects (Sarantakos 2005).
The diversity of research designs and the lesser importance of standardization,
result in different opinions regarding quality criteria within the qualitative research
community (Steinke 2008). The ideas range from no form of assessment of qual-
itative criteria at all, or the adaptation and redefinition of quantitative quality
criteria to the development of specific criteria for qualitative research (Seipel and
Rieker 2003).

3.2.2 Integrating Qualitative and Quantitative Research

Approaches

In the view of Norgaard (1989), all the different aspects of complex systems can
only be fathomed when multiple methodologies are applied and the discipline of
economics is in particular need of a more conscious approach towards methodo-
logical pluralism. That implies being conscious about one’s own methodologies,
about their advantages and disadvantages, and it requires a tolerance with regard to
the use of different methodologies.
The application of time series and other statistical data, such as yield increases
per annum, CO2 emissions per kg or kW/h production of electricity, were deemed
necessary in respect to the complexity of this research. Thus this thesis has a
qualitative based research approach and additionally applies quantitative elements.
People may ask why the elaboration of that issue is of importance. Methodological
pluralism in this case means that although primarily a qualitative approach is taken,
quantitative, numerical data contribute to the overall findings of the research;
contrary to purely quantitative research approaches that do not apply significant
qualitative aspects. This elaboration is needed not to cause perplexity about the fact
that the research of the thesis presented here is based on the concept of methodo-
logical pluralism, but rather to say that descriptive statistics and other numerical
data as mentioned above are applied, although quantitative data in the purely
economic, mathematic and statistical sense is only partially collected.
The following sections refer to questions on the integration of quantitative and
qualitative research, including the advantages and disadvantages of the application
of methodological pluralism.
What Lincoln and Guba (1985) referred to as the ‘paradigm wars’ were sharp
distinctions between quantitative and qualitative research. Only over the last years
can a trend be identified showing that the strict separation of quantitative and
qualitative research is softening. This originates from the increasing recognition
54 3 Research Design: A Case for Methodological Pluralism

that qualitative and quantitative methods are complementary rather than two rival
camps. Bryman (1992) was among the first scholars to characterize distinct com-
binations of qualitative and quantitative research and the specific advantages in
doing so. The check of qualitative against quantitative results and vice versa is
thereby looked upon as a certain form of triangulation. Quantitative approaches
analyze structural features and represent the researcher’s perspective, whereas
procedural approaches and the viewpoint of the research subject are rather
represented by qualitative methods.
The use of quantitative data that has been collected to check and review
qualitative results as mentioned by Bryman (1992), occurs in this research as
well. Furthermore, it is the objective to combine numerical and qualitative data in
order to provide a more ample picture of the research object. To elucidate, the
deductive observation of the Brazilian sugarcane complex based on a literature
review and the collection of rather quantitative data is combined with the more
inductive approach of a qualitative analysis of semi-structured expert interviews.
The analysis of journals, studies, reports and other sources regarding the sugarcane
complex in Brazil is conducted in order to base the research on reliable data, while
the qualitative expert interviews are to illuminate opinions and knowledge based on
the experiences of the interview partners that might provide particular insights.
Therefore this research is in need of a multi-level perspective (as promoted by
methodological pluralism) that integrates macro and micro levels in order to
understand interdependencies within the research environment. Triangulation and
‘mixed methods’ both aim at integrating different methodological approaches in
order to heighten the incisiveness of detail and depth of research within the studied
topic (Flick 2007). Since it seems somewhat unclear where these two research
concepts and approaches differ and what makes them exceptional, they will both be
summarized subsequently.

3.2.2.1 The ‘Third’ Research Paradigm

Tashakkori and Teddlie (2009) believe that with today’s need for research across
disciplines and the growing complexity of research, it is essential to combine and
integrate qualitative and quantitative approaches to social science research. Differ-
ent scholars have given many names to the research that is attempting such
integration as for example ‘combined, blended, mixed methods, multi-method or
multi-strategy research’ (Bryman 2006). Out of these the term ‘mixed methods’
seems to have been accepted most widely by scholars across disciplines. The idea
behind the ‘mixed methods’ approach is the pragmatic and intellectual combination
of both qualitative and quantitative research. Thus ‘the third methodological move-
ment or research paradigm’ has been declared (Johnson et al. 2007), where quan-
titative research and its methods are seen as the first movement and qualitative
research as the second movement (Flick 2004).
According to ‘mixed methods’ researchers asked by Johnson et al. (2007) to
define ‘mixed methods’ research it was stressed that all research methods have
3.2 Selection of the Research Approach 55

inherent biases and weaknesses and mixed methods research acknowledges that.
Using a mixed methods approach improves the likelihood that the data collected
will be richer. Furthermore, mixed methods research can be defined either at the
technical level as a combination of quantitative and qualitative, close and open
ended approaches and data or it can be defined at the larger theoretical paradigmatic
level. According to Tashakkori and Teddlie (2003), ‘mixed methods’ (research)
studies use qualitative and quantitative data collection and analysis techniques in
either parallel or sequential phases. Furthermore, ‘mixed methods’ research can
either imply a thorough integration and blending of qualitative and quantitative
approaches, while their essential character is retained (Sandelowski 2003) or it is
seen a ‘quasi-mixed’ approach where the two types of data sets have no serious
integration (Tashakkori and Teddlie 2003).
Furthermore, the integration of ‘mixed methods’ research can follow a dominant
and less dominant design. Within such designs the dominance of quantitative
research as the ‘actual’ research and the qualitative one as secondary and often
exploratory is still predominant (Habashi and Worley 2009). According to Creswell
and Clark (2007), researchers who want to directly compare qualitative and quan-
titative approaches and intend to answer the same research puzzle with different
research methods are applying the ‘triangulation’ design. Embedded, explanatory
and exploratory designs apply different research approaches to answer distinct
research puzzles and are therefore not of interest for this thesis.
What has been conspicuous while reading through large parts of literature, is that
a genuine ‘mixed methods’ research in economics and social science is often
referred to only if a quantitative as well as a qualitative research has been done
within one study, report or any other research project (i.e. two types of question-
naires). This may result in a highly complex research design and approach. The
predominant majority of cases and studies that applied such a genuine integrated
approach were conducted by research teams and not individual scholars. And since
no individual quantitative research was conducted within this thesis and ‘only’ time
series and other numerical, statistical data were collected, the requirements for a
genuine ‘mixed methods’ approach will, according to the author, only partly have
been fulfilled. Nevertheless, according to Johnson et al. (2007), there are less
restrictive opinions on mixed methods research, such as where a mixture within
the same research approach is considered admissible. They refer to the situation
when different qualitative research methods are applied.
The concept of triangulation, although mentioned above as one of the most
common ‘mixed methods’ approaches has been interpreted slightly differently by
various scholars, and it therefore seems to have a little less rigorous definition,
allowing the integration and combination of different research methodologies, be
they qualitative, quantitative and numerical; and it does not close the doors upon the
analysis of further methodological approaches.
Problems and shortcomings of ‘mixed methods’ approaches have been discussed
by many scholars who argue that broadening the spectrum of research and analysis
does not guarantee better results (Lamnek 2005). It seems as if there is no evidence
that studies based on ‘mixed methods’ research necessarily produce more valid
56 3 Research Design: A Case for Methodological Pluralism

results than ‘single-method’ approaches (Sarantakos 2005). The researchers may

even find themselves in situations where they have to deal with contradictory
findings of the separate yet integrated qualitative and quantitative research
approaches. Or the design of the research is of such high complexity that no
coherent answers can be identified. And after all, a ‘mixed methods’ approach is
probably more time and cost intensive than most ‘single-method’ research designs.

3.2.2.2 Distinctions of Triangulation

The discussion about triangulation within social science research is already ongoing
since the 1970s when Denzin (1970) created a more systematic conceptualization.
The combination of different research methodologies was applied by using seem-
ingly objective indicators and natural sources such as bibliographic statistics and
subjective statements, such as interviews. The development of the ‘grounded theory
methodology’ by Glaser and Strauss (1967) was crucial for the renewed interest in
qualitative research partly because they proposed to go beyond the application of
just one technique of data collection and use a variety of different data sources.
Furthermore, they perceived that by using different data sources and thereby
different vantage points and observations, the reliability of the research would be
improved (Flick 2011).
With the increased acknowledgement of interdisciplinary research, the applica-
tion of ‘mixed methods’ and an integrated empirical assessment, the idea of
triangulation was subject to even greater recognition. Part of this appeal was
based on the assumption that a reflexive approach could essentially increase
validity of the research by re-enacting the steps taken.1 This implies that the
research task not only consists of analyzing and assessing the data collected, but
furthermore of evaluating the chosen approach and design of the research (Brake
2011). Thus triangulation has a strong objective to review and ensure the consis-
tency, the re-enactment and the complementary of the research results.
In addition, since triangulation implies research of multiple methods and from
different perspectives, it is inherent to the concept of triangulation to approach the
research topic on different levels (Hummerich and Kramer 2011). Likewise, the
analysis of innovation systems as they were referred to in the previous chapter
should take place on different levels (product/process and institutional level), and
from different perspectives (micro, meso and macro), and therefore the triangula-
tion method seems adequate when evaluating the innovation aspect of the sugar-
cane complex.
According to Johnson et al. (2007) some scholars also distinguish ‘within-
method’ (only a single research approach, be it qualitative or quantitative) triangu-
lation and ‘between-methods’, which involves both quantitative and qualitative
methods. Thus triangulation can take place either when combining qualitative and

1
The section on Qualitative Content Analysis (Sect. 3.2.3) will elaborate more on this issue.
3.2 Selection of the Research Approach 57

quantitative research or when referring to the combination of different qualitative

methods (Flick 2004). For example it could happen when cross-checking different
qualitative approaches such as in-depth interviews, case studies and site visits
and/or applying rather quantitative data such as time series, descriptive statistics
or any other numerical data collection (Starr 2014).
The different methods of triangulation can be applied by merging, embedding or
connecting the data sets from data collection to data analysis (Creswell and Clark
2007) whereas the researchers can choose any combination of connecting, merging
and embedding the data. Within the thesis presented here, the qualitative data result
from the analysis of the transcribed interviews. This analysis is conducted by means
of computer software called ATLAS ti. This program is designed especially for the
evaluation and analysis of transcribed interviews and other qualitative data. The
application of the ATLAS ti software is elaborated in detail in the empirical
Chap. 4. In the same chapter, the qualitative data analyzed with the above-
mentioned software is then coalesced with the descriptive numerical and statistical
data resulting from the literature review in order to interpret and discuss the
produced results. According to Creswell and Clark (2007), the collection of data
happens rather sequentially, whereas the data interpretation takes place in a con-
current manner.
This is why the research design applied within this thesis is a triangulation of
data and methodology. Triangulation is chosen because the application of different
data, methodologies and research approaches is possible without having to create
and conduct explicitly one each of qualitative and quantitative research, in contrast
to the application of genuine ‘mixed methods’ research (in the narrow sense) which
implies the development, application and analysis of a qualitative and a quantitative
research and their overall integration within a single research project. Furthermore,
as mentioned above (Sect. 3.2.1), research on innovation and dynamic environ-
ments is prone to qualitative approaches since historical data are often missing.
Triangulation makes sense here because of the increased consistency and validity
when descriptive statistical and other numerical data are coalesced with qualitative
research results.

3.2.3 Strategies for Qualitative Research: ‘Qualitative

Content Analysis’

The previous sections concluded a detailed discussion on why qualitative and

mixed-methods research is apt for investigating the dynamics of the Brazilian
sugarcane sector. The research design with regard to triangulation and thus the
application of different methodologies was explained at length. In this following
section, the strategy for the analysis of qualitative research which was chosen
within this thesis is presented. The distinct characteristics of the so-called ‘quali-
tative content analysis’ are elaborated upon.
58 3 Research Design: A Case for Methodological Pluralism

In principle, ‘qualitative content analysis’ is applied to evaluate different kinds

of data. It is mostly used for the analysis of written material although works of art,
maps, and signs—among others—can be interpreted and analyzed as well
(Krippendorff 2010). Content analysis is regularly applied for the analysis of
semi-structured interviews. The methods presented by Philipp Mayring are
among the most common ones in the German social science community and
these are subsequently referred to (Seipel and Rieker 2003). Qualitative content
analysis is generally applied in order to structure, combine and summarize content
of written or transcribed documents. The concept implies the evaluation of the
respective material by using codes and categories to break the content down into
segments. Important is the systematic character of the evaluation. Hence, qualita-
tive content analysis is supposed to facilitate the comprehension of texts and the
review of the analytical process.
The ‘structured content analysis’ as part of the qualitative content analysis by
Mayring signifies the assignment of specific sections and texts to designated criteria
and categories. The complete data set is coded along this system of categories in
order to identify specific features as well as their relations (Seipel and Rieker 2003).
When assigning the selected texts to certain codes and categories during the
qualitative content analysis, it is of importance that this process of assignment
can be fathomed and reviewed. According to Mayring (1985), this review process
demonstrates the reliability of the analysis. The application of the qualitative
content analysis follows a rather open approach where deductive and inductive
development of categories is central. Categories are derived from the collected data,
and during the inductive development of categories general assumptions are made.
Gradually categories are established and defined by reviewing the data. Yet cate-
gories are derived in a deductive manner as well. Literature analysis, for example,
enables the identification of central questions and ongoing discussions within the
field of one’s research. These issues can represent important categories and codes
within the qualitative data base. After the creation of categories and codes,2 both
can be modified and redefined when applying feedback loops which are created by a
revision of the data.
In order to provide a traceable and comprehensible research and analysis of
qualitative data, certain aspects are deemed essential for the application of the
qualitative content analysis which can be described as criteria of validity (Mayring
2000). These criteria allow a continuous revision of the working process and an
explanation of the created codes and categories which are repeatedly subject to a
feedback process. This may lead either to an aggregation or a hierarchical ranking
of codes and categories, or to an exclusion of codes that were not referred
to. Revision processes are recommended after the analysis of 10 %, 20 % and

2
Categories are understood as a hierarchical higher ranking classification than codes or coding
which are used as synonyms. Codes are on a lower hierarchical level and are assigned to
categories.
References 59

possibly after 50 % of the qualitative data set. Within the qualitative content
analysis, coding is understood more as a methodical tool.
The qualitative content analysis is the instrument for the analysis of the empir-
ical data and explains how it is done in order to ensure reliability. According to
Mayring (2000), computer software that facilitates the application of ‘qualitative
content analysis’ has made huge progress over the last years. Some of these
programs feature tools that assist with text analysis, allow the documentation of
the conducted analytical steps and offer quantitative evaluation methods. ATLAS ti
is listed as one of the suitable programs and it is applied within this research.
Finally, after reading in length about different research approaches, qualitative
or quantitative methodologies, the most fitting approach for the research puzzle had
to be selected and applied according to the author’s own personal capability.
Whether it is the most elegant and fitting approach may be uncertain but in the
end as Davis (2012) points out perfectly:
the necessity of a perspective implies the inevitability of criticism.

When considering the research puzzle and the goal of this research, the chosen
approach seems to be well-suited.

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Chapter 4
Empirical Research—setor sucroenergético
in Brazil—From the Experts’ Mouths

Brazil’s ethanol and other biofuels are produced in ever-

improving conditions
Luiz In

acio Lula da Silva, 64th UN General Assembly,
New York, 23 September 2009.

Abstract Initially an explanation is given for how the expert interviews were
conducted and structured within this main empirical chapter. The strategy for
identifying the experts that were interviewed is elaborated upon the evaluation of
the recorded and transcribed interviews by applying qualitative data analysis
software is explained followed by a presentation of the reasons for the success of
sugarcane over decades and centuries and its significance for the Brazilian agricul-
ture and rural areas. From the initial governmental program Pro-Álcool to the recent
crisis of the sugarcane sector the last three decades are explained in more detail. Yet
the main focus of Chap. 4 is the empirical analysis of the data compiled. The
qualitative data is presented as statements from the expert interviews and then
matched with insights, statistical and other data from the literature review. With
reference to the innovation system approach there are five ‘physical’ technologies
(mechanization; cogeneration; new technologies; second generation biofuels and
genetically modified cultivars) that are analyzed in detail. An assessment of the
‘social’ technologies with a national and international perspective (institutions,
strategies and politics; laws, regulations and enforcement; industrial cooperation;
concentration and internationalization; certification and market demand) follows.
Subsequently these technologies and innovations and their interdependencies are
evaluated in order to understand whether the sugarcane complex can be classified as
an innovation system. The chapter concludes with analysis of the impacts of
innovation on ecological, economic and social aspects in order to cover the multi-
dimensionality of sustainability.

Now that theories on sustainable transition and innovation systems have been
presented and discussed, the research design portrayed and the reasons for a
qualitative empirical research elucidated, this subsequent chapter represents the
principal section of the empirical analysis. Chapter 4 combines the interviews with
descriptive statistics from the literature review and applies the triangulation

© Springer International Publishing Switzerland 2015 63

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7_4
64 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

approach presented in the previous chapter. This chapter will refer repeatedly to the
qualitative data that was collected during the three research visits in Brazil.
Statements from the transcribed expert interviews that are of relevance for elabo-
rating arguments on innovation and related dynamics within the sugarcane complex
will be quoted, already translated into English, and then matched with insights,
statistical data and other data from the literature review, when available.
It has to be kept in mind when analyzing the empirical data that no absolute
truths are contained within qualitative (as well as quantitative) data and research
while irregularities and contradictions are often present. The following empirical
analysis presents individual, personal opinions, ideas and insights from the
interviewed experts of the Brazilian sugarcane complex. This distinct and unique
knowledge is gathered and evaluated without forgetting the bigger picture by
keeping in mind that the opinions expressed might be valid only in a local or
regional context, or that they may not withstand diligent scrutiny when referring to
the literature review. Despite this, the empirical analysis of expert interviews
promises particular insights into the Brazilian sugarcane complex. This research
respects and utilizes the advantages and benefits of qualitative research without
ignoring the difficulties and limits of its applicability.
As Sect. 3.1 already elaborated on, why Brazil was chosen as the case study, this
chapter starts with a detailed description of how the empirical research process was
conducted. First of all, the technicalities of conducting semi-structured interviews
as opposed to structured and unstructured interviews are explained as well as why
they are deemed most fitting for the research presented here. The strategies of
choosing the experts interviewed are subsequently elaborated, followed by a
detailed description of the ATLAS ti software and how it was applied in the analysis
of the transcribed interviews. Thereafter, the development of codes and categories
within ATLAS ti along Mayring’s (1985, 2000) qualitative content analysis
approach is explained in detail. The total number of codes derived from the
interviews analysis is presented while the codes that are explicitly considered in
the analysis of the sugarcane complex as an innovation system are highlighted.
After detailed elaborations on the procedures of the empirical analysis in
Sect. 4.1, a short historical overview over the sugarcane crop in Brazil and its
principal characteristics regarding plant growth and cultivation will be given in
Sect. 4.2. Thereafter, Sects. 4.3–4.6 are structured along the research questions
presented in Sect. 1.2. Sections 4.3 and 4.4 comprise the codes of analysis, referring
to the Energy Technology Innovation System (ETIS) approach. In Sect. 4.3 the
product/process level perspective that moves along the innovation cycle from R&D
to diffusion of technology originating from the ETIS approach is assessed. For
example, current technologies that have reached the market formation or the
diffusion phase, such as cogeneration units, are analyzed along this perspective.
Section 4.4 refers to the institutional level perspective that relates to actors,
networks and institutions, which are actively influencing the sugarcane sector in
Brazil according to the ETIS concept. The most important stakeholders are
described and their influence is discussed by applying coded expert statements
and numerical analyses relative to the respective issue. The data needed for the
4.1 The Empirical Approach: Conducting Research in Brazil 65

analysis is derived from the interviewed experts and contrasted with results and data
from the literature review. Section 4.5 will conclude the previous analysis on the
product/process and the institutional level and thereby identify feedback loops,
interdependencies and cooperation within and between levels. The adherence to the
requirements of certification for instance, exerts a strong demand pull originating
from international actors on the institutional level and might require, at least for
some certification schemes, adaptations on the product/process level in order to be
eligible for certification. Section 4.5 will provide an evaluation on to what extent
the sugarcane complex can be considered an innovation system. Section 4.6 aims to
answer the third research question. Thus the objective is to analyze the effects the
possible innovation system of the sugarcane complex has on different aspects of
sustainability by analyzing the codes ‘Expansion’, ‘Economic Impacts’, ‘Employ-
ment’, and ‘Emissions’.

4.1 The Empirical Approach: Conducting Research

in Brazil

The main empirical method chosen within this doctoral thesis refers to the use of
computer software which is applied for the qualitative analysis of semi-structured
interviews with Brazilian experts of the sugarcane complex. The research was
performed in several stages: literature review, creation of an interview guide, and
semi-structured interviews with experts of the Brazilian setor sucroenergético as
well as data analysis. During stage one and throughout the project period, document
analysis was one of the main sources of information. The literature review was
conducted to determine issues linked to the most pressing and most heated debates
and topics (in the scientific community and beyond) referring to biofuels with a
focus on Brazilian sugarcane ethanol and the sugar industry in total.
At the second stage, the semi-structured interviews were prepared and tested and
first field studies were conducted in Brazil. The collection of the empirical data
during the field studies was mostly qualitative yet some numerical data was
gathered as well. The empirical data collected was transcribed, analyzed, and
discussed internally with colleagues from the project team as well as externally
by presenting and discussing some of the first results with Brazilian experts. This
complies with the requirements of the qualitative content analysis which constitutes
the methodology of the empirical analysis. In the following section the methodo-
logical approach of how the interviews were conducted is presented as well as the
methodology behind the selection of experts.
66 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.1.1 The Interviews

In general, interviews for qualitative research tend to be much less structured than
in quantitative analyses. According to Bryman (2004) structured interviews need to
be conducted with strict adherence to the order and wording of the questions. The
interviewer has a clearly specified set of questions that need to be answered and the
interview should be designed in a manner to facilitate answering of these questions.
The interviewer’s bias needs to be reduced to a minimum by using the same tone,
style, appearance and acting in a neutral manner in order to achieve the highest
objectivity and uniformity in the process. These types of interviews are generally
used in quantitative research (Sarantakos 2005). Unstructured interviews that are
often applied in qualitative research contain an unspecific number of open questions
whose wording and order can be changed at will. High flexibility of the interviewer
is demanded as it is an in-depth interview used in order to understand the complex
behavior of the individual(s) interviewed (Punch 2005).
Within the research presented here, semi-structured interviews were applied
which function as a combination of the structured and the unstructured types and
which contain elements of both. Some are closer to structured interviews whereas
others can be rather unstructured (Bryman 2004). It is quite a common type of
interview in qualitative research but it is being used in quantitative approaches, too.
The semi-structured interview requires guidelines which are developed prior to the
first interviews conducted. The guidelines set the framework for the central issues
that will be discussed in the interview. They can differ widely when it comes to
questions which can be either direct questions, catchwords or a rephrasing of
mentioned topics. To pose a question once is often not sufficient in order to
understand certain issues and complexities so it is necessary to ask about detailed
relations of the discussed topics (Seipel and Rieker 2003). Flexibility, openness to
change, reflexivity and an in-depth knowledge about the research topic are therefore
among the most requisite attributes when conducting a semi-structured interview.
Since it is a characteristic of the unstructured and semi-structured interviews that
the way of questioning or the questions themselves need to be adapted to the
respondent and the situation, it is mostly necessary that the interviews are
conducted personally by the researcher (Weischer 2007). The design of the semi-
structured interview clearly shows that it is far from being an easy approach or
methodologically weak, rather such an interview requires a highly concentrated
interviewer who needs to have sufficient competence in the matter discussed and a
distinct ability on the side of the respondent in order to verbalize opinions, ideas and
empirical values (Sarantakos 2005). Figure 4.1 illustrates the different above
discussed interview types.
According to Piore (2004), interviews are material collected in narrative form.
The way that such narratives are analyzed and interpreted can range from a
statistically oriented approach (word counts) over the literary tradition of interpre-
tation (content analysis, as in this thesis) to the more abstract form of regarding the
narrative itself as the unit of observation. Thus, it is not only the content that is
4.1 The Empirical Approach: Conducting Research in Brazil 67

Focused or
Structured interviews semi-structured interviews Unstructured interviews

Standardized interviews In-depth interviews In-depth interviews

Survey interviews Survey interviews Clinical interviews
Clinical history interviews Group interviews Group interviews
Oral or life history interviews
Applied here

Fig. 4.1 Interview types in quantitative and qualitative research. Based on information from
Punch (2005)

important, but also the recognition and behavior of the interview partner (Piore
2004).
Open-ended and semi-structured interviews are ways of discovering how the
experts interviewed think about the world. The interviews do not reveal a set of
specific answers to specific questions but rather a pattern of response. Those
patterns are clues to the mental processes of the economic participants (Piore
1979). Interviews are one central form of case-study research. The direct contact
of the researcher with the ‘researched’ implies directness, actuality and reality of
the research subject. So-called ‘empathic neutrality’ is a great help during the
interviews. This signifies that researchers need to be aware of their own bias and
not take sides, while simultaneously the personal experience and the empathic
insight of the researcher are relevant for understanding phenomena of the research
puzzle (Bitsch 2001).
As already mentioned above, the empirical research approach chosen was to
conduct semi-structured interviews with experts from the Brazilian sugarcane
complex. The qualitative expert interviews are supposed to fulfill two purposes.
First, particular insights and special knowledge on all levels (micro, meso and
macro) ought to be identified and gained by conducting personal interviews with
different actors within the sector. The dynamics of the current sugarcane complex
are so rapidly moving that an exploratory qualitative analysis such as open inter-
views with Brazilian experts will help to identify developments that might not be
possible to grasp with a purely quantitative approach. Second, by interviewing
multiple actors who are all representatives of certain institutions, knowledge will be
gained on how the relations between different institutions around the sugarcane
sector are structured. That might allow the author to identify interdependencies and
cooperation on the product/process as well as the institutional levels and thereby
better understand the dynamics and developments of the Brazilian sugarcane sector.
When conducting the analysis of the selected codes, relevant statements that are
derived out of the expert interviews are quoted. Those statements reflect the
experiences, opinions and expertise of the experts. These distinct insights thereby
elucidate aspects of a certain technology or a governmental policy, or a compre-
hension of sugarcane expansion and thus a proposing or opposing assessment of the
respective expert.
68 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

This process of analyzing the content of transcribed interviews represents the

core of the qualitative data analysis. From the huge amount of qualitative data that
has been collected and analyzed, the quoted statements as the condensed knowledge
of over 40 experts of the Brazilian sugarcane complex constitute the most valuable
and innovative part. Referring to these experts, opens a unique doorway to under-
standing and illustrating mechanisms that have led to the current situation and that
might imply interdependence within and between the different levels of the possible
innovation system sugarcane.
For the sake of readability, the expert statements that are analyzed in the
subsequent Sects. 4.3–4.6 are already translated into English, even if most of the
interviews were conducted in Portuguese. It is noted that peculiar and distinct
notions of the Portuguese language and purposeful choice of words and terms
might be lost in translation. But within this specific qualitative analysis, the explicit
arguments within the transcribed text are of importance rather than the narrow word
by word translation. Thus, as long as the meaning of the argument is transported,
the rough translation of the author should be excused.

4.1.2 The Experts

Since ‘good science’ is often equated with the faith in objectivity (Starr 2012), and
the quality of self-reported information can be potentially problematic it is neces-
sary to talk to experts. Expert interviews are often semi-structured and aim at the
collection of particular information, knowledge and experiences the experts might
divulge during the conversation. Expert interviews are of interest due to the
continuous process of differentiation that accompanies the increasing specialization
of labor. Experts have a specialized knowledge and unique insights into institutions,
processes and the impacts of certain measures taken. This does not imply that the
experts represent per se the ‘right or incontestable knowledge’ but they and their
knowledge are at the same time part of a specific context and part of reflexive
knowledge about that context (Weischer 2007). Therefore, they are affiliated and
aligned with their respective environments. The selection of the experts followed
the theoretical considerations of Bogner and Menz (2009) and Gläser and Laudel
(2004) implying the prerequisite of privileged access to information and societal
acknowledgement as an expert.
The requirements of the research approach of covering a large variety of
perspectives and opinions on the developments and dynamics of the Brazilian
sugarcane complex were tried to be met by including the most ample range of
actors, networks, and institutions possible within the limited means at the disposal
of the ‘Biofuel as Social Fuel’ project. Thus the institutions and experts were
identified by a twofold strategy that was oriented along different methods of
sampling. The methods applied were a mixture of snowball sampling, sampling
based on theoretical saturation, and convenience sampling (Collins et al. 2007).
4.1 The Empirical Approach: Conducting Research in Brazil 69

First, our project partners in Brazil were approached as the starting point for
selecting and conducting the expert interviews since all of those partners them-
selves are experts on various topics related to biofuels in Brazil. Furthermore,
during the first research stay in 2010, the largest agricultural trade fair in South
America named ‘AgriShow’ was visited, located in Ribeirão Preto which is con-
sidered the nucleus of sugarcane cultivation in Brazil. At the end of each interview,
the respective experts were asked about further interview partners and stakeholders
of the sugarcane sector they could recommend, thereby creating a cascading
approach of identifying experts. Sarantakos (2005) calls this method the ‘Snowball
Sampling’ which can be combined with any other sampling method. This process
lasts until either no more respondents are available or no more substantial infor-
mation can be gathered, implying that some kind of saturation is reached.
Second, as mentioned above, it was considered essential that the sample of the
interview partners would be as heterogeneous as possible. This was based on the
method of ‘theoretical sampling’ by Glaser and Strauss (1967) and Strauss and
Corbin (1998). For a successful sampling it is important not to adhere too rigidly to
initial questions since that might prevent new insights which limit the amount and
type of data that can be gathered (Corbin and Strauss 2008). According to their
approach, the sample units—in this case the respondents—are determined by the
insights emerging from the research process. Thus the information gathered during
the research, including the experience and knowledge drawn from the expert
interviews, determines who the next respondent will be.
Furthermore theoretical sampling should be understood as a cumulative process.
Each sample (respondent) builds upon previous data collection and analysis, and in
turn contributes to the next data collection and analysis. During that process,
sampling becomes more and more specific because the questions become more
specific until saturation is reached—when no new information is gathered from the
answers. A limit, and therefore ‘saturation’, can also be reached through scarcity of
money, time, and/or energy (Corbin and Strauss 2008). Finally, according to
Collins et al. (2007), convenience sampling implies a selection of settings, groups
and individuals that are conveniently available and demonstrate a willingness to
cooperate and participate in the respective study.
Throughout the field studies and research periods in Brazil, the above mentioned
sampling methods were applied as thoroughly as possible. More than 40 interviews
with experts from industry, government, NGOs, business associations, universities
and research institutions have been conducted (see Fig. 4.2). Though the sample
size is not large enough for most statistical methods, the number of interviews is
relatively extensive for qualitative research. To gather an ample variety of opinions,
attitudes and standpoints was of importance for the research process (Collins
et al. 2007).
Furthermore, the eligibility of the institutions selected for the expert interviews
could be validated by an article published by a Brazilian research team, listing key
institutional actors building the basis for innovation processes within the sugarcane
industry (Furtado et al. 2011). Most of the actors and institutions listed there have
been interviewed during the research periods. It should be mentioned that the
70 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Background of the interviewed experts -total 48

Business
associaons (5)

Universies (12) ABIOVE,

UNICA,
APLA
ESALQ, USP, UFRJ,
UFSCAR, UFMG

Amyris, BNDS,
Bosch, Canavialis, Companies (13)
Case, Cevasa,
Coplacana,
Evonik, Gascom,
Pastobras, SGS,
Santal, Tonon
Research instutes - public CTC, Embrapa,
and private (7) IAC, CGEE,

WWF,
Casa Civil,
Imaflora,
MAPA,
Greenpeace,
MME,CONAB,
Rede Social,
Sebrae, SMA-Sp
Reporter
Brasil, Government
instuons (6)
NGOs (5)

Fig. 4.2 Classification of the Brazilian experts from the sugarcane complex

saturation effect described by the method of theoretical sampling could to some

extent be experienced during the last interviews. Most of the aspects mentioned by
the respondents were not new to the interviewer, as opposed to the beginning of the
research when the interviewer was rarely aware of facts that were quite common
knowledge among experts of the sugarcane sector.
The classifications of the experts interviewed were carried out according to their
respective background. Six classification groups were identified: (1) Business asso-
ciations, (2) companies, (3) government institutions, (4) NGOs, (5) public and
private research institutes, and (6) universities. Some of the experts interviewed
were affiliated with more than one institution. All of the interviewed actors had a
particular expertise that led to new insights. Some institutions were visited repeat-
edly because different experts within the same university or business association
were interviewed. Having consulted such a variety of experts affiliated to a multi-
tude of institutions, it seems difficult to make generalizations regarding their
opinion of the setor sucroenergético. Nevertheless, some tendencies could be
observed.
Business associations, as well as companies that represent sugar and ethanol
mills, supply industries, biotech companies or financial institutions are strong pro-
ponents of the sugarcane complex and regard most impacts of the cultivation and
processing as beneficial. The interviewed government institutions mostly support
the existence and development of the industry because of energy supply, rural
4.1 The Empirical Approach: Conducting Research in Brazil 71

development and export possibilities, areas that are positively impacted by the
sugarcane complex. Yet regarding the involvement of the government itself, there
are diverging opinions. The international NGOs see some positive developments
within the sugarcane complex while the national NGOs with a strong social focus,
clearly reject the industrial production systems of the sugarcane complex as well as
the current agricultural production system in general and the distribution of land in
Brazil as unjust and unfair.
The research institutes consider the setor sucroenergético as an industry which
still has huge potential with regard to efficiency increases especially in upstream
technologies such as crossbreedings, new cultivars and other production technolo-
gies. The experts from the universities are probably the most diverse group. While
engineers and economists tend to be proponents of the sugarcane complex and
believe in advantageous impacts, scholars from the social sciences are more
cautious and tend to focus on the negative impacts, deeming the industry less
beneficial. Although that evaluation might be quite generalized, some of these
insights are helpful to keep in mind when reading the experts’ statements in the
subsequently sections. For a more elaborate work on stakeholders of the Brazilian
biofuels sectors see Giersdorf (2012).
The above mentioned classifications were adopted when the transcribed inter-
views were analyzed with the ATLAS ti software since a comparison of the
different classifications of the experts (within the software they are called ‘fami-
lies’) might lead to additional insights. Relations between experts from different
backgrounds, for example government institutions and business associations are
mentioned when identified within the interviews or the literature review and when
relevant for the existence of an innovation system within the sugarcane complex.
It has to be kept in mind that when the interviews are analyzed and interpreted
the possibility exists that the world is truly chaotic and doesn’t fit anybody’s model
and their assumptions. And sometimes the actors themselves either consciously or
unconsciously link together events that do not actually have a causal relationship by
using proximity in time and space as a kind of pseudo-causality (Piore 2004).
Therefore, triangulation and cross-checking with numerical and statistical data is
of great importance to guarantee valid results.

4.1.3 Computer Assisted Qualitative Data Analysis: ATLAS

ti Software

The analysis of the recorded and fully transcribed interviews follows methodolog-
ical recommendations by Mayring (2000) such as inductive and deductive category
development and the application of software. The interviews are analyzed and
coded by using the qualitative data analysis software ATLAS ti. Coding can be
understood as the process to categorize different arguments, opinions or descrip-
tions regarding a specific issue stated by the experts interviewed (Friese 2011). This
72 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

process guarantees increased traceability and transparency of the analyzed data and
the results discovered. It is important to state that the ATLAS ti software is a tool
that supports and facilitates the analysis, but the interpretation of the given data is
still subject to the researcher.
In order to comply with the traceability and reliability demanded by qualitative
content analysis which has been elucidated previously, the development of codes
and higher ranking categories are explained subsequently in more detail. At first,
specific topics related to current debates on biofuels were identified during the
literature review and were established as possible categories and/or codes. The food
versus fuel debate, the potential market demand by the European Union and the
United States as well as the topic of certification were considered as the first
categories and codes and were therefore derived in a deductive approach.
Additionally, the first transcribed interviews were analyzed by using the ATLAS
ti software. During the interview analysis, statements of the experts in the sense of
text sections and phrases were coded. When no predetermined, already-listed codes
existed within the software program and a new topic was identified within the text,
this inductive approach was called open coding within the ATLAS ti software.
Figure 4.3 should give an idea how the software is applied to a transcribed text.
Selected text passages are coded which is indicated on the right pane of the screen.
Using software for the evaluation and analysis of qualitative data has several
advantages. The various steps of data analysis are documented by the program and
therefore can be re-enacted and replicated. The different comments, thoughts and
memos that were made during the analysis are traceable and documented. Some
quantitative analysis can result out of the qualitative work such as the frequency of
certain codes or stakeholders. These aspects and applications among other things
increase the validity of the qualitative data as demanded by the qualitative content
analysis.
The principal aim of applying ATLAS ti is the formation of an analysis on
different hierarchical levels. These analyses contain the main aspects of the
research and are developed further during the evaluation of the interviews. On the
highest hierarchical level seven so-called ‘higher-ranking categories’ were devel-
oped during the evaluation of the interviews. These categories range from a macro
perspective with a rather institutional reference to a level where single products and
processes are combined. All relevant topics that are identified during the analysis of
the interviews are subsumed in one of those seven categories. These topics are
called ‘codes’ within the ATLAS ti software. A detailed explanation of the devel-
opment of the most relevant and dynamic codes and their assignment to the
respective ‘higher-ranking categories’ is given below.

4.1.4 Selection and Application of the Codes

In order to increase the quality of the coding according to Habashi and Worley
(2009), the codes, categories and subcategories should be double-checked by other
4.1 The Empirical Approach: Conducting Research in Brazil 73

Fig. 4.3 Screenshot ATLAS ti—sample of codes

scholars, especially when research is done within groups and joint programs. Thus
the assignment of the codes was conducted by the author of the thesis and by
another colleague employed by the ‘Biofuel as Social Fuel’ project in order to
achieve a less biased labeling of the respective text sections that were coded. As a
native speaker of the Portuguese language, the colleague was to check whether the
author’s understanding of the transcribed texts was correct. In addition, a workshop
was held in Piracicaba to discuss the codes and categories with Brazilian experts.
To answer the research question as to what extent the sugarcane complex can be
understood an innovation system, the ‘codes’ (the dynamic areas) summarized
under the higher-ranking categories that are assigned to either the product/process
level or the institutional level will be analyzed thoroughly. The cooperation of
actors, networks and institutions will be looked upon and possible feedback loops
on the product/process level evaluated. The analysis on different system levels, the
interdependencies between physical and social innovations will hopefully provide a
better understanding of the sugarcane complex and the mechanisms at work within
an energy technology innovation system.
The analysis of sustainability aspects within the setor sucroenergético will also
draw data in the form of codes from the transcribed interviews. The objective is to
evaluate what kind of impacts the physical and social technologies presented within
the ETIS analysis have on certain topics with the category ‘sustainability aspects’.
This assessment represents the final stage of the three-stage research process
elaborated in Sect. 1.2. Topics referring to ‘sustainability aspects’ are likewise
identified by the interviews and the literature analysis and might allow a conclusion
74 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

as to whether the Brazilian sugarcane complex, even when considered an innova-

tion system, contributes towards sustainable mobility and a general transition to a
more sustainable economy.

4.1.4.1 Feedback Processes and Code Selection

After 10 % of the interviews had been analyzed, the assigned codes derived from
the openly-coded ones and the codes deducted from the literature review, both code
types were conflated. This reflexive feedback corresponds to the revision processes
required when applying the qualitative content analysis. Figure 4.4 portrays the
results of the first feedback meeting. Two more feedback meetings were held, after
30 and 50 % of the interviews were coded. The amount of codes was reduced by
either merging similar or redundant codes, such as ‘politics’ and ‘government’ into
one single code, or by deleting codes which deemed insignificant due to a frequency
lower than ten within all of the analyzed interviews. Another reason to reduce the
number of codes was the immense amount of data and information comprised
within the qualitative data which needed to be restricted.
The shortcomings and risks that might emerge from determining frequency as a
selection method were considered within this thesis when the final codes and
categories were analyzed and selected. It often holds true that the more frequently
the topic is mentioned the higher the importance of that topic. Nevertheless it needs
to be taken into account that frequency does not imply an automatic correlation with
meaningfulness and importance. Frequency can have multiple causes and thus the
relevance of a topic cannot always be derived from it. For instance high frequency
might indicate a highly conflicting or newsworthy topic. Conflicting topics, how-
ever, very likely indicate a dynamic topic or subject which then should be consid-
ered as well when analyzing the dynamics of the sugarcane complex. As previously
mentioned in Sect. 4.1.3, conflicting topics such as the food vs fuel debate and
certification were initially considered as categories and codes of importance.
Additionally if, during the interviews, the discussion with the Brazilian experts
of the sugarcane complex touches upon certain topics such as social or ecological
ones, it can be expected that provenance and occupation of the interviewer—in this
case a social scientist from Germany—influences the statements and opinions
uttered by the experts. This effect is likely to occur within expert interviews and
qualitative research and might additionally affect frequency of certain topics.
Nevertheless the overall amount of interviews conducted by the same researcher
and the multitude of experts with different institutional backgrounds consulted is
likely to confirm that a topic which is mentioned frequently by different experts
does indicate relevance and importance.
To ensure reliability and validity of the codes and categories, the identified
statements within the analyzed interviews were compared with information pro-
vided within other research (Huertas et al. 2010; Mayring 2000). In order to further
increase the external reliability and validity of the codes and categories, at the end
of 2012, a final workshop was conducted in Piracicaba (‘First Workshop—ESALQ
4.1 The Empirical Approach: Conducting Research in Brazil 75

Fig. 4.4 Feedback meeting—revision and clustering of inductive and deductive codes

& PIK: Future of the Sugarcane Industry: Potentials, Limits and Perspectives’), at
the ESALQ (‘Luiz de Queiroz’ College of Agriculture), affiliated with the Univer-
sity of São Paulo, where some of the interviewed experts were invited and some
pre-results of the interview analysis were presented. The feedback of the experts
was incorporated into the revision of the codes and categories in order to check the
practical relevance and validity of the results.
Out of these feedback loops the final codes and categories were developed.
Figure 4.5 gives an overview of the codes and the higher ranking categories that
have been derived from inductive and deductively assigned codes and categories.
Overall, there are seven categories generated and a total of 61 codes, each one
assigned to one of the categories. The color scheme of the categories and the codes
have no other purpose than to facilitate their application since it helps to distinguish
the assigned codes within the ATLAS ti software.
Although representativeness is not necessarily an essential outcome in qualita-
tive research, the frequency of coding has been a principal criterion for the selection
of codes which are applied for the analysis of the sugarcane complex as a possible
innovation system. Additionally, the frequency of stakeholders (be it companies,
institutes or other institutions) that are mentioned during the interviews is of interest
within the research presented, since it is considered an indication for the importance
of the respective institution.
76 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Product/Process Level Codes of Analysis Instuonal Level Codes of Analysis Sustainability Codes

Agricultural Industrial Research and Geopolics of Markets Regulaon Sustainability

Processes Processes Technology Energy and Norms Aspects 7 Categories
11/656 8/320 7/354 10/517 10/503 6/329 9/439

Mechanizaon Cogeneraon New Cerficaon Market Governmental Land Effects,

(122) (94) Technologies/ (100) Demand (92) Instuons, (Expansion,
R&D Aspects Strategies and iLUC) (127)
Employment (138) Concentraon Polics (131)
Industrial
(108) EU (72) & Internaon-
Cooperaon Economic
(94) alizaon of the
Laws, Impacts (98)
GMO (48) Public Opinion sector (83)
Methods of (65) Regulaon and
Producvity Enforcement
2nd&3rd Emissions/
& Producon Methods of Domesc & (94)
Generaon – Energy Balance
(100) Producvity Foreign
Ethanol (43) Markets (63) (71)
& Producon
(39) History of
Sugarcane/
Energy Matrix Former Polics
Characteriscs (47) (35)
Sugarcane (90)
USA (47) Economic 61
Ferlizer/ Feasibility (61)
Producon Flex-Fuel Codes
Pescides (45) Food x Fuel (44) Water Quality &
Chain (22) Vehicles Fossil Energy Availability (38)
Smallholder vs (42) Markets/
External Companies Pré-sal (27)
Agribusiness Employment Influences – (52) Animal
(44) (21) Bio-plascs & indirect & Husbandry (33)
Biorefinery direct (43) Zoneamento
Comparison Sugar (47)
Biodiesel (37) (39) Agroecológico Environmental
Sugar-Refining SC&Ethanol (23) Preoccupaon
(20) World wide/ EU (32) (24)
Agricultural Commodies
Sustainability Knowledge
Switching (41) Blending
(36) Transfer USA (29) Barriers of
Capacity (20) (19)
(24) sugarcane (18)
Crop Brazil‘s World
Rotaon (32)
Infrastructure
Training (10) Market Role
Transport and (29) (24)
Mobility Vinhasse (17)
Training (24)
(20) Strategic Assets Distribuon of
Producon (29) Ethanol (20) Biodiversity (13)
Chain (18)

Fig. 4.5 Categories and codes of analysis developed with ATLAS ti

In Fig. 4.5, the first (single- or two digits) number of the higher-ranking
categories indicates the sum of codes that were assigned to that respective category.
Thus the category ‘Research and Technology’ has seven codes all with a strong
reference to a topic within that category. The second number (in this case 354)
indicates the total number of references from all seven codes (‘New Technologies/
R&D Aspects’ to ‘Transport and Mobility’) assigned to the respective category
throughout the interviews. The numbers in brackets behind the codes indicate the
frequency of assignment within the ATLAS ti software. So for example, the code
‘New Technologies/R&D Aspects’ is referred to 138 times within all of the
48 transcribed expert interviews.
The reference of the code within the text can be only a short quote, a part of
sentence or a longer argument that developed within the dialogue between
interviewed expert and researcher. The codes in Fig. 4.5 are ranked within a
category according to their frequency of appearance within the analyzed interviews.
Codes that had a lower appearance than ten were excluded. ‘Agricultural Pro-
cesses’, ‘Industrial Processes’, and ‘Research and Technology’ are the categories
among which the codes for the product/process level analysis are summarized.
‘Geopolitics of Energy’, ‘Markets’, and ‘Regulation and Norms’ represent the
higher-ranking categories for the codes that analyze the institutional level, whereas
‘Sustainability Aspects’ represents the sole category for the final analysis.
4.1 The Empirical Approach: Conducting Research in Brazil 77

The higher ranking categories represent areas within the sugarcane complex that
comprise either a more product-oriented perspective or a more socially-oriented
one. As a result of the literature review and analysis of the interviews, the categories
were repeatedly developed, discussed and modified as demanded by the qualitative
content analysis. The development and designation of the seven categories is based
on the ETIS approach and additional literature on innovation systems. These
categories represent, in the understanding of the author, the most fitting and most
operable aspects of the sugarcane complex with reference to recent technological
and political developments.
As Foxon et al. (2005) elaborate, the differentiation within an innovation system
between product/process and institutional level is based on the assumption that
innovation and technology are inseparably connected as
the elements and relationships which interact in the production, diffusion and use of new,
and economically useful, knowledge.

Gallagher et al. (2012) state that the analysis of an innovation system

involves examination of data on the various stages of the innovation life cycle as well as
study of the processes and mechanisms at work within the system, including the roles of
actors, networks, and institutions.

Thus the product/process level categories represent the physical innovations and
technologies ranging from research and development to diffusion. ‘Agricultural
Processes’, ‘Industrial Processes’, and ‘Research and Technology’ were therefore
developed as higher-ranking categories which comprise of single technologies such
as mechanization, cogeneration or GMO (Genetically Modified Organism) that
relate to up-scaling and automation of technological processes or efficiency gains
in yields.
On the other hand,
innovation is a collective activity, supported by many institutions

according to Wilson et al. (2012) and the systemic approach of ETIS emphasizes
a collective activity of innovation which implies that many actors and their feed-
backs are involved. A set of institutions and corresponding incentive structures such
as the market or government strongly influences innovation processes. Addition-
ally, ETIS not only relates to national policies and regulatory instruments but has an
international dimension as well (Gallagher et al. 2012). Therefore the higher-
ranking categories ‘Geopolitics of Energy’, ‘Markets’ and ‘Regulation and
Norms’ were created in order to reflect the institutional level while corresponding
to an international perspective.
The category ‘Sustainability Aspects’ was constituted in order to relate to the
challenges of natural resources consumption and the requirements of sustainable
development and mobility. As Gallagher et al. (2012) state:
Clearly, substantial and accelerated innovation is essential to respond to the sustainability
challenges of energy systems at all levels, including the local, national, regional, and global
scales.
78 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Productivity effects, the reduction of carbon emissions and positive social

impacts which might have been induced by innovation and technological develop-
ment are analyzed here.

4.1.4.2 Dynamic Areas of the Sugarcane Complex Identified

The 61 codes, portrayed in Fig. 4.5, of which some were derived deductively by
literature review and document analysis and some rather inductively by open
coding, were discussed, condensed, assigned and selected by applying feedback
processes as requested in the qualitative content analysis approach. These codes,
derived from a thorough, in-depth analysis of the 48 interviews, represent the topics
that are deemed most relevant for the sugarcane complex and where apparent
developments in the sugarcane complex occur.
Having analyzed the expert interviews, the result illustrated graphically in
Fig. 4.5 refers to the dynamics within the sugarcane complex as well. As mentioned
in Sect. 2.3, the dynamic changes and developments are of importance because the
first research question relates to the areas within the setor sucroenergético that can
be identified as particularly dynamic. The codes on which the analysis of the
innovation system are based, as well as the analysis of the sustainability aspects
refer to those particularly dynamic areas. It is therefore crucial to elaborate on the
comprehension (definition) of dynamic areas and dynamic development relating to
innovation and sustainability within the sugarcane complex.
As pointed out in Sect. 2.3, the dynamics within the sugarcane complex are
understood as changes and alterations to the relations between stakeholders. Fur-
thermore, dynamics can be either global or regional and comprise changes in
technologies, markets, political power, institutions, and social movements
(Etzkowitz and Leydesdorff 2000). A dynamic system, in this case the sugarcane
sector, is understood as an open system, permeable and reacting to external as well
as internal stimuli. Perturbations, interactions and evolvements are part of a
dynamic system. Hence, these characteristics can be attributed to dynamic devel-
opments in contrast to static ones. Dynamics are defined by a changing environment
and can be both negative and positive as long as they are evolving and are not being
static. Conflicts, changes and advances stimulated by and stimulating the sugarcane
complex are the dynamics that are analyzed within this thesis. The sugarcane
complex was prone to a multitude of changes since the last decade, and so dynamics
can be discovered on the agricultural and industrial side, as well as in the govern-
mental institutions and the academic research.
Thus, by identifying the codes as the dynamic developments and the categories
as the areas where these dynamics occur, the first research question as formulated in
Sect. 1.2 can be answered and the first part of the research process can be brought to
a close. With a total of 656 references, the category ‘Agricultural Processes’
represents the area where most dynamic developments in the sugarcane complex
occur, according to the evaluation of the enormous volumes of qualitative data
derived from the transcribed expert interviews. Most of these dynamics either refer
4.1 The Empirical Approach: Conducting Research in Brazil 79

to the cultivation process of sugarcane or to the way agriculture is structured in

Brazil. ‘Geopolitics of Energy’ (517 references) and ‘Markets’ (503 references) are
the subsequent areas where most dynamics and developments occur. The dynamics
of the ‘Geopolitics’ category result from public discussion and measures such as
certification that were initiated by governments, mainly in the European Union and
the US, while dynamics with reference to international market demands and
mergers play a crucial role in the area of ‘Markets’. A final assessment of these
results will be given in Chap. 5 with reference to the outcomes of part two and three
of the research process.

4.1.4.3 Selecting the Codes for the Innovation System Analysis

The second research question refers to the dynamics that were identified by the
coding within the ATLAS ti program. Selected codes from the software are applied
in order to fathom whether the sugarcane complex can be considered an innovation
system. The objective within this second part of the research process is to assess the
impact the codes or the respective dynamics and developments have on the capa-
bility of the sugarcane complex to evolve into and function as an innovation system.
Nelson and Nelson (2002) elaborate on the strong institutional perspective of
evolutionary economics and that the dynamic of economic growth is driven by
technological advance within a set of institutions. Therefore, within this assess-
ment, the selected codes are assigned to different levels of analysis such as the
product/process level and the institutional level according to the theoretical concept
of ETIS.
Regarding the presentation of the selected codes and as a consequence the citing
of expert statements in the forthcoming sections of Chap. 4, the selection process of
the codes and underlying assumptions need to be clarified. The selection of codes
for the empirical analysis follows a rather pragmatic approach. As illustrated in
Fig. 4.5, 21 codes that deemed promising to contribute to the innovation system
analysis were pre-selected. These 21 codes represent the three most frequent codes
within each of the seven categories—for example ‘New Technologies/R&D
Aspects’, ‘GMO’, and ‘second and third Generation—Ethanol’ in the case of
‘Research and Technology’. The final codes for the analysis of the sugarcane
complex were chosen out of these 21 codes.
Overall, 15 codes were finally selected because of their closeness to technolog-
ical developments and to scientific, political, social and environmental aspects that
relate to the sugarcane complex and its aspects of innovation and sustainability.
Figure 4.6 graphically illustrates the selected codes and their assigned level of
analysis. The numbers in brackets indicate the frequency and therefore are identical
with the ones presented and explained in Fig. 4.5. The 15 codes (six on the
institutional level, five on product/process level and four on sustainability) repre-
sent all the codes that have been selected for the empirical analysis of the sugarcane
complex as a possible innovation system and the impacts on a transition towards
sustainability it may have. When selecting the codes, numerical frequency deemed
80 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

The codes of analysis -

for ETIS and for sustainability aspects (derived from ATLAS  Soware)

PRODUCT/PROCESS LEVEL Market

Research Development Demonstraon Diffusion
(physical innovaons) Formaon

CODES OF ANALYSIS • New technologies/ R&D aspects (138)

• Mechanizaon (122)
Two-way • Cogeneraon (94)
Influences/Feedback • GMO (48)
Loops
• 2nd & 3rd generaon (43)

ETIS – INSTITUTIONAL LEVEL

Energy (social innovaons) Actors Networks Instuons
Technology
Innovaon
System CODES OF ANALYSIS Naonal Internaonal

• Governmental Instuons,
• Cerficaon (100)
Strategies and Polics (131)
• Market demand (92)
• Laws, Regulaons and
• Concentraon/
Enforcement (94)
Internaonalizaon (83)
• Industrial Cooperaon (94)

Transion towards sustainability

• Land effects (expansion; iLUC) (127)
Sustainability CODES OF ANALYSIS • Employment (108)
Aspects
• Economic impacts (98)
• Emissions (71)

Fig. 4.6 Assignment of selected codes to ETIS analysis and sustainability aspects (Within the
codes of analysis that refer to sustainability aspects the code ‘employment’ was not assigned to the
identically-named category but derived from the category ‘agricultural processes’ as Fig. 4.5
illustrates. But since employment constitutes a crucial social facet, this code is referred to within
the analysis of the sustainability aspects.)

one suitable tool since traceability of the selection process is given and primarily
because a high number of codes promise richer data and a variety of special
insights. Yet an explanation beyond the frequency of codes is needed in order to
understand why the 15 codes were chosen.
The selected codes on the product/process level represent not only the recent
technologies and current innovations that were referred to as very influential by the
interviewed experts but were considered highly important by numerous articles,
studies and reports evaluated during the literature review. ‘New Technologies/
R&D Aspects’, ‘Mechanization’, ‘Cogeneration’, ‘second generation biofuels’,
and ‘GMO’ were identified as the primary technological developments on the
product/process level within the sugarcane complex. These codes are not only of
relevance due to their direct technological impact but also because the interplay
between different stakeholders and strong effects on economic, ecologic and social
aspects within the sugarcane complex are observed. The codes on the product/
4.1 The Empirical Approach: Conducting Research in Brazil 81

process level reside on different stages between research and diffusion as depicted
in Fig. 4.6.
Gallagher et al. (2012) and Nelson (2008) highlight the necessity of institutions
to provide the background for economic growth because innovations are influenced
by institutional settings, be it governments or markets. It was decided to assign the
codes either to national or to international actors, networks and institutions since
their agenda and impact on the sugarcane complex differ decisively. Thus ‘govern-
mental institutions, strategies and politics’, ‘laws, regulations and enforcement’ and
‘industrial cooperation’ are understood as the Brazilian institutional context which
promotes or hinders impulses for innovation. While the code ‘governmental insti-
tutions, strategies and politics’ rather considers the government, its strategies and
the political players in Brazil as actors, networks and institutions alongside the
other five groups portrayed in Fig. 4.2, the code ‘laws, regulations and enforcement’
is understood as the legislative boundary of the possible innovation system sugar-
cane and their adherence. The code ‘Industrial Cooperation’ represents the mea-
sures and arrangements within the sugarcane complex between usinas, research
institutes, associations or other stakeholders in order to further promote the sector
and its products.
The codes ‘Certification’, ‘Market Demand’, and ‘Concentration/ International-
ization’ represent the international institutional perspective. ‘Concentration/Inter-
nationalization’ and ‘Certification’ are supposed to constitute international
influences either by the private sector which invests in the sugarcane complex, or
by the public sector which demands the adherence to certain product criteria.
‘Markets’ are understood as demand-pull effects mutually influenced by and
influencing the technologies developed within the possible innovation system of
sugarcane. As Nelson (2002b) puts it, markets define and are defined by social
technologies.
The codes ‘Land Effects (Expansion, iLUC)’, ‘Economic Impacts’, ‘Emissions’,
and ‘Employment’ that are presented in the lowest section of Fig. 4.6 refer to
sustainability aspects of the sugarcane complex and thereby evaluate the impacts
that such an innovation system might have. The assessment of those aspects
represents the third objective of the research. The codes refer to ecological,
economic and social aspects of sustainability and relate to the main objectives of
the IEA, which are: (1) security of energy supplies, (2) reduction of GHG emissions
and (3) the promotion of agriculture and rural development (IEA 2004). These
aspects are of importance within economic evolutionary theory because sustain-
ability is regarded a possible consequence of the incremental and radical changes
induced by technological change and innovation.
Initially, it was considered to include especially interesting aspects and insights
from the remaining 46 codes that the interviewed experts disclosed. But with regard
to the volume and richness of the data that could be derived from the 15 codes and
with respect to a consistent and clear structure that the analysis should maintain and
the fear of a confusing overabundance of codes and data, it was decided to
exclusively focus on the data within the 15 codes selected. Finally, it should be
mentioned that the quality of the semi-structured interviews and the coding strategy
82 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.1 ATLAS ti codes applied on ETIS and subsequently on sustainability aspects
ATLAS ti Codes of analysis: applied on ETIS applied on
Product/Process— Institutional—Level Institutional—Level Sustainability
Level national international Aspects
New technologies/ Governmental institutions, Certification (100) Land effects
R&D aspects (138) strategies and politics (131) (Expansion,
iLUC) (127)
Mechanization Laws, regulations and Market demand (92) Employment (108)
(122) enforcement (94)
Cogeneration (94) Industrial cooperation (94) Concentration/ Economic impacts
Internationalization (98)
(83)
GMO (48) Emissions/Energy
balance (71)
Second/third gener-
ation (43)

based on the ‘qualitative content analysis’ was strengthened by the fact that the
majority of the most frequent codes within each category seem to be best suited for
the analysis of the innovation system and the sustainability aspects, even from a
different, not necessarily numerical, point of view.
The codes that are attributed to ETIS analysis and to the subsequent analysis of
the sustainability aspects are presented once more in Table 4.1 in order to provide a
simple overview. The codes follow along either the product/process level or the
institutional level, taking a domestic and an international view of both. Sustain-
ability aspects are also analyzed. The identified codes represent the areas where the
strongest dynamics within the sugarcane complex take place according to the
experts’ opinions.
Having the codes selected along a product/process and an institutional perspec-
tive as well as according to sustainability aspects, and together with reference to the
research questions posed in Sect. 1.2, the process of partitioning the sections of
Chap. 4 follows corresponding considerations.

4.2 Sugarcane in Brazil

The following section explains in more detail the reasons for the success of the
sugarcane plant over decades and centuries and its significance for the Brazilian
agriculture and rural areas. Distinct characteristics of the plant are detailed below.
The variety of products that can be processed out of sugarcane is portrayed and a
short comparison between sugarcane ethanol and other so-called first generation
biofuels from agricultural crops is given. Subsequently, a brief historical summary
of the recent sugarcane developments is provided, starting with the ‘Pro-Álcool-
program’ in the 1970s and ending with recent developments. These explanations
4.2 Sugarcane in Brazil 83

are to provide some background information and set the stage for the in-depth
analysis of the most dynamic contemporary factors in the subsequent sections.

4.2.1 The Flex Crop Sugarcane

Sugarcane belongs to the Poaceae or Graminaea (grasses) family and is one of the
most important agricultural crops within the Tropics. According to Azania
et al. (2013), sugarcane has one of the highest rates of photosynthetic efficiency
and thus ranges among the most productive plant species known. There is an ample
variety of products that can be extracted from and processed out of the plant. Until
today the most valuable component of the crop is sucrose because sugar and alcohol
can be produced from it. The first varieties of the sugarcane plant (saccharum
officinarum) originated from Ozeania and Asia. It is a semi-perennial, vegetative
plant and is cultivated best between the 35
North and 35
South latitudes. It
requires a tropical or temperate climate (Diola and Santos 2012). Figure 4.7 gives
an overview of the worldwide sugarcane cultivation areas and their sugarcane
output in comparison. The darker green color indicates a higher output per hectare
while the lighter green one indicates a comparably lower output of sugarcane per
hectare.
Sugarcane has always played an important role for agriculture and the resource-
based economies of tropical and sub-tropical regions. For a long time, sugarcane
cultivation was based on wild species and the first commercial cultivar was
produced in 1921. Today, there are more than 110 cultivars registered at the
‘Ministério da Agricultura, Pecuária e Abastecimento’ (MAPA 2013). Crops
related to sugarcane (Saccharum officinarum) and cross-breeding of this species
grow on almost all continents as indicated in Fig. 4.7. According to Buckeridge
et al. (2012) the developments focused on producing cultivars with higher sucrose
content throughout the history of cultivating sugarcane. The modern, hybrid culti-
vars include additional parameters into the breeding programs such as growth rate
and tolerance to water, stress and diseases. Until today sugarcane cultivars that are
commercially cultivated are conventional cross-breeding. No genetically-modified
sugarcane cultivar has yet been admitted for commercial use (for more information,
see Sect. 4.3.3.2).
The vegetative reproduction of the sugarcane signifies that once it is planted, it
reproduces by so-called ratoons which are new stalks that grow from the remaining
fragment of the sugarcane left on field after the harvest where the cane stalk is either
manually or mechanically cut (Cheavegatti-Gianotto et al. 2011). The productive
cycle of the perennial plant allows five to seven mostly profitable harvests, but
according to Goes et al. (2011), a replanting after four harvests is recommended in
order to maintain productivity. The ratoon then is destroyed by either mechanical or
chemical processes, or a combination of both, after the last profitable harvest
(Azania et al. 2013). Then sugarcane can be replanted again (Cannavam Ripoli
and Romanelli 2009). One important characteristic of sugarcane is the inability to
84 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Fig. 4.7 Worldwide cultivation area of sugarcane (2012). http://en.wikipedia.org/wiki/Sugarcane

store the cane stalks after they are cut and harvested. The fermentation process of
the sugar begins immediately after the cutting of the cane and as a consequence the
freshly harvested sugarcane needs to be delivered into the production process (the
so-called cut to crush time) at the sugar and ethanol mill as soon as possible
(Grunow et al. 2007). This has several consequences.
First, the logistics for the sugarcane harvest need to be extremely well planned
and thoroughly conducted, especially when looking at very large corporate farms
that operate over 300,000 ha as opposed to 13,000 ha the average size operated per
mill according to Deininger and Byerlee (2012). Thus, at times, the harvested cane
needs to be delivered enormous distances from the field to the usinas.1 Second, the
inability to stock sugarcane requires a harvest period that continues as long as
possible in order to keep the usinas running (Grunow et al. 2007). The growth
period of sugarcane can range from 9 months to 36 months while a typical cycle
from planting to harvest takes 12–18 months (Scortecci et al. 2012). According to
Azadi et al. (2012) sugarcane can only be harvested in the dry season which runs
from April to November, depending on the cultivar. Traditionally, there are two
cycles for planting different sugarcane cultivars. One cycle requires planting
between September and November, is harvested 12 months later, and serves the
demand at the end of the harvest in spring. During the other cycle, sugarcane is
planted between January and April/May, depending on the cultivars, and harvested
up to 18 months later and serves the demand at the beginning of the harvest (Azania
et al. 2013). As a consequence, a harvest period of up to 8 months is possible
throughout which the usina maintains production.

1
Another Portuguese term which seems more precise than the English wording is usina which
refers to the production plant where sugar, ethanol, electricity and other byproducts are produced.
The owner of the usina and thus often the proprietor of the sugarcane is referred to as the usineiro.
These are two other Portuguese terms that will be referred to subsequently in the text.
4.2 Sugarcane in Brazil 85

The sugarcane harvest is a highly intensive process and relies to a large extent on
low-paid seasonal jobs where migrant workers are often employed as cane cutters,
depending on the state and area where the sugarcane is cultivated (Scortecci
et al. 2012). The cane is then loaded mechanically onto trucks which transport
the cut stalks to the usina. Yet mechanized harvesting is an increasing technological
development that usually does not require the prior step of burning the sugarcane
before harvest and which is replacing manual labor (Cheavegatti-Gianotto
et al. 2011). Sections 4.3.1 and 4.6.4 will discuss the impact and consequences of
mechanized harvesting in detail.
According to MAPA (2013), sugarcane is cut five times on average before
re-planting and the productivity measured in harvest yields amounts to 75 tons
per hectare on average over the last 5 years (in the São Paulo region), although the
yield per hectare depends heavily on the region of cultivation. The average sugar
yield per ton of cane amounts to 138 kg and is referred to as the total recoverable
sugar (TRS) content, while the ethanol yield per ton is 82 l per ton of sugarcane and
6,200 l per hectare on average. Table 4.2 shows data of a five-harvest cycle in São
Paulo and the respective yields and costs for each harvest. The total operating costs
are the highest in the first year of harvest but the yield is highest as well. Thus the
operating costs per ton of cane (TC) are the lowest in the first year at 27.7 R$/TC
and highest at the fifth year at 34.4 R$/TC. Overall, the high costs for fertilizer and
the transportation to the refinery are striking. Nevertheless, the total operating costs
for sugarcane, sugar and ethanol in Brazil are very competitive in comparison to
other nations.
Today, Brazil is the largest producer of sugarcane worldwide with a production
volume of more than 600 million tons of sugarcane in 2010, having replaced India
(277 million tons) in 2002 as the top producer, with currently more than double of
India’s production. Figure 4.8 indicates the acceleration of the Brazilian sugarcane
production since the new millennium. Within 10 years, between 2000/2001 and
2010/2011 the production of crushed sugarcane rose by more than 140 % up to
620 million tons, the area expanded by 65 % (4.8 to more than 8 million ha) and the
yield increased by more than 15 % up to 77.8 tons per hectare in 2010/2011. This
rise of the production figures within the sugarcane complex can be explained
primarily by innovations and new technologies, diffused into the Brazilian market,
combined with a governmental promotion and catering to an increasing interna-
tional demand for mainly sugar. Section 4.2.3 provides a more detailed overview of
those developments, where the strong growth between 1980/1981 and 1985/1986
that was induced by the ‘Pro-Álcool’-Program is similarly explained.
According to Marcatto et al. (2010), around 80 % of the sugarcane comes from
land that is either owned or leased by the sugar and ethanol mills or comes from
agricultural companies that are either owned or somehow connected to the usinas.
The other 20 % of sugarcane is supplied by around 60,000 independent producers
that often can be categorized as smallholders, cultivating enough sugarcane and
other agricultural products to sustain a family.
Figure 4.8 illustrates that the growth of sugarcane occurred and is expected to
occur both horizontally, meaning the expansion into new areas, as well as
86 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.2 Annual costs of sugarcane production during five harvests, in São Paulo state
Planting First Second Third Fourth Fifth
year harvest harvest harvest harvest harvest Average
Feedstock yield 0 122.4 97.2 87.3 76.8 67. 3 75
(t/ha)
Ethanol yield (m3/ 0 10.2 8.1 7.3 6.4 5.6 6.2
ha)
Cost items (R
$/ha)
Fertilizers 643.9 526.5 526.5 526.5 526.5 526.5 546.1
Chemicals 413.3 184.8 184.8 184.9 184.9 184.9 222.9
Seed 868 0 0 0 0 0 144.7
Machinery, repairs, 1,572.6 1,859.6 1,544.8 1,446.2 1,274.9 1,156.5 1,475.8
fuel and hire
Transportation to 0 818.1 649.7 583.5 513.5 450.1 502.5
refinery
Total operating 3,498 3,389 2,906 2,741 2,500 2,318 2,892
costs (R$/ha)
Total operating 470
costs (R$/m3)
Based on data from Crago et al. (2010)

Sugarcane in Brazil - producon, yield, and area

700 90
652,01
81,5
623,95
588,92 80
600 73,88
571,37
77,8
68,18 69,44
66,49 74,1 70
64,61
62,16 62,02 69,41
500 60,44
56,09 60

400 381,4
50

315,6
292,3 40
300
249,88
227,9 222,9 223,5
196,7 30
200

123,68 20

100
7 8,03 8,48 8,79 10
4,57 5 4,96 5,6
3,5 3,95 4,1 4,2
2,61

0 0

Harvested area Producon Yield (t/ha)

(mio ha) - crushed cane (mio t)

Fig. 4.8 Increase in sugarcane production, yield and area (1980/1981–2013/2014). Based on data
from MAPA (2013, 2009); CONAB (2013)
4.2 Sugarcane in Brazil 87

vertically, implying an increase in yield productivity per hectare (Goes et al. 2011).
Traditionally, the main cultivation areas lay in the North East such as Pernambuco
and Alagoas where sugarcane still is cultivated today, although with yield levels
between 50 and 65 t/ha, they represented less than 15 % of the total area and around
10 % of the production volume in 2010 (CONAB 2011a). Nowadays, the main
cultivation areas in Brazil lie in the Center-West in states such as Mato Grosso do
Sul and Goiás, where a lot of the recent expansion happened, and in the South and
South-East represented by the states of Paraná and Minas Gerais. However, the
federal state of São Paulo still represents more than 50 % of the total cultivation
area and production volume of the Brazilian setor sucroenergético (Verı́ssimo and
Caixeta Andrade 2012).
In 2012, renewable energy corresponded to 46 % of the primary energy produc-
tion in Brazil as opposed to 54 % by non-renewable energies. Sugarcane products
represented a 17.5 % overall share of the country’s primary energy production and
thereby exceeded energy from hydroelectricity (13.9 %) according to the Brazilian
energy balance (EPE 2013). Only petroleum products had a higher share within the
energy matrix (41.6 %). Apart from the share that the liquid-energy ethanol claims
within that figure, this value includes solid biomass as well. Bagasse, a by-product
of the sugar and alcohol production is being burned in huge boilers at the usina in
order to produce heat, steam and electricity for the production processes and for sale
(Della-Bianca et al. 2013). A growing number of usinas provide excess electricity
to the national grid. This data shows the spectrum of applications sugarcane
products have.
Sugarcane is not only a high yield food crop, but is also considered to be an
excellent energy feedstock due to its high primary energy content (Leal et al. 2013).
Figure 4.9 provides a detailed overview of the main products from the industrial
processing of sugarcane. The production processes of sugar and ethanol, tradition-
ally the most important products, are shown in detail. Furthermore, by-products and
their formation conditional to the production processes are listed. Thus paper,
fertilizer, and animal feed as well as electricity are identified as by-products.
Especially noteworthy is the generation of energy by the thermal process of burning
the ‘residue’ bagasse, developed from being a mere by-product that supplies the
required process energy to an additional and sometimes even equally important
source of revenue as sugar and ethanol. Cogeneration processes are discussed in
detail in Sect. 4.3.2.

4.2.2 Biofuels and Sugarcane Ethanol

The research conducted here and within the affiliated ‘Biofuel as Social Fuel’
project started from the perspective of alternative energies and the substitution of
fossil fuels. Thus ethanol produced from sugarcane is the principal object of
investigation although sugar, electricity and some sugarcane by-products are
strongly linked to the overall demand, the performance and the promotion of that
88 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Sugarcane Paper

Pressing Bagasse Burning Energy

SO2
Clarificaon Animal Feed
Lime Ferlizer
Filtraon Filtercake
Animal Feed

Clarified Juice

Evaporaon Must Fermentaon

Molasses
Syrup Wine
Water
Yeast
Cooking Centrifuging
Ferlizer
Disllaon Vinhasse
Centrifuging Animal Feed

Drying Phlegm

Recficaon
Cyclohexane

Hydrated Anhydrous
Sugar Dehydraon
Ethanol Ethanol

Fig. 4.9 Industrial sugarcane processing—final products and by-products. Based on information
from Cheavegatti-Gianotto et al. (2011)

biofuel. A concise summary is given of today’s biofuels which are being promoted
by national and international policies and legislations and produced on a commer-
cial scale.
Biodiesel and bioethanol are the two main strands of biofuel production with the
former substituting fossil diesel and the latter gasoline. Biodiesel is mostly pro-
duced out of vegetable oils such as palm oil, soy bean oil and rape seed oil as well as
used cooking oil or animal fats by a chemical process called transesterification
(Nass et al. 2007). According to Bergmann et al. (2013), the European Union was
the largest producer of biodiesel in 2011 with over 7 million tons, representing
around 45 % of the world production, followed by the US (22 %), Argentina (17 %)
and Brazil (16 %). Biodiesel is primarily used for blending with petroleum-based
diesel with quotas nowadays below 7 %. Currently, the production volumes of
biodiesel are significantly lower in comparison to ethanol.
Ethanol basically can be produced out of any crop with a high sugar or starch
content such as sugarcane, maize, grain, sugar beet, cassava, etc. (Valdes 2011).
The US is the world’s largest producer with an annual production between 35 and
50 million m3 of corn-based ethanol within the last 5 years (RFA 2012), followed
by Brazil with a production between 23 million and 28 million m3 of ethanol
derived from sugarcane (CONAB 2013) within the last 5 years. Figure 4.10 gives
an overview of the total production volumes of ethanol in Brazil between 1980 and
2013. Two periods of massive increase in production volumes can be identified. At
the beginning of the 80s and during the first years of the new millennium distinct
4.2 Sugarcane in Brazil 89

Ethanol producon -Brazil

30,00 30,00
27,60 27,17

25,00 23,61 2,.00

23,00

20,00 20,00
17,43

15,40
14,60
15,00 15,00
12,70 12,80
11,90 11,60
10,50
10,00 10,00

5,80

5,00 3,70 5,00

0,00 0,00

Ethanol Ethanol Ethanol producon

- anhydrous (mio m³) - hydrous (mio m³) - total (mio m³)

Fig. 4.10 Ethanol production in Brazil (1980/1981–2013/2014). Based on data from CONAB
(2013); MAPA (2013, 2009)

government programs and new technologies provided the impulse for growth of
both the total ethanol production and the sugarcane complex in Brazil. The subse-
quent section will elaborate in more detail on these recent historical developments.
As presented in Fig. 4.10, there are two types of ethanol fuels produced in Brazil,
hydrated and anhydrous. Anhydrous ethanol is obtained from hydrated ethanol by
an additional process step at the usina called dehydration, with the objective being
to remove most of the remaining water (see Fig. 4.9). Hydrated ethanol has a water
content of up to 5 % (which makes the least efficient fuel since the water doesn’t
deliver energy, only vapor), while the water content in anhydrous ethanol is less
than 0.5 % (Hira and de Oliveira 2009). Hydrated ethanol can be driven only with
an adapted engine while anhydrous ethanol is used for blending with gasoline,
therefore the water has to be extracted (Macedo et al. 2008). In most countries,
anhydrous ethanol is blended up to 10 % with gasoline and runs in unmodified
engines.
In Brazil, the blending of gasoline with anhydrous ethanol (known as Gasoline
C) is significantly higher and recently was once again increased to 25 % (Covrig
2013). Therefore, the gasoline-ethanol mix is sometimes referred to as gasohol.
Such a share of ethanol requires modifications to the engine but since over 90 % of
the cars sold in recent years in Brazil are so-called ‘Flex-Fuel Vehicles’ (FFVs),
these adaptations are already in place when purchasing a FFV. The name ‘Flex-Fuel
Vehicle’ derives from the attribute of the engine to run on hydrated ethanol, pure
gasoline, gasoline C (in Brazil a 25 % anhydrous ethanol blending) or any
90 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

proportion of the various fuels (Goldemberg 2013). The impact the development of
the FFVs had on the setor sucroenergético is explained in the subsequent chapter.
The fuel offered to cars at any common petrol station in Brazil is gasoline (gasoline
C) or alcool (hydrated ethanol). Generally, only trucks and buses run on diesel in
Brazil. As a consequence, ethanol (hydrated and anhydrous) accounts for more than
50 % of the gasoline consumption in Brazil according to Valdes (2011).
Since hydrated ethanol has a lower heating value (sometimes referred to as
energy density) of around 30 %, the price of ‘álcool’ (hydrated ethanol) at the
pump, needs to be not higher than 70 % of the price of gasoline in order to be
attractive to the end consumer. Yet in recent years, gasoline C was favored by the
Brazilian car drivers (Jagger 2013). Firstly, the prices for fossil fuels were kept
artificially low by governmental influence in order to regulate inflation (Fleischer
2013), and secondly, because due to lacking investment in renovation of planting
and cultivation caused by the international financial crisis (Zuurbier and van den
Vooren 2009) as well as drought periods in the main cultivation regions, the
agricultural productivity per hectare dropped between 2009 and 2011 by almost
20 % to the lowest yields since 1995 (see Fig. 4.8 for details). Half of the final costs
of ethanol, for hydrated ethanol even a bit higher, derive from the costs of the
feedstock sugarcane. Thus a yield decrease has direct price effects for ethanol.
Della-Bianca et al. (2013) argue that a one percent increase in yields could result in
an additional 300 million liters from the same agricultural area, giving a total
production volume of 30 billion liters.
Due to these high yields, even when dwindling, ethanol from sugarcane is
considered to be one of the best alternatives if a substitute for fossil fuels is wanted.
Sugarcane is often cited as the most efficient biofuel of all first generation biofuels
commercially available, especially with respect to the reduction potential of GHG
emission. The data provided in Table 4.3 shows the attributes of sugarcane ethanol
in comparison to other first generation biofuels. According to Schmitz et al. (2009),
ethanol derived from sugarcane is deemed superior in all presented categories with
regard to most common biofuels.
Crago et al. (2010) estimated that between 2006 and 2008 the production costs of
sugarcane ethanol in Brazil were on average 24 % lower than the costs for corn
ethanol in the US, based on an exchange rate of US$ 1 ¼ R$ 2,15. The
US-American Environmental Protection Agency (EPA) categorized sugarcane
ethanol as a so-called ‘advanced biofuel’ (EPA 2010). This classification would
make Brazilian ethanol eligible for a market determined by the Energy Indepen-
dence and Security Act (EISA) with a possible volume of more than 70 million m3
by 2022 (United States Government 2007). Furthermore, innovations and techno-
logical development with regard to second generation ethanol are expected to
gradually become reality. First commercial process facilities are implemented
and already producing alternative fuels (Isola 2013). Increasing efficiency and
competition to fossil fuels is expected from technologies that process cellulosic
feedstock such as straw and bagasse from sugarcane (Seabra and Macedo 2011).
Section 4.3 provides more detail on these issues.
4.2 Sugarcane in Brazil 91

Table 4.3 Comparison of sugarcane ethanol with other first generation biofuels
Biodiesel Bioethanol
Palm
Parameter Canola Soybean oil Maize Grains Sugarcane
Net energy GJ/ha 38 20 75 40 52 116
yield
Fuel yield Literfuelequv/ 1,450 580 4,000 2,440 1,650 4,160
ha
Production €/GJ 24 22 19 16 26 9.5
costs
GHG savings t/ha 3 1 9 1.9 3.7 10
Individual data when compared with Table 4.3 can vary strongly, depending on the consulted
research, but the general tendencies are most of the time similarly in favor of sugarcane ethanol
Based on data from Schmitz et al. (2009)

These general technological developments and distinct characteristics of sugar-

cane ethanol, as well as the magnitude and structure of Brazilian agriculture, often
lead to the assumption that Brazil might be the principal country that can satisfy
growing international demand for first and second generation biofuels (Kaup
et al. 2011; CGEE 2007; Walter 2012). Yet as indicated in Figs. 4.8 and 4.10, the
sugarcane and ethanol production significantly dropped between 2010 and 2012
and Brazil had to import ethanol from the US in 2011 (Covrig 2013). Today,
according to ‘Bloomberg New Energy Finance’ (BNEF 2013), the overall capacity
to produce ethanol in Brazil constitutes around 38 million m3 which are insuffi-
ciently utilized. Due to poor agricultural management, lack of investment and
adverse weather conditions, the sugarcane complex has operated, at less than
70 %, significantly below its crushing capacity for the last two harvests. Although
there is clear evidence for a recovery, the factors that led to marginal investment
and the perceptible crisis in 2011 and 2012 have to be identified and evaluated. The
subsequent chapter will reflect on the crisis of the sugarcane sector in more detail.

4.2.3 Recent History of the Sugarcane Complex

In order to understand the importance sugarcane had, and still has, for the Brazilian
agriculture and to fathom the semi-feudal structures that the sugarcane complex
derived from, traditionally, a glimpse into the history of the setor sucroenergético
should be provided. The recent developments, which led to the evolvement of
today’s sugarcane complex, are presented in slightly more detail afterwards.
At the beginning of the sixteenth century the first sugarcane plants were brought
to Brazil. According to Cheavegatti-Gianotto et al. (2011), the first sugar mill was
established in 1532. The sugarcane crop has been relevant to Brazilians agriculture
and economy and to the regional development of its society ever since. Large
sugarcane plantations in the North-East of Brazil provided the world’s largest
92 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

share of sugar during the sixteenth and the seventeenth century based on feudal
structures and slave labor brought from Africa. When competing sugarcane econ-
omies emerged in the Caribbean colonies of France, Spain and Britain, the North-
East region stagnated, a process that lasted for centuries, according to Furtado
et al. (2011). In 1933, the Instituto do Açúcar e do Álcool (IAA) was created and
encouraged the Brazilian sugarcane complex to produce as much ethanol as possi-
ble because the government intended to decrease Brazil’s oil imports and thus the
imbalance of trade mainly caused by fossil oil imports (Nass et al. 2007). Ethanol as
a fuel substitute and supply played an important role during World War I and World
War II, when gasoline was scarce.
During World War II, the North-East region faced difficulties with the transpor-
tation of sugarcane produce that originated along the coast. This led, among other
things, to the consolidation of a sugarcane industry in São Paulo, the Center-West
and South-East regions. In those states, the development of the sugarcane cultiva-
tion and processing became more dynamic thanks to technological developments
such as new production techniques as well as the vicinity to an industrial complex
and significant research facilities. The cooperation of agriculture, industry and
research institutions such as the ‘Instituto Agr
onomo de Campinas’ (IAC) and the
‘Escola Superior de Agricultura Luiz de Queiroz’ (ESALQ) provided a fertile
environment for innovations (Furtado et al. 2011). In the 60s the international
sugar market recovered, and in 1971, a national sugarcane breeding program
(Planalsucar) was initiated. In the early 70s, the production of sugar increased
significantly, driven by exports. But just as the impacts from the worldwide oil
crisis were palpable, sugar prices started to drop. Thus increasing fossil oil prices in
the world market and decreasing or fluctuating prices for sugar initiated and drove
the establishment of Brazil’s ethanol industry (Goldemberg 2006).

4.2.3.1 The Pro-Álcool Program

Fossil oil prices reached record prices in the early 70s and were doubling Brazil’s
expenditures for oil imports in 1974. These increased payments alone were a strong
cause of the new political will to promote a strong sugarcane complex and ethanol
production in Brazil. The military regime recognized the necessity of maintaining
and promoting economic growth, and decreasing energy consumption due to high
costs would have had serious negative impacts. Furthermore, the sugarcane growers
and usineiros that were looking for alternatives to sustain the industry in times of
marginal sugar prices were a powerful lobby and they made use of their political
influence (Borges et al. 1984).
In February 1975, a trade agreement was signed between 71 African, Caribbean
and Pacific Countries and the European Union. One of the consequences was the
preferential access to European markets. Additionally, the food processing industry
in the US, the other major market, started to produce ‘High-Fructose Corn Syrup’
(HFCS), a sugar substitute for soft drinks. These changes significantly reduced the
export opportunities for Brazilian sugar (Meyer et al. 2012). Thus, both national
4.2 Sugarcane in Brazil 93

and international market and price developments and their resulting pressures led to
the establishment of the national alcohol program, known as ‘Pro-Álcool’ in 1975.
It might be interesting to note that the initiator of the ‘Pro-Álcool’ was President
Ernesto Geisel, during the period of military government, who had quite a profound
knowledge of the energy sector and its markets since he had previously been
president of PETROBRAS, the nationalized oil company.
Pro-Álcool can be considered a piece of classic import substitution policy. It
initially encouraged ethanol production from different feedstock (cassava as a
rather ‘rural development’-oriented crop), but the influence of the usineiros and
sugarcane growers pushed sugarcane as the primary feedstock, backed up by the
agricultural potential of sugarcane, and infrastructural and logistical reasons (Bor-
ges et al. 1984). The Brazilian government incentivized the expansion of sugarcane
cultivation and ethanol production by low, even negative interest rates for loans for
the construction of new usinas, or at least the addition of distilling columns to
produce ethanol. Furthermore, blending quotas were introduced and price guaran-
tees provided by the government (Furtado et al. 2011). In the initial years, anhy-
drous ethanol was used for blending up to 20 % with gasoline which presented a
rapid mechanism for increasing the demand for ethanol without any technological
adaptation needed (Nitsch and Giersdorf 2005). Between 1976/1977 and 1980/1981
the output quintupled to 3.7 m3 ethanol, hydrated and anhydrous (Furtado
et al. 2011).
At the same time, the Brazilian government strongly pushed the quasi-
governmental EMBRAPA, the IAC, and PLANALSUCAR into research on new
cultivars and improved cultivation and processing technologies. The industry
becoming increasingly wary of the total dependence on subsidies and government
research, founded the Cooperative of Sugar, Alcohol and Sugarcane Producers,
called COPERSUCAR. The Copersucar Center of Technology (CTC—today it is
called the ‘Centro de Tecnologia Canavieira’) quickly became the coordination hub
and central location for research on breeding as well as on improved cultivation and
production processes (Nass et al. 2007).
In the summer of 1979, the OPEC raised the oil prices by almost 40 % and so
induced the second oil crisis. This price hike coincided with a technological
innovation by the technical institute of the Brazilian air force which had developed
an engine that could run on 100 % hydrated ethanol (Nitsch and Giersdorf 2005).
These developments resulted in a second investment cycle of Pro-Álcool. The
government prompted PETROBRAS and other distributors to create storage capac-
ities as well as a transportation and distribution network for hydrated ethanol to be
used in the new engines (Furtado et al. 2011). The Brazilian government convinced
the international car companies to introduce the ‘hydrated’ ethanol engine in their
fleets by lowering taxes on sales, fixing pump prices at 59 % of the price for
gasoline, and other incentives. Although the consumers were skeptical in the
beginning, they soon started to accept the adapted fleets and by 1984 more than
90 % of new cars sold in Brazil were ethanol-powered (Kaup et al. 2011). These
measures in combination with a continuous financing of new distilleries, induced
94 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

another strong growth impulse in ethanol production, and by 1985 a volume of

more than 11 million m3 was reached (see Fig. 4.10 and MAPA 2013, p. 31).
During the transition from a military to a civil government, Brazil entered a
period of economic hardship, including a debt crisis and hyperinflation, and as a
consequence reduced the prices that were guaranteed below the actual production
costs. By 1986/1987, world market prices for fossil oil had dropped and ethanol
became increasingly expensive, both for the consumer and the government. The
construction and expansion of new distilleries was prohibited while the world
market prices for sugar recovered because of pressure on the EU to reduce its
dumping practices. Ethanol output stagnated, while shortages in the fuel market and
on the pump caused even higher prices and Brazil was forced to import ethanol.
Finally, the consumers lost confidence in the ability of the government to guarantee
a continuous supply and the market for pure-ethanol vehicles collapsed (Meyer
et al. 2012).
However, the continuous blending between 10 % (E10) and 20 % (E20) of
ethanol with gasoline still guaranteed more or less steady consumption volumes and
thereby saved both the ethanol market from a complete collapse and the sugarcane
complex from serious repercussions. In the 90s, the sugarcane complex scaled
down as well as consolidated due to the reduced subsidies and the shrinking
demand. These adjustments resulted in efficiency gains, market concentration and
in reduced production costs, especially in the state of São Paulo (Kaup et al. 2011).
Furthermore, the concentration of sugarcane producers as well as usineiros in São
Paulo state simplified learning and spillover effects when adopting institutional and
technological innovations, promoted by access to knowledge, technology and
capital (Meyer et al. 2012).
Ultimately, a considerable bioethanol industry was established in Brazil with the
help of Pro-Álcool along with a development of technologies and innovations
exclusive to the sector (Scortecci et al. 2012). The cooperation of different stake-
holders such as government institutions, automobile industry, the sugarcane com-
plex, research institutes and oil companies (PETROBRAS and others) to create a
national market in order to react to mostly external occurrences is unique with
respect to mobility and energy. The development of the sugarcane complex was
facilitated by the country’s availability of feedstock, its capability of expansion and
advancements in cane production and process technology and probably most of all
due to the supportive ethanol policies by various levels of government (Valdes
2011).
Brazil is the only country worldwide which has been producing fuel ethanol for
more than 70 years starting a massive import substituting policy with Pro-Álcool
and thereby relieving the country of a heavy dependence on foreign petroleum and
external market fluctuations, according to the proponents of the sugarcane complex.
Nevertheless there are legitimate analyses and opponents that criticize Pro-Álcool
for it being a heavily subsidized, artificial stimulation program with only selected
beneficiaries such as the influential sugarcane growers and usineiros as well as car
owners; thereby manifesting a socio-economic system that did not induce any, or at
4.2 Sugarcane in Brazil 95

most insufficient social, ecological or economic benefits to justify its existence

(Borges et al. 1984; de Melo 1983).

4.2.3.2 Flex-Fuel Vehicles: Another Stimulus for Ethanol Production

After the collapse of the Pro-Álcool program standard gasoline engines became the
norm again. Yet in 2003, the next technological development occurred that revived
the demand for sugarcane ethanol. Direct fuel injection systems were manufactured
that could adjust the fuel combustion to any proportion of hydrated alcohol,
gasoline and gasoline C (E25) with which the car was fueled (La Rovere
et al. 2011). The ‘Flex-Fuel Vehicle’ (FFV) was created. Previously, there was a
lack of consumer confidence in driving an ethanol-powered car due to their prior
experience with fluctuating prices and insecure supply when ethanol was the only
option at the pump. FFVs resolved that problem because consumers were given the
chance to select among the fuels and choose the most economic one at any given
time, and therefore were not at the mercy of prices spikes and fuel shortages of only
one fuel (Furtado et al. 2011). The incentives provided by the Brazilian government
to purchase FFVs were like those mechanisms and policies that had been used to
increase sales during Pro-Álcool. Favorable sales taxes and reduced annual licens-
ing fees were among the most common measures (Meyer et al. 2012).
A decisive factor for the increased acceptance and purchases of FFVs in Brazil
was the increasing world market price for fossil oil and thus the domestic prices for
gasoline and diesel. With the oil prices climbing new record heights, hydrated
ethanol again became more affordable at the pump and the FFV technology did not
require any adaptation but to switch the fuel. Thus the success of FFVs can be
partially attributed to oil prices which almost tripled between 2003 and 2007
(Figueira et al. 2010). The acceptance of FFVs by the Brazilian consumer is
mirrored by the sales volumes, pictured in Fig. 4.11, dramatically changing from
FFVs’ introduction in 2003 until 2010. According to La Rovere et al. (2011) the
demand for FFVs in 2003 reached over 48,000 units, jumping to over 300,000 units
by 2004 which corresponded to a 26 % demand for new passenger vehicles in
Brazil. By 2005, the Flex-Fuel Vehicles sales had already surpassed the sales for
gasoline-powered cars. By 2011, around 95 % of the vehicles sold in Brazil were
FFVs (Scortecci et al. 2012).
The success of FFVs had repercussions on the demand for hydrated ethanol
which increased accordingly (see Fig. 4.10). The production increased more than
threefold from 5.8 million m3 in 2003/2004 to 19.5 million m3 in 2010/2011. The
demand for anhydrous ethanol on the other hand only fluctuated a little (MAPA
2013). The growth of domestic consumption, together with an increased interna-
tional demand and soaring export rates (a six fold increase between 2003 and 2008),
resulted in a light shortage beginning of 2009 (MAPA 2013). As a consequence, the
Brazilian government reduced blending with anhydrous ethanol from 25 to 20 %
(Furtado et al. 2011).
96 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

3
Producon by fuel type - cars (1979-2013)

2.5
2003: Introducon
1989/90: Reducon of of Flex-Fuel
subsidies, ethanol shortages Vehicles
2
and price hikes, collapse of
ethanol car sales
Millions

1,5
1979: Ethanol cars
& E100 retailing
introduced
1

0.5

0
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Diesel Ethanol
FFV Gasoline

Fig. 4.11 Registration of cars in reference to the engine type in Brazil (1979–2013). Based on
data from ANFAVEA (2014), Meyer et al. (2012)

This period of increase in ethanol demand was less induced by government

policies, because no fixed price for hydrated ethanol was set, although less direct
subsidies such as blending quotas and tax preferences still massively supported the
sugarcane complex. Yet the possibility of choice provided by the FFVs as well as
increasing world market prices for fossil fuels resulted in a higher demand for
ethanol. Nevertheless, it should be mentioned that there is criticism of the efficiency
and performance of Flex-Fuel Vehicles.

4.2.3.3 The Recent Crisis of the Sugarcane Complex

Since the introduction of the FFVs in 2003, demand and supply of sugarcane
produce has consistently shown an upward trend. Yet in 2010, 2011 and 2012,
the supply, the exports and the domestic consumption of ethanol experienced a
significant decline; people were talking about a crisis of the setor sucroenergético.
Lower sugarcane yields coincided with dwindling demand for hydrated ethanol.
According to MAPA (2013), the exports of ethanol dropped by 60 % from 4.6
million m3 in 2008/2009 to 1.8 million m3 in 2011/2012. What were the causes for
the downturn of the sugarcane complex, when new records of harvested area as well
as total cane production were realized in the previous years? A variety of aspects,
4.2 Sugarcane in Brazil 97

both domestic as well as foreign occurrences can be presented and each of them
might partially explain the reasons for the decline.
First of all and probably most important was the lack of capital invested after the
‘golden years’ when a lot of investments ran in the sugarcane complex. Zuurbier
and van den Vooren (2009) argue that the financial crisis of 2008 had a huge impact
on the Brazilian ethanol sector. Investments in the sugarcane and ethanol produc-
tion fell by 50 % in the end of 2008 and by an even greater degree in the beginning
of 2009. Projects were postponed and investments withdrawn. Investments were
scarce in the renovation of sugarcane plantations for example, investments needed
after the fourth or fifth harvest when the ratoons have to be removed. The deficiency
of agricultural care in combination with poor weather conditions resulted in a
significant drop of sugarcane yield levels per hectare between 2009 and 2011 by
almost 20 % to the lowest yields since 1995 (see Fig. 4.8 for details). According to
Moreira et al. (2014), the sugarcane complex was additionally affected by the high
level of debt financed by international loans. As the interest rates of the foreign
loans increased due to the financial crisis, the financial resources were drained
elsewhere when they were needed to cover operational costs and investments in the
plantations.
Additionally, commodity prices for sugar increased considerably. Since the
usinas have a so-called ‘switching capacity’, the mills are able to arbitrage the
sugar and ethanol markets in order to maximize their margins and so they maxi-
mized sugar production to the detriment of ethanol (Covrig 2013). Usinas can
switch a smaller part of their total production volumes between sugar and ethanol
production within a season according to offered prices (Goldemberg et al. 2014b).
The near freeze of gasoline prices as a governmental exertion of influence to fight
inflation made hydrated ethanol even less attractive to drivers of FFVs while the
demand for these Flex-Fuel Vehicles continued to increase. As a consequence, the
demand for gasoline (E25) and thus anhydrous ethanol increased while demand for
hydrated ethanol dropped. The low harvest yields were insufficient to satisfy the
national demand. Not only did Brazil’s exports of ethanol decline drastically but the
occurring shortages had to be managed by a lower blending quota (a reduction to
20 %) and even by ethanol imports from the US (Meyer et al. 2012).
A process of concentration and internationalization of the sugarcane complex
followed. First, consolidation and merger on a national level were a consequence of
the low prices for hydrated ethanol, and only the most efficient companies survived.
Additionally, a flurry of acquisitions of sugar and ethanol mills by transnational
companies (TNC) was stimulated, not least because Brazilian agriculture was
understood as a rather secure and safe investment contrary to the high-risk and
high-loss bets that had been undertaken prior to the financial crisis. Section 4.4.5
will elaborate more on issues regarding concentration and internationalization.
Beside all the undeniable success of sugarcane cultivation and all the advantages
and benefits this crop has, there are also negative impacts that have to be considered
when analyzing the setor sucroenergético. Sugarcane is commonly cultivated in
enormous monocultures which have a substantial effect on the environment (Pank-
hurst et al. 2005), for example, soil degradation caused by erosion during the times
98 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

the land remains bare when planting anew and soil compaction due to the heavy
machinery employed. The application of nitrogen fertilizer causes NO2 emissions
and pollutes waters and soils (Azadi et al. 2012). And while the burning of
sugarcane prior to the manual harvest has serious impacts on health within the
communities adjacent to the fields, the activity of cane cutting is troublesome and
problematic in many respects. Furthermore, the expansion of sugarcane onto other
agricultural area results in displacement effects and land-grabbing mechanisms.
These environmental and social impacts are discussed and evaluated in detail in
Sect. 4.6.

4.3 Developments in the Agricultural and Industrial

Systems: Product/Process Level

The following section analyzes the ‘physical’ technologies with regard to the
concept of ETIS. Recent technological developments that are already implemented
on a commercial scale, such as mechanized harvester or cogeneration units, are of
interest as well as technologies that still are in the research, demonstration or
diffusion stage, such as cellulosic ethanol processing technology or research on
genetically modified sugarcane cultivars. The analytical approach hereby follows
two main routes. First, a thorough literature review is conducted to provide the
initial and current information on the respective issues and second, integrated in this
analysis, the expert statements that provide rather elaborate additional information
are evaluated applying the codes of analysis that were selected in Sect. 4.1.
The expert statements that are referred to are cited in smaller font and are already
translated into English (if not conducted in English), in order to make the citations
accessible to non-Portuguese speakers. The statements are expected to provide
distinct insights and a complex understanding of a certain product or process,
possible future developments, the depth of integration into the sugarcane complex
and ultimately, the beneficial as well as unfavorable aspects and impacts which the
analyzed technologies and innovations are expected to bring. Balancing these
results against an outcome from the literature analysis should bring quite reliable
conclusions on the impact the respective technology has on the capability of the
setor sucroenergético to function as an innovation system. The same applies to the
analyses of the institutional levels in Sect. 4.4.
To pose the following questions might help to answer a part of the research
puzzle: What are the effects the technology or process has on production costs and
efficiency? Are there any primary and secondary effects that lead to direct and
indirect social, economic or environmental benefits or costs which are caused by the
development of the analyzed technology? Which actors promoted the product or
process, which stakeholders are needed to provide additional impulses, and which
ones are impeding the promotion and diffusion of the analyzed technology? This
chapter starts with the analysis of mechanized harvest and related agricultural
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 99

processes, and then evaluates the effect of cogeneration units and related industrial
processes. Finally, more recent and less commercialized technologies and processes
are examined.

4.3.1 Mechanization

Until recently, it was common practice within the sugarcane cultivation regions to
burn the sugarcane prior to the manual harvest, because, after the sugarcane has
been burned only the large stalks of the actual plants remain on the fields while
‘unnecessary’, additional biomass such as leaves and other dry matter—the ‘cane
trash’—which do not contain sugar have been incinerated. The process is known as
queima da pahla da cana (burning of cane) and the remaining stalks are a great deal
easier to cut and harvest afterwards. Furthermore, it is dangerous to cut unburned,
crude sugarcane (cana crua) because of sharp and stinging leaves, poisonous
wildlife and simply that it is generally an even worse chore than the hardship of
cutting cane after burning (Scortecci et al. 2012).
But the burning of the sugarcane is accompanied by a number of problematic
consequences. In communities close to sugarcane plantations, the emissions of soot
and other particles lead to respiratory problems among other things while the
working conditions of cane cutters are time and again cause for civil commotion.
So over recent years a stop of the pre-harvest burning practice has been promoted
that induces a trend towards mechanization of the sugarcane harvest (Scortecci
et al. 2012). The operation of mechanized harvest has serious social and environ-
mental effects since it replaces manual work and mitigates burning of the cane right
before manual harvest. Furthermore, mechanization is a perfect example of the
multitude of impacts the introduction of a new technology can cause. Figure 4.12
shows a modern harvester in the middle of a sugarcane field, having loaded the cane
stalks onto the hauler.
Until today, only a few companies such as JOHN DEERE, CASE and SANTAL
produce sugarcane harvesters, all of which have production facilities in Brazil. The
harvesters are air-conditioned, equipped with a global positioning system (GPS) for
precision harvesting and are supposed to stay in the field continuously during
harvest season, running in two or three shifts per day and thus promoting a swifter
harvest (Grunow et al. 2007). Refueling and maintenance of the machinery takes
place on the fields. According to a sales manager from CASE, an international
producer of agricultural machinery, a harvester costs around US$ 410,000 (R$
900,000).2 The mechanized harvesters are often employed in fleets due to efficiency
reasons.

2
Prices and numbers indicated in the text and that were given in R$ are converted into US$ for
reasons of comparability. The applied exchange rates are listed in Table on page v.
100 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Fig. 4.12 Mechanized harvester in the middle of a sugarcane field (2010)

In 2012, around 7,000 mechanized harvesters were in operation, with a potential

growth of up to 1,250 units per year (Coelho 2012), according to an email
correspondence with an expert from JOHN DEERE. The interviewed CASE sales
manager points out that
to give an idea about the rapid growth of the market for harvesters, CASE sold the first
1,000 harvesters between 1996, the year of the inauguration of their Brazilian factory, and
2007. Between 2007 and 2008, CASE sold almost another 1,000 pieces and by 2010 a total
of 3,000 were sold.

By 2010, mechanized harvest constituted more than 60 % of the cultivation area

as opposed to 30 % in 2007. Corresponding legislation and the various motivations
of the sugarcane complex that caused this massive increase of mechanized sugar-
cane harvest will be elaborated later below.

4.3.1.1 Regulation

In 2002, São Paulo State stipulated Law 11.241/2002 that determined the incre-
mental reduction of queima da cana and ultimately the elimination of this practice
by 2021 in sugarcane cultivation areas where a mechanized harvest is feasible, and
elimination from all areas by 2031. Those areas with a slope incline below 12
and a
plot size over 150 ha, are understood as feasible for mechanized harvesting
(de Andrade and Miccolis 2011). This legislation has since become federal law
and the burning of sugarcane has to be eliminated all over Brazil by 2021. Yet
according to a technical consultant to UNICA, the Brazilian Sugarcane Industry
Association,
we think. . .as I say ‘we’, I mean ‘UNICA’, have been pushing the industry towards
mechanization.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 101

Thus the industry association itself was promoting an earlier exit out of the
queima da cana practice, in cooperation with the São Paulo state ministry for
environment. By 2007, the Protocolo Agroambiental do setor sucroalcooleiro
was signed, agreeing to eliminate the burning of sugarcane in São Paulo state by
2014 on plain areas (incline below 12
), and by 2017 on any cultivation area while
also setting up a framework and measures for the protection and recovery of
riverine vegetation as well as soil conservation (de Andrade and Miccolis 2011).
According to Folha de São Paulo (2013), the share of mechanized harvest of
sugarcane and the abandonment of pre-harvest burning reached over 80 % during
the last harvest of 2012/2013 compared to 70 % mechanization the previous year.
When the independent sugarcane suppliers are excluded from the data, the rate of
mechanized harvest was 87 % while in some areas such as in Ribeirão Preto, one of
the sugarcane cultivation hot spots, the rate was up to 94 %. What was the industry’s
motivation for the rapid increase in mechanization and for the early exit of
sugarcane burning now, even the technology had been available for decades but
never really took off until 7 or 8 years ago?

4.3.1.2 Reasons for the Promotion of Mechanization

The legislation for reducing and eliminating queima da cana requires the switch to
an alternative harvesting technique or technology. Social, economic and environ-
mental reasons were normally stated when referring to the motives for increasing
mechanization throughout recent years. Yet the importance of technological
advancements has also been mentioned as a primary motive.
A researcher from the IAC states that
there is a lot of pressure from the society because of the burning of sugarcane which
smudges the cities and results in manual labor of the cane cutter that is very inhuman,

while a senior expert from CONAB (Companhia Nacional de Abastecimento)

explains that
when you are not burning, you are not accomplishing a manual harvest. A cane cutter that
does 8–9 tons of burned cane per day accomplishes only to cut 2–3 tons of crude cane.
Furthermore they don’t accept to do that line of work because it is way more difficult.

A professor from ESALQ states that

for mills’ green fields (new cultivation areas) they want to go 100 % mechanized from the
beginning, because they don’t want to have a political issue.

A professor from the Federal University of São Carlos (UFScar) notes that
mechanization
started about 20 years ago with the strike of workers. [. . .] During the harvests the people
started doing strikes and they realized the power that they had. Because you have to harvest
the sugarcane. Each day that you delay to harvest the sugarcane, you lose sucrose content.
102 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

This enabled the cane cutters to pressurize their employers to fulfil their
demands. As a consequence the usineiros and other employers became wary and
looked for alternatives to such insecure and volatile labor.
An executive director of SANTAL, a Brazilian owned production company for
sugarcane harvesters and other agricultural machinery, states that
cost of manual labor became more expensive while there are less cane cutters available and
more restrictions for the use of manual labor, so it is virtually obligatory to mechanize.

A more technological motive for mechanization is mentioned by another expert

from ESALQ who elucidates that
mechanical harvest has been used for a long time, but the problem was the planting. So, in
order to have a labor force just used for planting, it was not economically feasible. So, when
the mechanical planting was possible, this mechanization started to increase a lot.

Having quickly provided an overview of the reasons why the usineiros and the
sugarcane complex increasingly introduced mechanized harvest, both positive and
negative impacts of such a technological change are addressed in the following
sections.

4.3.1.3 Beneficial Impacts of Mechanization

Verı́ssimo and Caixeta Andrade (2012) describe the elimination of sugarcane

burning as a slightly contradictory process because on the one hand skilled labor
is required and wanted while on the other hand a mass unemployment of scarcely-
qualified labor is the consequence of a mechanization process that is initiated by the
phasing out of pre-harvest burning. The usinas are looking for skilled workers who
can operate their sophisticated machinery and equipment such as the harvester that
replaces between 80 and 120 workers. Yet retiring and prohibiting the traditional
harvest technique of pre-harvest burning of sugarcane gives an impulse to the
development of new techniques and technologies for harvesting and planting
sugarcane and is considered to have a series of beneficial impacts.
A professor from ESALQ states that
the formalization of labor lies at 81 % in the sugarcane sector while it is 30 % in overall
agriculture and 50 % in the total of Brazil.

While an expert from USP states that

it’s a very good income when you compare activities in agriculture. So they come from the
North-East of Brazil, Minas Gerais, they work here for like 8–9 months and then they come
home with sufficient money for a family to run all the year.

Furthermore, the experts talk about the improvements that the sector experi-
enced in recent decades. As the interviewed expert from REPÓRTER BRASIL
states
I guess there was lots of international pressure as well and for the sector having slave labor
in sugarcane is really not good for business. So now they are more careful.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 103

Furthermore the expert states that there have been huge improvements in
working conditions because
you have UNICA (Brazilian Sugarcane Industry Association) here, kind of watching over it
and the people have money, and they are using it for the huge machines and use less
workforce.

The expert from IMAFLORA, an NGO specialized on certification schemes,

sees
primarily advantages for the usineiros and other employers of sugarcane cutters. Fewer
workers imply a system which can be controlled better. When harvesting manually a huge
labor force is required and thus makes the employer prone to labor strikes for example.
Mechanization on the other hand promises higher efficiency and more control and thus
complies with economic rationality.

Various experts describe the job of the cane cutters as inhuman or subhuman
because of the exhausting and dangerous working conditions and the fact that
manual labor promotes the migration of unqualified workers. Thus cane cutting is
objectionable and the opinion predominates in favor of mechanization replacing
manual labor because manual labor does not comply with a modern understanding
of a work environment as well as labor rights. The argument is basically that
mechanization has a social benefit because labor conditions that do not belong
into the twenty-first century are being replaced. As one expert from the Faculty of
Economics, Management and Accounting (FEARP) of the University of Sao Paulo
states
I’m against this human labor in sugarcane. I think this is something from the 50s, the 40s,
and it can’t survive anymore.

There are some possible beneficial secondary social and economic effects which
are related to the expansion of mechanized harvest. As the expert from the Ministry
of Environment of São Paulo state points out
the mechanized harvester used to be imported but a couple of years ago, companies like
CASE and JOHN DEERE invested in factories in Brazil.

Nowadays Brazil is the main producer of sugarcane harvesters. These invest-

ments created jobs and Know-how related to the sugarcane complex. Companies
like GASCOM supply the on-field machinery for refueling, maintenance and repair,
and expand when mechanization increases.
The Brazilian Sugarcane Industry Association (UNICA) together with JOHN
DEERE, CASE, SYNGENTA and the Inter-American Development Bank (IDB)
tries to mitigate the impacts of increasing mechanization of the sugarcane complex
and decreasing manual cutting, resulting in less labor-intensive cultivation and
harvesting processes, and to counter the impending unemployment of manual
workers. The project ‘RenovAção’ (http://www.unica.com.br/projeto-renovacao/)
was created in 2009 with the aim of re-qualifying workers threatened by unem-
ployment due to the elimination of queima da cana by 2014 and beyond and the
concomitant mechanization. Since its launch, more than 5,700 workers were trained
by late 2012 for new functions inside and outside the sugarcane complex.
104 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Retraining projects within participating usinas and companies were additionally

promoted which resulted in the training of over 16,000 workers along the guidelines
of the RenovAção program. According to an article in Folha de São Paulo, the
usinas have started using simulators in order to qualify enough operators for the
agricultural machinery for 2014, by when the sugarcane burning is supposed to
have been eliminated (Santos 2013).
According to Voltarelli et al. (2013), mechanization in sugarcane expands not
only to harvesting but to planting as well and is becoming increasingly widespread
as already mentioned. The working conditions offered to the operators of the
machinery are better compared to other types of planting. In their research sugar-
cane workers were divided into three shifts of eight hours in order to plant the whole
24 h. As some experts have already pointed out, a switch to mechanized harvest
leads to the reduction of production costs. With the increase of formal working
contracts and an increasing minimum wages, the employment of sugarcane cutters
becomes more expensive for the usineiros and other contractors that deliver
sugarcane. The expert from CASA CIVIL, the Brazilian Presidential ministry,
states that
Brazil nowadays is an expensive country for intensive manual labor. Within 8 years the
sal

ario minimo (minimum wage) rose from 80 US$ to more than 300 US$ per month. And
there was no comparable productivity increase to those costs.

Since sugarcane as a feedstock is responsible for over 50 % of the production

costs of sugar and ethanol, the sugarcane production costs strongly affect the prices
of sugar and ethanol. The expert from CASE states that
apart from the lack of manual labor, primarily there is an economic and an agronomic
reason for mechanization. The reduction of operational costs is the economic reason while
the residual biomass left on the harvested fields when phasing out of burning is the
agronomic cause. When some biomass remains on the field the soil contains more humidity,
increases soil productivity and reduces the application of fertilizer.

Increasing efficiency might lead to additional cost reductions. Due to these

developments, a representative from UNICA very figuratively states that
burning sugarcane is an unsustainable practice, burning sugarcane means burning money.

According to the expert on sugarcane from IMAFLORA,

there are a multitude of advantages and beneficial byproducts that can be assigned to the
elimination of sugarcane burning and the harvest of crude cane. The quality of the
sugarcane is better and the sucrose content higher. Then there are the leaves and the
biomass that are excellent for the soil when applied prudently and which can be used for
the production of energy.

Furthermore, an interviewed expert from the IAC mentioned that

initially there was fall in productivity of sugarcane due to the fact that the various cultivars
were not modified to mechanized harvest. But when modified cultivars are cultivated the
productivity increases again and those cultivars are already available.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 105

According to de Moraes (2009b), the mechanization trend is irreversible and

picks up speed likewise for reasons other than the prohibition imposed on the
burning of sugarcane. The issue of cogeneration is of importance, for example,
since the electricity produced by the usina is derived from the thermal process of
burning the remaining biomass after the extraction of the sugar juice. This biomass
primarily consists of bagasse the fiber left after crushing the cane; so when
harvesting the sugarcane without burning and in a mechanized manner, the amount
of biomass that can be used as input for the cogeneration process is significantly
higher. The palha (cane trash) on the field might be collected as well to generate
heat and steam for the usina and electricity since it likewise shows significant
energy potential. Cane trash is available in similar quantities to bagasse and the
calorific value is only slightly lower, according to Bizzo et al. (2014). Furthermore,
the bagasse and the cane trash might be hydrolyzed in order to produce second
generation ethanol which might be even more efficient according to Scortecci
et al. (2012).
This means more bagasse and additional biomass that can be converted into
steam and electric energy by cogeneration in the boilers of the usina. The managing
director of an usina that was visited during the research stay in 2010 explains that
the amount of biomass that is left on the field can be controlled partially by altering the
power of the harvester’s ventilator that normally separates the leaves from the cut pieces.
With reduced power less leaves are likely to remain on the field while more biomass is
collected which is separated from the cane stalks and then burned during the cogeneration
process.

Galdos et al. (2009) argue that another effect of leaving the palha, the cane trash
on field is carbon sequestration in green sugarcane plantations. Thus elimination of
queima da cana not only reduces emissions but results in carbon accumulation in
the soil. If the sugarcane burning is renounced the complete crop is still on the field
when harvested. During the mechanized harvesting process the so-called palha, the
leaves of the sugarcane plant are separated from the sugarcane stalks which are cut
into pieces or billets between 20 and 25 cm length (Compeán and Polenske 2011).
After the separation process, the leaves and some additional biomass from the plant,
the ‘cane trash’, remain on the soil. As mentioned before, the natural protection by
sugarcane leaves and straw provides humidity to the soil and thus reduces the
application of plant protective agents a little, as a consequence reducing the
operating costs. Yet the expert from MAPA states that
there is an ideal level of thickness of the soil cover. Because when the cover provided by the
remaining leaves is too thick this might prevent the supply of oxygen and smother the soil
and additionally foster the growth of weeds that detriment the sugarcane cultivation
process.

One of the principal reasons for eliminating the queima da cana always has been
the mitigation of the emissions resulting from the sugarcane burning. During
harvest season the impact of burning is especially directly felt in the communities
that are close by or even surrounded by large sugarcane monocultures. Pollution of
106 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

air and soil can be directly attributed to the burning of sugarcane and the impacts
can be felt immediately. The expert from IMAFLORA states that
although I am not sure whether the environmental aspects can be considered a big incentive,
mechanization, when harvested without burning, brings environmental benefits.

Additionally, birds and other animals that nest or hide inside the sugarcane are
less likely to be harmed. The expert from WWF points out that
mechanized harvest represents an advancement from an environmental point of view if the
loss of employment can be allocated to elsewhere since Brazil grows.

Another positive effect of eliminating the sugarcane burning is the reduction of

health problems caused by queima da cana especially in adjacent communities.
According to the interviewed expert from GREENPEACE, sugarcane burning has
grave impacts on those populations for example in the North-East of São Paulo state. Apart
from the continuous pollution of the houses and the gardens the people inhale the emissions
of the sugarcane burning which can lead to serious respiratory problems. And there are
other particles that are emitted which can have a strong impact on the greenhouse effect.

According to Aparecida de Moraes Silva and Constante Martins (2010), during

the months from April to November giant clouds from sugarcane burning darken
the sky in the areas of sugarcane cultivation and damage the environment and the
rural and urban populations who live close by. The elimination of pre-harvest
burning in different regions by 2014, 2017 and 2021 respectively therefore reduces
the emissions from those fires. A study by Capaz et al. (2013) observed that the
introduction of green harvest and mechanization have reduced the overall GHG
emissions during the life cycle of ethanol. The introduction of these practices
resulted in a reduction of almost 40 % of GHG emissions between 1990 and
2009. Here, the successful elimination of queima da cana posed the decisive factor,
responsible for 80 % of the emissions in harvest operations. Within this assessment
the emissions of other particles such as black carbon (a major component of soot)
was not even considered. The reduction potential is even higher since the electricity
that might be generated out of the cane trash was not considered (Capaz et al. 2013).
According to De Figueiredo and La Scala (2011), the switch from pre-harvest
burning to green harvest saves around 310 kg CO2equiv/ha and when the carbon
sequestration that takes place when the palha is left on the fields is considered, more
than 1,400 kg CO2equiv/ha of emissions might be avoided. The pre-harvest burning
leads to emissions of GHGs as well as soot. Soot has a more regional than global
atmospheric effect. It pollutes the area with particles and is inhaled during respira-
tion. According to Galdos et al. (2013), several studies exist that show a strong
correlation between particle emissions from sugarcane burning and asthma-related
hospital admissions as well as respiratory problems in children and elderly. They
state that the elimination of pre-harvest burning significantly decreases black
carbon as well as GHG emissions in the agricultural process of sugar and ethanol
production (Galdos et al. 2013). A study by Uriarte et al. (2009) suggests that for
municipalities with more than 50 % of their area dedicated to sugarcane, up to 38 %
of infant respiratory cases could be attributed to current or chronic exposure to fires
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 107

associated with sugarcane. These harmful effects of queima da cana present a

negative impact, for both households and the public health system.
Yet the expansion of mechanization is not necessarily synonymous with green
harvest, nor does it automatically guarantee the end of pre-harvest burning of
sugarcane. Burning often reduces the costs of transport to the ‘usina, the yields
can be higher and less soil is picked up (Uriarte et al. 2009). Mechanization has
unintended effects of which some are outright negative.

4.3.1.4 Detrimental Effects of Mechanization

Alves (2006) describes the setor sucroenergético as an industry that rests in a

dichotomy between tradition and modernity. On the one hand are the new technol-
ogies, institutional agreements that present the sugarcane complex as a modern
industry of the twenty-first century, promoting research and development, supply-
ing food and energy, state-of the-art agricultural machinery, precision farming via
GPS and biotech facilities. On the other hand a few cases of slave-like working
conditions, physical exploitation of the labor force and a social dependence exist,
that can be more attributed to the society in the 18th century.
When the decision was made to phase out queima da cana some effects like the
rise of mechanization could have been reckoned with while others were less
expected or unintended. Negative effects are not only related to the loss of employ-
ment or poor working conditions that still exist in some areas of the sugarcane
complex but also to productivity related issues. Likewise there are access barriers
for smaller actors of the sugarcane complex to join the new markets of
mechanization.
Although the poor working conditions of the sugarcane cutters are known and
were discussed above, cane cutting presents an important source of income for
workers lacking formal education or qualification. There are a variety of estimates
for the number of workers that are prone to losing their employment in the
sugarcane complex due to the increase in mechanization. The technical consultant
to UNICA states that
one single machine (harvester) can substitute 80 or 90 people. It is not a good publicity to
say: ‘Ok, one machine will just end the work of so many workers.

So, if the harvesters sold by CASE, which alone amount to more than 3,000, are
replacing 80 workers each, up to 240,000 workers could have been replaced solely
by those harvesters sold.
The expert from FEARP elucidates that
we (Brazil) have a social problem, because there’s 180,000–200,000 people with a good
income [. . .] when you compare activities in agriculture coming from these activities. [. . .]
So definitely they will move from sugarcane to more intense areas that use labor like
construction, fruits and other areas.

The interviewed expert from REPÓRTER BRASIL elaborates that

108 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

if you talk to the unions in São Paulo, Goiás, and Pernambuco for example, of course they
defend their working position, they defend the labor. They are not against mechanization.
But it is different [. . .] it is funny now, because Pernambuco has an industrial boom, a
construction boom. So lots of the people that used to work in sugarcane mills migrated to
the construction sites, so there is shortage in labor force there. So the usinas are kind of
desperate right now.

According to a professor from ESALQ there are estimates that

vary between 50,000 and 100,000 people who lose their jobs due to mechanization. The
reasons these estimates fluctuate so significantly are the different scenarios for the devel-
opment of the demand for sugar and ethanol. A higher demand increases the likelihood of
further employment.

Within that context the expert from FEARP states that

we have programs, of course it’s a very tiny part of the amount of people involved, to
qualify these harvesters, these guys to work on the machinery [. . .] you need a lot of people
to be trained to work on that.

Regarding the unemployment of the cane cutters caused by the mechanization

and exacerbated by its expansion, Janssen and Rutz (2011) likewise see the
migration of the poor rural population towards urban areas as one consequence.
Table 4.4 illustrates a projection by Moreira de Oliveira et al. (2010) that presents
employment figures and scenarios in the sugarcane sector for the state of São Paulo
between 2006/2007 and 2020/2021. The elimination of pre-harvest burning and the
mechanization of 100 % of the area results in a decline of almost 190,000
employees between a 40 % and a 100 % mechanized harvest. Yet they estimate
that an additional 45,000 people find employment in the mechanized harvest sector.
Whether those 45,000 newly-contracted workers derive from the group that lost
their employment or if they are from other industrial sectors because a higher
degree of qualification is needed for the mechanized harvest, can only be speculated
upon.
Other reports estimate the loss of low-qualified employment at around 300,000
jobs due to the rise of mechanization (Uriarte et al. 2009). A study by Spetic
et al. (2012) confirms considerable job losses in the sector due to mechanization
of sugarcane harvest. The municipal government notes a constant increase in
unemployment in local communities in the last few years and a rising burden to
their social programs. Verı́ssimo and Caixeta Andrade (2012) argue that these
unemployed workers are unlikely to find other types of jobs since they are often
lacking even most basic qualifications to enter other labor markets. Furthermore, it
has to be noted that the current working conditions of sugarcane cutters, even
though they have dramatically improved over recent decades, are still often con-
sidered inhumane and therefore a disappearance would be welcomed by many
experts.
The increasing application of mechanized harvesters induces additional effects.
For example, nowadays there are incidents of forced labor in mechanization where
workers are driving agricultural machinery without the necessary working breaks.
The expert from REPÓRTER BRASIL states that
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 109

Table 4.4 Employment scenarios sugarcane complex, São Paulo state (2006/2007–2020/2021)
2006/2007 2010/2011 2015/2016 2020/2021
Sugarcane production (million t) 299 370 457 544
Area with mechanized harvest (%) 40 % 70 % 100 % 100 %
No. of employees (1,000)
 189.6 107.4 0 0
Manual harvest
 15.5 30.8 59.5 70.8
Mechanized harvest
 55.3 62.6 68.3 75.3
Industrial labor
Total 260.4 200.8 127.8 146.1
Based on data from Moreira de Oliveira et al. (2010)

what happens, for example, right now, is that we have kind of forced labor in mechaniza-
tion. They put a guy driving this huge tractor for more than 24 h, it is insane.

While the expert from the NGO ‘REDE SOCIAL’, the ‘Social Network for
Justice and Human Rights’, elucidates that
when you also talk to the tractor pilots, you know, the workers that work in the machinery
or in the industrial plants, the conditions are also horrible. They say that the machines work
24 h/day, so there are two 12-h shifts. So they work for 12 h nonstop. Sometimes they can’t
go to the bathroom, they have to eat while they drive. So it’s also a horrible condition. And
it’s a seasonable job, they don’t have any type of security, job security.

Furthermore, it seems that in this transitional period mechanized harvest is

somehow exacerbating the situation for the cane cutters.
When it is not mechanized, the quotas for workers increase, because they have to be more
productive in order to keep their jobs. So there’s a structural problem of overexploitation,
because of the fact that they get paid by the amount they cut,

states the expert of REDE SOCIAL, while the GREENPEACE expert points out
that
compared to former times the exploitation rather aggravated since today the demanded
amount is four times higher.

The professor from UFMG mentions that

the average utilization time of a sugarcane cutter lies around 12 years which implies that
after 12 years they are physically broke. During the times of slavery the average was around
15 years.

The elimination of the queima da cana is promised to be tackled with the

distribution of mechanized harvest technology. It likewise presents an alternative
to increasing labor costs and to a growing dependence on a migrating labor force
and to the negative public image sugarcane cutters were and are related to. Yet the
significant expansion of green harvest and mechanization additionally pressurizes
the remaining manual labor force and their piece-work rates. According to Marcatto
110 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

et al. (2010), the regions and areas that are still harvested manually are marked by
high productivity. Cane cutters are required to harvest up to 15 tons of sugarcane
per day. While in the 80s the average harvest per worker was around six tons, it has
doubled to 12 tons nowadays. To ensure their jobs the cane cutters have to harvest at
least ten tons per day.
Thus, the incentive of piece-work rates, getting paid per ton of cut sugarcane
results in severe cases of physical exhaustion and harm, even death because even
someone without qualification can earn comparably well, striving for high daily
harvests. Alves (2006) lists the increasing mechanization in sugarcane cutting as a
cause for the demand of higher yields per day. Additionally, Alves provides some
data on the physical requirements of a sugarcane cutter who harvests 12 tons of cane
per day. For example, he walks around 8.800 m, carries 12 tons of cane in units of
15 kg and perspires around eight liters of water per day.
According to the technical consultant to UNICA, the storage times of sugarcane
differ between manually cut and mechanized harvest. The expert states that
if it is hand cut, you can store it for 48 h. Otherwise, it starts to ferment. It starts to degrade.
If it is mechanized harvesting, then you may end up with 8 or 10 h of storage. Maximum.
Because you have more exposed area. You have small pieces, like 20 or 30 cm pieces. So,
you have more exposed area to microbes, oxygen activities. So, you oxidize, deteriorate
your feedstock.

Another disadvantage of the mechanized harvest without pre-harvest burning is

the impurity of sugarcane that arrives at the usina. Additionally, the expert from the
CEVASA usina states that
soil residues that remain on the cane and are not removed completely can damage the
boilers which are expensive equipment. When bagasse and other biomass are burned in the
large boilers to generate steam and electricity the soil residues vitrify and damage the
boiler.

Another reason for a loss of productivity when switching to mechanized harvest

is a rather mechanical one. The expert from CONAB elaborates that
sometimes the husk of the sugarcane plant contains a lot of cellulose and therefore the blade
of the harvester loses its sharpness quickly and starts to pull at the plant rather than to cut.
There are estimates that mechanization reduces the sugarcane harvest cycle from five to
four harvests.

Another interesting aspect was elaborated by UNICAs technical consultant

which stated that
the practical level would be close to 200 (200 t/ha yield of sugarcane). But, then, you end up
with such a tall sugarcane plant, that it becomes too heavy to stand alone. So, it falls. And if
it falls, then it becomes a problem for harvesting. Especially with the current technology.

Due to the smaller pieces (20 to 30 cm) cut by mechanized harvest, the density in
the loaded trailers is significantly higher and thus the trucks and tractors moving the
trailers are heavier than when loaded with manually cut sugarcane. These machin-
eries compact the soil and thereby reduce yields of the subsequent harvests.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 111

According to the interviewed professor from UFScar the risk of compaction is so

substantial that
sometimes when it starts to rain and the temperatures are high, they quit the harvest.
Because if you harvest sugarcane with machinery, the soil becomes very compact, and it
is not good for sugarcane.

In the first years of operating mechanized harvesters in São Paulo state and
elsewhere, the productivity of sugarcane dropped significantly. According to the
expert from MAPA,
increasing mechanization was one of principal causes, besides very poor climatic condi-
tions for the fall in productivity of sugarcane yield per hectare from an average of 85–89 t/
ha to 69 t/ha which was a brutal drop.

In order to make sure that the switch to mechanization is a successful one there
are quite a lot of investments necessary apart from the direct acquisition costs. For
instance,
the complete mode of planting and cultivating the sugarcane needs to be adapted to
mechanized harvest to provide more space between cultivation rows to prevent compaction
of the soil. Since the sugarcane is vegetative with a cycle of up to five harvests, the
timeframe to switch the total cane cultivation to mechanized harvest will be around 5–6
years

according to an interviewed professor from ESALQ. Yet the switch is necessary

due to compaction and the reduction of the harvest cycle. This shows that either the
usina or its supplier needs to be prepared for an extended period of investment as
well as a significant drop in yields in order to switch from manual to mechanized
harvest.
The REPÓRTER BRASIL expert explains that
of course, for the sector, one of those machines is very expensive, so more money from
BNDES

which signifies that large credit lines for example from BNDES are needed to
realize those investments. Small and medium sized farmers or companies are
unlikely to be eligible for those loans. So in the end, as the expert form IMAFLORA
states,
the smaller producer that has little cultivation areas and who cannot comply with the
protocol of mechanization will be regarded as the villain because he will still be burning.
As a consequence the producer who is already marginalized and struggles most, will be
penalized. So mechanization is something for the big producer. The one who still burns
sugarcane today is the small producer who did not succeed in mechanizing.

Another effect of the high investment costs for the mechanized harvester and the
auxiliary machinery can be observed in the Tri^angulo Mineiro, one of the largest
sugarcane expansion areas in Minas Gerais, according to the professor from UFMG
(Universidade Federal da Minas Gerais):
Although the area has no or minimal incline and is thus considered suitable for mechani-
zation a few companies still use a great deal of manual labor because they lack the capital to
realize the investments needed to switch to mechanized harvest.
112 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

However, because mechanization requires plain areas with an inclination below

12 %, one expert from EMBRAPA mentions that this will cause an
expansion of sugarcane onto areas better suited for mechanization. An additional conse-
quence is the increase in scale of such new cultivation areas resulting in larger mono-
cultures and probably in an additional impulse for a concentration of the sugarcane
complex.

According to the expert from SEBRAE,

the Piracicaba region (São Paulo state) which is a production center has many areas with
high inclines. These areas where sugarcane is being produced today will pass on to other
cultivations in the coming years while sugarcane will enter more level and plain areas. This
is about to change the whole agricultural landscape of the São Paulo state.

The purchase costs of one single mechanized harvester are around US$ 450,000
(R$ 1,000,000) according to Moreira de Oliveira et al. (2010). Besides, new spacing
regimes on the fields for the alignment of sugarcane being required, the modifica-
tion of planting and cultivation to mechanization as well as new sugarcane cultivars
are needed to further improve the efficiency of mechanized harvest (Spetic
et al. 2012). These large investments can only be realized by large corporations
and transnational companies and cannot be shouldered by smaller farmers (Tait
2011). So apart from causing unemployment of field workers, mechanization leads
to the exclusion from the industry of smaller, less capitalized companies and
farmers. Ultimately this might lead to ‘land grabbing’ effects when transnational
companies and conglomerates end up purchasing or leasing the land (de Andrade
and Miccolis 2011). Furthermore, plain and level cultivation areas are required for
the mechanization process which might soon impact the agricultural areas in São
Paulo state (Grunow et al. 2007).
According to the expert form IMAFLORA,
the combination of mechanized harvest and pre-harvest burning has been identified as the
worst case scenario,

because the positive environmental dimension that can be attributed to the

elimination of queima da cana and in consequence to mechanization is lost.
Furthermore, the negative social impacts that result from the loss of employment
of a scarcely-qualified labor force are not avoided. Unfortunately, this practice
exists during the harvest period within the sugarcane complex because the yield per
hectare is still higher. The expert from REDE SOCIAL confirms burning during
mechanized harvesting does happen and states that
even if it’s mechanized they still burn it. There’s a lot of illegal burning. What they
explained to us is that if you burn you have a higher level of sugar in the bottom, in the
sucrose, and you make it lighter for transport. So in terms of productivity is better.

According to the professor from UFMG

the harvester can work much faster in a burned sugarcane field because there is less biomass
as a hindrance.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 113

Closing the analysis of this section it can be said that manual sugarcane
harvesting requires a large labor force and constitutes very demanding physical
working conditions. Productivity is still often higher when cane is cut manually
while less soil residues remain with the cane and the whole cultivation area can be
harvested more flexibly regardless of topography (Grunow et al. 2007). Labor costs
used to be significantly lower. Mechanized sugarcane ferments much faster and
thus requires faster cut-to crush times and respective logistics. The mechanized
harvest is comparably faster because the modern machinery runs 24 h during the
harvest period while the pre-harvest burning of sugarcane can be eliminated and
GHG and soot emissions significantly reduced. If mechanization is realized without
prior burning, it helps to generate additional energy and contributes to the replace-
ment of labor that is precarious and objectionable.

4.3.2 Cogeneration

The Brazilian primary energy matrix is relatively diverse, yet when it comes to
electricity production, hydroelectric power is the dominating energy. As indicated
by Fig. 4.13 more than three-quarters of the domestic electricity supply in Brazil
were provided by hydropower in 2012. Natural gas followed with around 8 % while
biomass energy, which is comprised mostly of sugarcane products, ranked third
with almost seven percent. Being that dependent on a single energy source might
have its drawbacks and thus a further segmentation of the Brazilian energy matrix
might be desirable.
Although the potential of hydropower in Brazil is still substantial, the social and
environmental impacts and efficiency of hydroelectric power stations that are often
located in remote areas, mainly in the Amazon basin, and send electricity via long
transmission lines to the densely populated areas, are regularly questioned even
though hydroelectric power might be regarded a renewable energy source (Soito
and Freitas 2011). Large-scale hydro projects such as the construction of Belo
Monte dam are contested and heavily criticized (de Sousa Júnior and Reid 2010).
In 2001, when hydroelectric power represented almost 90 % of the Brazilian
electricity supply, a serious shortage of electricity occurred and the government
instituted an emergency plan to reduce electricity consumption in order to prevent
major blackouts.3 As a consequence, Brazilians were compelled to reduce energy
consumption by 20 % between June 2001 and February 2002 according to

3
According to Fleischer (2014), Central-South Brazil experienced the smallest rainfalls in January
2014 in these regions since 1954. This constitutes a very difficult situation for electricity energy
generation. The lack of rainfall has depleted water levels of the main hydropower facilities to such
an extent that all thermo-electric capacity (natural gas, fossil oil, biomass, etc.) has been activated.
Furthermore, another 5,000 MW was required to be provided by the Tucuruı́ hydropower station in
Pará. But, the outdated transmission lines resulted in a blackout of up to two hours in the Central-
South regions, affecting up to 12 million people in 11 states.
114 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Fig. 4.13 Brazilian electricity supply by source in % (2012) Based on data from EPE (2013)

Scaramucci et al. (2006). This crisis led to an increasing promotion of alternative

energies such as thermo-electric technologies.
The importance of thermo-electrical utilization of sugarcane bagasse increased
substantially over recent decades, partially because of the afore-mentioned reasons
of shortage in electricity supply. When processing cane into sugar or ethanol there
are various types of input energy needed such as mechanical energy for crushing
and milling, thermal energy for providing heat and process steam as well as
electrical energy for the control systems, lighting etc. According to Bizzo
et al. (2014), 58 % of the energy at the usina is consumed by milling and juice
extraction and 33 % by electricity.
Sugarcane bagasse is used as the main feedstock to generate these different
forms of energy. This process is understood as cogeneration and is unique to
production based on sugarcane (BNDES 2008). This secondary usage of the
byproduct bagasse can be considered cascade utilization, which is desirable due
to its efficiency. Cascade utilization implies using as many parts of a raw material
(cane stalks and cane trash), its byproducts (bagasse, vinasse) and residues (cane
ash) that accrue during the making of the primary product (sugar or ethanol) as
possible (Fig. 4.9). Other feedstock that is processed in order to produce ethanol
requires external input for the production process such as coal in the case of corn-
based ethanol. The expert from the NGO REDE SOCIAL points out that
if you compare to an ethanol plant in the US, where basically they use coal. . . In the
machinery, in the production system they use coal to produce ethanol with corn. So, yes, if

Fleischer (2014) additionally states that it is highly possible that Brazil faces massive blackouts
in May, June, and July as happened in 2001 if rainfall does not increase during the “summer rain”
months (February, March and April). Concern is expressed that such a disaster might coincide with
the World Cup finals in June and July 2014.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 115

you compared to that, in Brazil the plants generate their own energy in the industrial
process, right.

Efficient cogeneration processes and the production of electricity has continued

to grow in importance for the usina during recent decades. By 1980, around 40 % of
the electric power consumed by the usinas needed to be purchased and imported
while by 1990 the mills were self-sufficient with regard to their needs of electric
energy. The generation of a surplus of energy to the amount needed for the
production processes was of no interest because of very limited market opportuni-
ties. In recent years, a new regulatory framework incentivized the usinas to sell
surplus energy to the national electric grid which once more stimulated a modern-
ization process of cogeneration systems at the usinas, according to Horta Nogueira
and Lima Verde Leal (2012). This implies that nowadays there are often three lines
of products, the usinas are occupied with. Thus, as an expert from ESALQ states
it is not anymore the setor sucroalcooleiro but the setor sucroenergético because it is
producing sugar, ethanol and electrical energy.

The subsequent section analyzes the current situation and the potential of
cogeneration within the sugarcane complex and elaborates on the reasons why
this promising technology is only developing slowly.

4.3.2.1 Benefits of Cogeneration

Extracting the sugar juice out of the sugarcane stalk requires a milling and crushing
process at the usina. The residue that is obtained after this process of cane crushing
consists of lignocellulose biomass and is called bagasse. As mentioned above, this
co-product of sugarcane processing is incinerated in large boilers in order to
generate the process energy for the usina and the excess energy sold to the Brazilian
electrical grid. Besides that, bagasse may also be used as a raw material to produce
second generation ethanol by hydrolysis (Cheavegatti-Gianotto et al. 2011).
According to Seabra and Macedo (2011), all new usinas and many operating
(older) ones are able to function as standalone thermoelectric plants, even during
off-(harvest)season, as long as biomass is available (since inefficient boilers con-
sume the stored bagasse faster). This implies that an usina can constantly provide
stable electricity input into the national grid assuming sufficient amounts of bagasse
and other biomass residues. The interviewed expert from GASCOM points out that
there are usinas that do not stop cogeneration within 12 months because they have enough
bagasse to run the cogeneration process even though the other production processes stops
(after the harvest is finished).

A report by CONAB (2011b) observes that the possibility of feed-in energy

surplus into the national grid is important because the supply of electricity to the
grid only recently turned into a business and most of its potential is yet to be
explored.
Seabra and Macedo (2011) elaborate on the drawbacks of having such a huge
share of the Brazilian electricity supplied by hydro-electrical power (over 75 %).
116 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

The available energy from hydropower is highly seasonal because it depends on the
afflux of water in the rain season. The water reservoirs and the affluent energy can
drop by 30–40 % in the dry season which leads to an increasing application of
thermal power plants in order to stabilize the electricity grid (Seabra and Macedo
2011). The fact that the sugarcane harvest coincides with the time of low rainfall is
regarded a positive aspect especially because energy production from alternative
renewable technologies is desired for national power generation (Verı́ssimo and
Caixeta Andrade 2012)
One of the experts from IAC states that
it would be extremely interesting to use electricity from bagasse during low water levels.
And the feedstock is ready to be used since bagasse is amassed in the usinas anyway.
Additionally, the leaves and other biomass residues left on the field could be collected and
more electricity could be generated.

The interviewed expert from WWF adds that

the bioelectricity has a potential not only because of the energy production during the dry
season but because it is an energy that is close to the regions where the major consumption
takes place. Sugarcane is cultivated and processed mostly in the Center-West and South-
East region (for example São Paulo state) where the energy demand is highest.

The interviewed expert from CASA CIVIL elaborates on the necessity to utilize
the sugarcane fiber. He remarks that
today, the total recoverable sugar (TRS) content from the sugarcane plant lies around 14.5–
15 % which implies that 85 % of the sugarcane plant is fiber instead of sugar. And if that
fiber is being used for electricity generation or hydrolysis then that is fine. But if not, then
only useless ballast is transported that doesn’t turn into revenue for the sugar and ethanol
production plant. Furthermore, secondary usage for surplus bagasse that will not be used for
cogeneration can be the processing into pellets that can go to foreign markets.

There is a variety of beneficial effects that derive from the establishment of

cogeneration, high pressure boilers and the production of excess energy fed-in to
the national grid. As the expert from BNDES points out,
cogeneration is stable revenue while ethanol and sugar vary. If it is rain or sunshine, the
amount is fixed. It is an additional financial security for the usina. Yet it still is not a reality
but has huge potential for the existing usinas in Brazil.

Greenpeace’s expert elaborates on the advantages of bioelectricity. He states that

I think bioelectricity is essential in order to attain the diversification of the Brazilian
(energy) matrix. Thermo-electric plants such as cogeneration units would obviously be
the preferential substitute for fossil oil, coal and natural gas. Especially considering that
ethanol will continue and bagasse will be available. I vindicate a 10 % cogeneration in
Brazil until 2050. It is much more predictable than wind energy and it reduces the role of
fossil fuels in the dry period of the year. I might put this advantage at the front of
availability.

Electricity production from sugarcane by cogeneration reduces carbon emissions

by substituting fossil oil or gas that would otherwise be burned in thermo-electric
plants according to BNDES (2008). Furthermore, compared to conventional
thermo-electric technologies which reach a degree of efficiency between 30 and
50 %, the cogeneration systems with high pressure boilers and modern turbines
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 117

achieve efficiencies of up to 85 % according to BNDES (2008). Regarding the

feasibility of cogeneration projects, some calculations promise an economic value
of the electricity provision close to the revenues of sugar (BNDES 2008).
Another aspect which could become interesting in the future is the fact that
ethanol is not considered eligible for any carbon credit as opposed to excess
electricity from cogeneration. But nowadays, the revenues that could be expected
are insignificant and thus do not present any additional incentive to investors
(Seabra and Macedo 2011). According to BNDES (2008), 24 cogeneration projects
using cane were registered with the UNFCCC by March 2008. According to
Goldemberg et al. (2008), the amount of jobs required per unit of energy produced
is substantially higher in the sugarcane sector than with hydroelectric power or
fossil oil and thus thermal electricity from bagasse secures employment.
Another benefit that is often associated with an expansion of sugarcane cogen-
eration is the reduction of pressure on other energy sources, which might lead to a
possible abandonment of hydroelectric power projects that are considered prob-
lematic to realize and implement. The expert from REPÓRTER BRASIL states that
as I am working as well with the Belo Monte dam—that is a huge problem—I think that
using bagasse to cogenerate energy is—I mean the sector is saying we can produce the
energy of two Belomontes just with sugarcane bagasse. And I mean, they are there, you
have all these problems and you can’t do anything against because they are already there—
so at least generate something positive.

The interviewee from the São Paulo Ministry of Environment points out that
there is a potential of installed thermal-electrical units based on bagasse in São Paulo which
if stimulated (by better payments for example) would make more hydroelectric power
elsewhere needless. And what would not be consumed in São Paulo could be exported to
other regions.

4.3.2.2 Potential of Cogeneration

According to Rabelo et al. (2011), it is assumed that in Brazil one ton of processed
sugarcane results in around 280 kg of bagasse. Taking into account that the
sugarcane harvest 2012/2013 resulted in approximately 600 million tons of cane,
the potential that an energy generation out of bagasse might have can be considered
substantial even when deducting the needed process energy within the usina. Due to
the volume of this available biomass there is great interest in utilizing the bagasse in
developing additional products (Rabelo et al. 2011). Whether the thermal applica-
tion of cogeneration or a conversion into second generation bioethanol by a
hydrolysis process is considered to be more promising with regards to energy
yield and reduction of GHG emission is discussed in the subsequent section.
In the context of discussing the potential of cogeneration, it should be noted that
the increased mechanization as elaborated upon in the previous section promotes
secondary usage because the renunciation of pre-harvest burning implies a higher
content of fiber within the harvested cane as well as more biomass residues such as
cane trash left in the fields that might be collected later. Research has been
118 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

conducted to evaluate appropriate amounts of cane residues to be gathered from the

fields while still leaving enough to provide soil protection, nutrient recycling, weed
control etc. Thus the question of how to deal with the palha depends on the strategy
and the equipment of the usina, and whether cogeneration is of importance or not.
According to Horta Nogueira and Lima Verde Leal (2012), preliminary results
show that around 7.5 t/ha of dry biomass (cane trash, left on the field) which
represents around 60 % of the total cane residues produced during the green harvest
(without burning) of sugarcane, is sufficient to prevent weed growth. Horta
Nogueira and Lima Verde Leal (2012) additionally mention that gathering and
utilizing the 40 % of the cane residues available after green harvest increases the
surplus power generation considerably, as long as certain turbines are used within
the process. The surplus electricity can be increased by more than 80 % from
81 kWh/TC to 145 kWh/TC (TC ¼ Ton of Cane processed). Using the biomass for
the hydrolysis process when fully developed might increase the yield per ton of
cane by up to 45 % (additional 37 l/TC) but as a consequence the surplus generation
of electricity will be reduced. Importantly, Horta Nogueira and Lima Verde Leal
(2012) remark that the amount of surplus bagasse, after producing energy for the
production processes, depends mainly on the sugarcane fiber and the quality and
efficiency of the boilers which burn the bagasse and process it into energy.
According to Matsuoka et al. (2009), there is great potential for the development
of so-called ‘energy-cane’ where the focus lies on higher fiber content rather than a
high sugar one. The ‘energy-cane’ offers several benefits such as an increased
biomass yield as well as a higher resistance to biotic and abiotic stress. Yet in
many breeding programs the main concern is the increase of TRS per ton of
sugarcane and the decrease of fiber (Horta Nogueira and Lima Verde Leal 2012).
The expert from CANAVIALIS stated that
nowadays, people try to develop cultivars with equal or less amount of sugar content (TRS)
but with higher amount of fiber in order to be burned and produce more electricity. And
maybe the largest gains of genetic modification will come from this route of increasing the
fiber content.

During the visit to the usina ‘Santa C^andida’ owned by GRUPO TONON the
interviewed experts stated that
in this usina here, we have an installed capacity of 29 MW and we use 8 MW and sell an
excess of around 14–15 MW. And the intention is to feed-in another 8 MW from our biogas
plant.

The expert from the usina CEVASA who was interviewed during a visit stated
that
from 32 MW that we produce, we use 12 MW for the processes and export 20 MW.

The electricity production of Brazil and Itaipu, in comparison with the accumu-
lated production provided by the sugarcane sector, has been listed in a study
conducted by CONAB (2011b). Table 4.5 combines some of the results.
According to Scortecci et al. (2012), the energy stored in sugarcane residues and
bagasse has the potential to produce up to ten gigawatts (GW) of electrical power
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 119

Table 4.5 Electricity by different sources in 2009 and 2020 in Megawatt per hour
Total in % of total
Source of energy MW/h production
Accumulated production of all sources 445,662,850 100
Accumulated production of Itaipu 91,651,808 20.6
Accumulated production sugarcane sector (harvest 2009– 20,031,423 4.5
2010)—real
Accumulated production sugarcane sector (harvest 2009– 39,949,383 9
2010)—possible
Accumulated production sugarcane sector (harvest 2020– 68,729,770 15
2021)—possible
Based on data from CONAB (2011b)

due to the current scale of sugarcane cultivation in Brazil. This is close to the
amount of energy that is provided by Itaipu, the largest (hydroelectric) power plant
in the world, in terms of generated energy (Itaipu Binacional 2014). Busch (2010)
expects that the sugarcane complex will be capable to produce around 11,500 MW
(11.5 GW) by 2015/2016 which constitutes around 15 % of Brazils electricity. Yet
the overall potential of biomass energy generation (out of bagasse and cane
residues) has been specified by Scortecci et al. (2012) at over 25 GW.
According to a study by BNDES (2008), it was estimated that the installed
capacity of cogeneration units could reach 38 GW in 2025 even only using cane
trash from the fields, while the bagasse is used for second generation hydrolysis
ethanol production. If all of the bagasse were used likewise for cogeneration, the
installed capacity could reach 75 GW by 2025. Furthermore, thermo-electric
production based on sugarcane bagasse and other residues might equal or surpass
the electricity generated by hydropower. Hence the literature review shows that the
information on the potential of sugarcane cogeneration varies significantly. But in
any case, the amount of electricity that can be produced following this technolog-
ical route is substantial.
There is a huge potential in the production of energy surplus when usinas adopt
modern high pressure and high temperature boiler cogeneration systems. Nowadays
most of the newly constructed usinas in sugarcane expansion areas pursue the
strategy of surplus energy production by cogeneration, on top of the production
of sugar and ethanol. Yet according to Dias et al. (2011); BNDES (2008), most of
the bagasse is still burnt in low efficiency cogeneration systems (low pressure
boilers with 22 bar) to produce steam and electricity for the plant. However,
more efficient (high pressure up to 65 bar) boilers and turbines have been installed
and produce large amounts of electricity with steam turbines. If the plant is located
close to the power grid, surplus electricity can be sold, thus improving the revenues
of the enterprise.
A study by Hofsetz and Silva (2012) shows the necessity to retrofit and mod-
ernize the existing boilers and thermoelectric technology if a surplus of energy is
the objective and that the chance for providing electricity to the national grid should
be embraced. A cogeneration system with a low pressure (22 bar) and low
120 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

temperature (300
C) boiler, for example, represents technical equipment from the
90s that could generate a surplus of energy of 2.49 MW installed capacity. In
comparison, usinas with a high pressure (around 67 bar) and high temperature
(480
C) boiler and turbines are capable of producing around 23 MW with the same
amount of bagasse and biomass input as the old boiler, due to higher pressure levels
and vapor temperatures. The retrofit constitutes a near tenfold increase in power.
The study by CONAB (2011b) observed that around 28 % of the mills (111 of
393 surveyed) are connected to the national grid and sell surplus energy. Yet the
ones that sell electricity process almost half (around 47 %) of the cane in Brazil
(CONAB 2011b). Thus the larger mills are the ones with a surplus power genera-
tion, which indicates high investment costs to install the energy generating unit, and
ultimately to provide electricity to the grid.

4.3.2.3 Difficulties of Cogeneration

According to the expert from CTC (Center for sugarcane technology)

the problem of cogeneration is that it is not yet a well-established business because the
deregulation of the market has been recent. And the prices for electricity are low because
they are based on hydroelectric power which is the cheapest source in the world.

The expert from UFMG points out that

cogeneration is of course a huge step. If you think about decentralized energy supply it is
certainly a positive development. Nevertheless, this argument might be abused in order to
support a system which rests upon monocultures and large estate properties and reinforces
it by an environmental discourse ‘yes, we have to do this’.

The expert from WWF supports that argument, stating that the potential and
benefits of bioelectricity are palpable but
on the other hand there is the question of production which has a series of impacts regarding
monocultures, the application of agro-chemicals and the sector expanded massively over
the last 5 years.

Apart from that, high costs of investment and resource competition to alternative
products are the principal difficulties for retrofitting and expanding cogeneration
units. In order to produce a commercialized surplus of electricity a retrofit of high
pressure boilers and steam turbines to modernize the cogeneration units is essential
as well as the construction of high-voltage pylons to access the national grid. Dias
et al. (2012a) assume in their article an additional 40 % to the initial investment
costs for an optimized cogeneration (90 bar—high pressure boiler) and distillation
(molecular sieves). These constructional requirements often represent investments
that are not viable for older usinas but rather favor the construction of new usinas
and greenfield developments in areas where there is room for expansion.
The expert of the CASA CIVIL elucidates on that issue by referring to the
example of the usina São Martinho, the largest one of the sector.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 121

This ‘usina’ processed eight million tons of cane in 2011 which constitutes a thermo-
electric potential of 60 MW installed capacity. But the cost of modernizing the mill which
was constructed in the 60s is equivalent to a new ‘usina’ that can process four million tons
per year. And what did they do? Instead of modernizing, they constructed a new ‘usina’ in
Goiás. Half of the production of the sector comes from ‘usinas’ that are not generating
excess energy because the cost of retrofitting the technology is too high for their current
production volumes.

According to the expert from BNDES

the bank has special conditions for long-term cogeneration. But even then, the problem are
the old ‘usinas’ because to assemble new ‘usinas’ requires just a little higher investment
costs than the cogeneration part. So when you already have an ‘usina’ and you are planning
to only retrofit the boiler without expanding the production of alcohol or sugar, the
calculation will be very negative if you want to finance the investment only with the
revenue from cogeneration.

The expert from APLA (the local ethanol cluster, an association of companies
and public institutions in Piraciaba, São Paulo state) refers to the prices of the
transmission lines, the high-voltage pylons that have to be constructed to feed the
excess electricity into the national grid.
The problem that the people have concerns the transmission lines which I think come
around R$ 400,000 at around US$ 200,000 per km.

And the expert form CEVASA elaborates that

the principal difficulty is to pass third party property when a transmission line to the
national grid is planned and constructed. You either need to buy the land or negotiate, or
the authorization for the construction might be lost.

Besides the substantial investment costs that modern boilers, turbines and grid
connection pose, another decisive reason the companies of the setor sucroenergé
tico are hesitant to invest into the respective cogeneration technology is the
resource competition between cogeneration and second generation ethanol. The
technology of hydrolysis promises production of additional ethanol out of sugar-
cane bagasse and the residues that remain without pre-harvest burning. Yet the
second generation hydrolysis technology is not yet available on a commercial scale.
Expectations about realization differ widely. Still, the prospect of a technology that
might prove more profitable than modern cogeneration systems might be reason for
delaying investment decisions.
To shed light on that question, Seabra and Macedo (2011) conducted a compar-
ative analysis of power generation and ethanol production from sugarcane residues.
According to them, the hydrolysis technology would not necessarily be more
favorable than the cogeneration unit despite the expectancy of higher revenues
because the estimated investments and annual expenses would be significantly
greater with hydrolysis ethanol. Yet the numbers for the hydrolysis conversion
may improve as technology advances, resulting in lower capital needs and greater
yields. Furthermore, the cost for biomass is crucial for the economic performance
and for high biomass costs the return on investment would be lower for the
electricity option than for the hydrolysis technology. The environmentally
122 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

preferable option, with respect to GHG emissions mitigation, is considered to be the

second generation hydrolysis because the substitution of gasoline leads to greater
GHG mitigation effects than the substitution of thermo-electricity based on natural
gas or hydroelectric power. But, second generation ethanol production has not yet
become an industrial reality due to the lack of efficient and low cost technologies.
Dias et al. (2011) likewise compare second generation ethanol with the produc-
tion of electricity. If electricity production is maximized the available cogeneration
technology is considered favorable. Yet the hydrolysis option becomes more
favorable when sugarcane residues are additionally taken into consideration and
the hydrolysis technology improves. Research by Rabelo et al. (2011) analyzed the
conversion of bagasse into second generation ethanol, methane by biogas fermen-
tation and heat by cogeneration. Utilizing bagasse for energy generation by thermal
incineration was found to be more efficient when simulating different scenarios.
The energy recovery rate was around 1.6 times higher than for the best fuel-
production scenario. Yet this greater energy gain is realized only by the production
of heat which is considered less noble energy compared to a liquid form.
Another reason why investments into modern cogeneration units might not
always seem promising to the usineiros is the fact that electricity is bought by the
Brazilian states at auctions. According to the expert from EMBRAPA
over recent years, wind energy entered the auctions and has presented itself as a serious
competitor to biomass cogeneration since the costs of wind energy have decreased signif-
icantly and as a consequence accessed various regions. Electricity derived from sugarcane
has therefore not been winning these auctions. But it is necessary to develop policies that
show the importance of bioelectricity because of the substitution of thermo-electric energy
with coal.

According to The Economist (2013), Brazil’s energy ministry has ranked the
various sources of energy according to availability, cheapness, renewability and
disposability of the necessary technology. Hydropower comes first, followed by
wind power and biomass (mostly from bagasse). In order to spread risks, 50 % of
new energy generated is supposed to come from hydropower and around 30 % from
wind and biomass, and most of the rest from gas. Because the setor sucroenergético
does not obtain the unique position to produce energy as it does to produce of
ethanol, the bargaining position is weaker, which might have had an effect during
the auctions.
The interviewed expert from MAPA adds
that according to the owners of the usinas, the price that is offered by PROINFA (Program
of Incentives for Alternative Sources of Electrical Power), the body holding the auctions,
does not justify investments in new boilers. So the usineiros rather invest in an extra milling
production line, a business they are more familiar with, than in retrofitting the boiler. To a
large part, this is why we don’t have more cogeneration.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 123

4.3.2.4 Legislation: Role of the Government

In 2004, the Electric Energy Regulating Agency (ANEEL) stipulated the

‘Resolucão Normativa № 109’, allowing independent producers with a certain
authorization to produce and sell electricity at their own risk. Additionally, by
2005 the Brazilian PROINFA was regulated with the objective of increasing the
share of electricity energy provided by autonomous independent entities, constitut-
ing producers of wind, small hydropower plants and biomass energy producers
(Dutra and Szklo 2008). Brazil began to reduce the share of large hydroelectric
power while increasing the capacity of the other three energy sources with the
introduction of auctions for new capacity.
This system, that is considered largely transparent, holds a number of auctions
every year for bids on capacity of electricity production to be delivered in either 3 or
5 years. Three main objectives are the basis of this regulatory framework,
established by ANEEL. Firstly, creation of an efficient mechanism to contract
electrical energy production; second, to ensure a secure energy supply at the lowest
costs possible and; third, to provide a nationwide access to electricity (Hofsetz and
Silva 2012). Auctioned contracts for electricity generated from new capacities are
valid for more than 15 years, compared to contracts for electricity generated from
existing capacities with an 8-years validity period. Off-take agreements for excess
electricity generated by newly installed or retrofitted cogeneration units also con-
tinue for more than 15 years. Aside from the long-term contracts, lower interest
rates in financing the retrofitting of power generation equipment to increase effi-
ciency of the cogeneration units were also offered according to Seabra and
Macedo (2011).
The explanations differ as to why, until today, the penetration of cogeneration is
not as successful as the operationalization of the technology would suggest. For
example in an exclusive auction for biomass based electricity held in 2008, the total
volume offered by the sugarcane complex was only around 550 MW, half of the
1,100 MW projected by the government (Hofsetz and Silva 2012). Government
officials claim that the sugarcane complex shows a lack of interest for the gener-
ation of electricity. The industry is more interested in producing ethanol for internal
and external markets, while the industry argues that the prices offered from
PROINFA for the sugarcane electricity are inadequate and are not incentive enough
for modernizing and retrofitting the existing boilers (Ferreira 2008).
The expert from ETANOL VERDE, the São Paulo state-level program of the
environmental ministry states that
the quantity of energy from cogeneration needs to be increased and this requires a stimulus
to the price of biomass based electricity from the Federal government.

The expert interviewed from EMBRAPA AGROENERGIA states that

the whole issue of cogeneration depends not only on cane bagasse but foremost on energy
policies of Brazil. Today we do not have an answer whether bagasse should go to ethanol or
rather to electricity production because this depends totally on the energy policies of the
country. But certainly we need to improve both technologies in terms of efficiency and
124 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

costs in order to decide within the national energy roadmap which technology is more
advantageous for the nation.

Scaramucci et al. (2006) conclude in their assessment of energy from sugarcane

bagasse that sugarcane biomass has the potential to generate a large amount of
energy in Brazil. But this would require an institutional environment that would
promote the effective functioning of an electricity market. The MAPA expert
voices some frustration when he states that
eventually if the market for cogeneration does not improve over the next 10 years, perhaps
the future of bagasse lies in other uses. But the bagasse feedstock is there and it is ready and
it is wasted, failing to generate energy.

4.3.3 New Technologies and Further R&D Aspects

The fact that sugarcane is one of the most productive plant species known, with an
average yield of 75 t/ha biomass in Brazil and an overall production volume of
650 million tons in 2013, as elaborated in Sect. 4.2.1, makes other applications
besides sugar, ethanol and energy very interesting and further product diversifica-
tion in the future highly likely. A report by BNDES (2008) for example, lists several
product families from where new products are derived. The families are differen-
tiated between biotechnology, chemical, veterinary, food and structural appliances
(see Table A.1 in the annex for a product overview).
Besides the technological developments and innovations presented in the previ-
ous section which are fully commercialized and implemented on an industrial scale,
there are physical technologies still on a development or demonstration level, and
others one step ahead on a more market formation level, that are presented below.
Since innovations are still being made on all aspects of sugar, ethanol and energy
production out of sugarcane, this thesis does not claim to completely present all
current developments, yet the portrayed technologies are considered to be among
the most important ones. Section 4.3.3 concisely describes some of the technolog-
ical developments that are thought to play a bigger role within the sugarcane
complex and that might be implemented either short-term (biogas, ethanol pipe-
lines, other process technology) or mid- to long-term (biorefineries). Second gen-
eration ethanol (Sect. 4.3.3.1) and transgenic sugarcane (Sect. 4.3.3.2) are
elaborated subsequently in more detail because of their potential, their impact
and relative closeness to commercial viability.
The technical consultant to UNICA interviewed states that
we are close to what people call a biorefinery.

According to Rabelo et al. (2011) a biorefinery can be understood as a produc-

tion facility where biomass conversion processes are integrated in order to produce
fuels, energy and chemicals from biomass. The huge array of products (as for
example sucro-pharmaceuticals, sucro-cosmetics, sucro-plastics) resulting from
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 125

one input material is analogous to a petroleum refinery. A biorefinery takes advan-

tage of the various biomass constituents and intermediates and thereby can maxi-
mize the value derived from the feedstock. This is the central idea. The decision of
what to produce will depend on the processes, strategies and priorities of the
respective company or production facility.
The same expert from UNICA reflects on the issue of future, integrated tech-
nologies and states that
ethanol may become a secondary product in the future. So, everybody is looking into
ethanol. Ethanol is a prime product, but maybe in 10 years from now it will not be.

The expert from APLA, the local ethanol cluster, remarks

if the biorefinery becomes reality, imagine what you can produce apart from ethanol. You
can extract everything you extract out of (fossil) oil. Plastics, nylon, fertilizer; Brazil can
turn from being an importer to become an exporter of fertilizer.

The interviewed expert from the Federal University of Rio de Janeiro (UFRJ)
points out that
it is possible, I think because of the story of Pré-sal and Brazil will build I don’t know how
many oil refineries, we continue with the ‘wonder’ of oil and will rather opt for ‘green
chemicals’ and less for biofuels.

These statements all refer to the possibility that in the future, sugarcane might be
the basic material not primarily only for sugar, ethanol and energy but for other
products as well.
The interviewed expert from the Center of Sugarcane Technology (CTC) has a
clear point of view on the products that should be derived from sugarcane. He states
that
in my opinion we should use the energy to aggregate value in the products such as those
from the biorefinery instead of selling bioelectricity. To sell the work of electrons is much
more valuable than to sell the actual electrons themselves. In my opinion that should be the
tendency. The usinas will use their excess of energy to aggregate value and to attend
different markets. Brazil is the only place in the world where we have the three products
produced at the same place; sugar, ethanol and electricity while in Europe, China and India
the production is separated.

Because of the rising demand for environmentally-friendly, sustainable products

and the rising prices for fossil oil, petrochemical companies like BRASKEM and
DOW have already invested in production facilities to process sugarcane into ‘bio’
or ‘green’ plastics. According to its website (http://www.braskem.com.br/site.aspx/
Im-greenTM-Polyethylene), the BRASKEM ethylene plant was commissioned in
2010 and has an annual production capacity of 200,000 tons of ethylene produced
from sugarcane. Ethylene can be obtained from ethanol and is the primary material
for polyethylene and other resins (Bajay 2011). For each kg of resin produced,
sugarcane sequesters between 2 and 2.5 kg of carbon due to its photosynthetic
process and thereby reduces GHG emissions. Other green hydrocarbons expand the
range of products derived from sugarcane: Jet fuel, diesel oil and biobutanol; the
126 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

‘bio-refinery’ is also able to produce food, different forms of energy from liquid to
electricity, as well as high value-added chemicals and fibers (Bajay 2011).
AMYRIS, an American company with a subsidiary in Campinas, SP, produces
hydrocarbons that can be converted into a multitude of different products. The
interviewed expert states that
our primary focus was and is diesel but other products where the aggregated value is much
higher are of interest as well, because the market for diesel is gigantic but the value is small
while other products have a very high aggregated value but a small market.

The expert from UNICA refers to the same company and its possibilities and
points out that
they (AMYRIS) can also produce equivalent to jet fuel, which in my opinion will be even
more important than diesel, because the aircraft industry has been searching for
alternatives.

Another technology that seems to be promising and more frequently applied

over recent years by the usinas is the rather simple production of biogas or methane
and the thermoelectric use in combined-heat and power (CHP) plants. The cascade
use of byproducts derived from the production of sugar, ethanol and energy
especially adds another aspect to the closed substance cycle management which
seems desirable, not only environmentally but often economically as well. Input
product for the methane generating process is vinasse which is the primary
byproduct of ethanol distillation. Vinasse is derived from the fermentation and
centrifugation processes of sugarcane juice and yeast and is rich in minerals such as
potassium and phosphate (Scortecci et al. 2012). For every liter of ethanol distilled,
between 10 and 20 l of vinasse accrue. The vinasse volumes are enormous, and they
play an important role as fertilizer in sugarcane fields in order to improve the
nitrogen, phosphate and potassium content in the soil.
Yet since vinasse contains large amounts of water and is liquid, the transport
costs are too high for extended distribution. Furthermore, the application of vinasse
as a fertilizer has to be closely monitored in order to avoid an excess of potassium
which reduces the quality of the cane and is detrimental to the plants’ growth
(Laluce 1991). This might lead to the situation where the disposal of vinasse causes
concerns, and that problem will grow, according to Dias et al. (2012b), when second
generation ethanol becomes a reality because even more vinasse will be produced
per hectare of sugarcane cultivated than today. Furthermore, around 6 kg of ash and
soot per ton of bagasse accrue as a byproduct of the burning process. A solution
with additional benefits seems to be the erection of large fermentation tanks where
the vinasse, ash and soot are mixed and biogas or methane is produced. Additional
energy for excess electricity supply into the national grid can be provided as well as
heat and steam for the production processes of the usina.
In their article, Rabelo et al. (2011) analyze the various application possibilities
of vinasse and they emphasize the high fertilizing value due to its being rich in
organic matter. The chemical composition of vinasse that is responsible for varia-
tions in methane yield depends on the soil, the sugarcane cultivars, the period of the
harvest and the industrial production process. One liter of vinasse can yield over
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 127

14 l of methane which could represent the production of significant amounts of

additional energy when burned in modern CHP plants. While the technology is
well-engineered and matured in Germany due to guaranteed feed-in tariffs, Brazil
has no incentives for biogas production up to now.
The experts from GRUPO TONON state that
we are in a research phase utilizing residues from alcohol production, the vinasse, to
produce methane to generate additional electricity.

The expert from CASA CIVIL elaborates that

in the past vinasse has been considered a residue and was dumped into rivers (polluting the
water) until the environmental controls penalized this. Then it became a fertilizer and now
there already are usinas that apply biological digestion and produce biogas. And some
dehydrate the vinasse to permit transport over longer distances because the places close to
the usina cannot absorb all the vinasse.

A study by Olivério et al. (2011) on BIOFOM, a solid organic-mineral fertilizer

developed by Dedini, the global market leader in construction and equipment for
the setor sucroenergético, showed distinct advantages when vinasse is drained of
water and mixed with ash, soot and other residues. According to the study the
production and application of this fertilizer constituted more than 50 % of the
fertilizer required in the sugarcane plantations. The application of solid fertilizer
significantly reduced the infrastructural workload otherwise required to distribute
vinasse, fertilizer and ashes. Furthermore, with the dehydration of the vinasse part
of the water drained in the process can be recovered and reused in the industrial
processes or on the field. These examples show that be it the production of biogas or
of solid fertilizer, there is still potential in the cascade utilization of by-products
derived from sugar, ethanol or electricity production. Higher efficiencies and
secondary application lead to reduced environmental impacts and often even
economic benefits.
Crago et al. (2010) indicate in their article that sugarcane ethanol has lower
production costs of 24 % on average (for the 2006–2008 period) compared to corn-
ethanol. However, when the transport costs of ethanol from Brazil to the US are
included, the price competitiveness can tip towards corn ethanol. Sugarcane ethanol
often has to be transported over long distances because 25–30 % of the ethanol is
distributed to Brazilian states that produce no or insufficient ethanol to be self-
sustaining. Most of the short-distance transport journeys, with a medium distance of
200 km, are by tanker trucks. Even long-distance transport journeys over 500 km
are often by tanker trucks (Giersdorf 2012). The reduction of the high transport
costs caused by insufficient and lacking infrastructure in Brazil is thus of impor-
tance for the sugarcane complex. As a consequence, the sugarcane complex has set
up several ethanol-pipeline projects. The construction of so-called alcooldutos is to
facilitate the transport of large volumes of ethanol from the states Goiás and Minas
Gerais and the interior of São Paulo to the refineries and ports at the coast of São
Paulo State. The goal is to reduce the costs of transportation and secure a steady
supply of ethanol. De Souza (2012, p. 145) mentions an expected reduction in
transportation costs by 70 %.
128 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

According to de Souza (2012), the pipeline projects have even become part of
the governmental ‘Program of Accelerated Growth’ (PAC—Programa de
Aceleração do Crescimento) due to the pressure from agri-business. One
alcooldutos that begins in the state of Goiás crosses Minas Gerais and reaches
São Paulo state with the final destination being the port of Santos, SP. A second
pipeline which is supposed to connect Campo Grande and the port of Paranaguá in
Paraná will be made possible by the PAC. Apart from these two federal projects
with a length of approximately 1,500 km in total, the state government of Paraná in
partnership with producers, began a project that envisages the construction of an
ethanol pipeline of about 500 km linking the Northern part of the state to the port of
Paranaguá (de Souza 2012).
The Brazilian Bioethanol Science and Technology Laboratory—CTBE (2010)
published an article in 2010, expecting that the alcooldutos would lead to a
reduction of 80,000 trucks on the highways and roads each year. This would lead
not only to a reduction of traffic and congestion but additionally to fewer GHG
emissions. They referred to the pipeline that will run from Goiás to the port of
Santos and will have an overall length of 850 km. The first link with a length of
around 200 km between Ribeirão Preto, the sugarcane nucleus in SP state, and
Paulı́nia where petrochemical facilities are based, has a capacity of up to 12 billion
liters ethanol per year and was put into operation in June 2013, according to Borlina
Filho (2013). The overall pipeline is expected to carry up to 21 billion liters of
ethanol per year, roughly three-quarters of the total Brazilian ethanol production in
2013 and is valued at around US$ 3.2 billion.
Increases in productivity and efficiency are of importance for further cost
reductions and maintaining the competitiveness with coming innovations and
technologies. Yet the most significant efficiency increases are rather unlikely to
happen on the consumption side, such as in the FFV engines according to the
experts. The expert from CONAB employs the analogy of comparing FFVs to
ducks as he states that
a Flex-Fuel Vehicle is like a duck. It neither swims, flies nor walks especially well.

He means FFVs are neither combusting ethanol nor gasoline exceptionally well,
as modern engines that are adapted to either one of the fuels are. The expert from
MAPA points out that
in order to increase the domestic demand for ethanol, an alteration of the technological
standards of FFVs would be necessary, because those engines are gasoline engines that
were adapted to run on ethanol rather than being especially tailored to run on an alternative
fuel. So the efficiency is a lot better when the cars use gasoline instead of ethanol. If the
engines had been developed for efficient ethanol consumption the difference between
engine performances would be a lot closer to gasoline and would be an incentive to use
ethanol.

All cars driven in Brazil are modified to run on both fuels and are efficient with
neither one. The problem is, as the expert from CASA CIVIL points out,
obviously when you have a high efficiency running on gasoline, you will lose efficiency
with ethanol and vice versa.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 129

It therefore seems a bit unclear as to whether higher levels of efficiency for the
consumption of both fuels can be realized when engines of FFVs are to be further
modified.
However, experts still see the largest potential for efficiency and productivity
increases on the agricultural and industrial domain. One expert from ESALQ states
I think that management of sugarcane fields this is where we can really have a better
evolution.

Table 4.6 gives an overview on the assumptions made by various scholars

regarding the productivity increase of sugarcane ethanol in liter per hectare.
Nowadays, the sugarcane ethanol yield per hectare lies around 6,200 l/ha assuming
a 5 year average of 75 tons per hectare sugarcane yield and a production of 82 l of
ethanol per ton of cane (MAPA 2013). Goldemberg (2008) expects a yield increase
of 12 % in sugarcane and more than 6 % in TRS (total recoverable sugar) content
over the next 10 years. Additionally, improvements of fermentation efficiency and
sugar extraction are assumed. These combined increases will push the ethanol
productivity up to 9,000 l/ha in the state of São Paulo. Scortecci et al. (2012)
state that the perspective exists where even more than 14,000 l/ha could be reached
within the next 20 years.
According to Bajay (2011), the total productivity of sugarcane ethanol, includ-
ing the agricultural and industrial processes, has increased more than 3 % on
average per year during the last 30 years. Yet he still expects improvements, both
on the agricultural and the industrial side. High pressure boilers for cogeneration
units, conversion of bagasse and mechanization of sugarcane harvest providing
additional biomass, as well as the use of precision agriculture and high performance
logistic systems, might increase the total production of ethanol per hectare up to
10,400 l.
Yet it has to be noted that some of the interviewed experts expressed doubts
regarding these numbers and productivity gains presented above. The expert from
REDE SOCIAL points out that
from 2010 on the tendency is dropping productivity in relation to the territorial expansion
of the industry, so we challenged with that argument the idea of efficiency, the idea that
technological innovation would solve environmental problems and productivity issues.

Yet if the drop in yield per hectare might have been only a temporary effect
caused by a lack of investments into planting and cultivating or by the still ongoing
switch to mechanized cultivation designs is hard to tell. Over the last 2 years, the
yield per hectare has again increased slightly (see Fig. 4.8).

4.3.3.1 ‘Second Generation’ Biofuels

As presented previously, and especially elaborated upon in Sect. 1.1, biofuels of the
first generation are contested energy carriers due to manifold reasons. The compe-
tition between agricultural area cultivated for energy crops and area cultivated for
130 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.6 Expected ethanol yield in l/ha. Expected productivity increases the next 20 years
Ethanol yield in liter/ Period of Total ethanol production in
hectare time million litera Reference
6,200 l/ha Today 27,000 MAPA (2013)
9,000 l/ha 10 years 39,200 Goldemberg
(2008)
10,000 l/ha Coming 43,500 Soccol
years et al. (2010)
10,400 l/ha 10 years 45,300 Bajay (2011)
11,700 l/ha 25 years 51,000 Moreira
et al. (2014)
14,000 l/ha 20 years 61,000 Scortecci
et al. (2012)
a
The total ethanol production is calculated with todays 4.35 million ha cultivation area for ethanol

food crops is a serious matter, resulting in land grabbing or deforestation which are
negative land effects. Thus, facing severe criticism regarding their lack of sustain-
ability, the enthusiasm for first generation biofuels abated, in particular in the
European Union and the US. Nevertheless, alternatives for fossil energy consump-
tion are still imperative. First and foremost, the transport sector needs an energy
carrier that can be transported, stored and combusted and as easily as fossil fuels, be
it diesel, gasoline, kerosene or fuel oil.
The alternative that has been discussed, which makes up for the first generation
shortcomings and is backed by many institutions, is the so-called second generation
of biofuels. Depending on the choice of feedstock and the cultivation technique, the
potential that is attributed to second generation biofuels is substantial. Highly
efficient, production processes, using feedstock based on biomass residues (cascade
utilization) and on biomass cultivated on degraded and abandoned lands, the
production technology of second generation biofuels seems promising as long as
the mistakes that impaired the cultivation of current energy crops for first genera-
tion biofuel production can be avoided (Eisentraut 2009). Yet although there are a
multitude of encouraging innovations and technological developments, industrial
production on a commercial scale is only now commencing.
First of all, the knowledge bases and technologies between first and second
generation biofuels should be distinguished in order to better understand the
characteristics of the respective biofuels. Both fuels derive from different sectorial
backgrounds. According to Suurs and Hekkert (2009), first generation biofuels are
conventional technologies with rather simple processing of the input materials such
as fats, sugars and starch. The production of ethanol by fermentation of sugars is
commonly called first generation ethanol. To produce bioethanol and biodiesel,
agricultural crops are needed and therefore a strong link generally exists towards
farmer associations and agriculture. The first generation of biofuels is based on
mature technologies and is commercially produced on an industrial scale. Never-
theless, as elaborated upon previously, productivity increases are still to be
expected. But, as the expert from ETANOL VERDE remarks
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 131

there is a ceiling for productivity growth per hectare coming and the increases will be very
little. Either transgenic crops or the second generation will constitute possible alternatives.

The second generation biofuels are less bound to a certain crop but focus more
on the processes. Suurs and Hekkert (2009) remark that the second generation
biofuels originate from more ‘science-based technologies’ with sophisticated
chemical and biotechnological production processes. The conversion of cellulosic
biomass into ethanol by using enzymatic hydrolysis technology is currently one of
the most promising approaches to producing second generation biofuels according
to Ensinas et al. (2013), due to its high conversion efficiency and low environmental
impact. Currently, most of the energy converted during the first generation produc-
tion process of ethanol is derived from the cane juice. Yet this represents only one
third of the energy bound in the sugarcane plant. The remaining energy is stored in
less easily accessible compounds which is targeted and unlocked by second gener-
ation ethanol technology (Scortecci et al. 2012).
Another advantage is considered to be the large resource base that second
generation can draw from. Forestry as well as agricultural biomass is expected to
be converted into liquid fuel, including waste material and residues. One of the
experts from EMBRAPA states that
some of our researchers working with second generation ethanol from other feedstock such
as grass and cellulosic residues especially wood. Thereby the knowledge from sugarcane
ethanol is used because the technical parameters already exist.

Primarily because they are converting biomass residues and waste, second
generation biofuels are considered to have a higher reduction potential for GHG
emissions and might be offered at lower costs than first generation biofuels.
According to Rabelo et al. (2011), the production of second generation
bioethanol constitutes four steps. Those are first: the pre-treatment in order to
make the cellulose accessible. Second, the hydrolysis, where enzymes or an acid
catalyst are added to release the sugars. Steps three is the fermentation to convert
sugars into ethanol and four is the distillation. Both are the same processes as during
the production of first generation bioethanol. The first step, pre-treatment of the
cellulosic biomass is one of the key operations for a successful conversion of
biomass into ethanol and at the same time constitutes the most expensive and
technologically least mature process. Thus, this process step still offers large
potentials for cost reduction and efficiency increases demanding further research
and development (Rabelo et al. 2011; Soccol et al. 2010).
Research institutes, biotech companies (often university spin-offs in the US) and
dedicated entrepreneurs are often the primary drivers for the development of second
generation biofuel technology and thus represent a strong connection to science and
finance. The consultancy and market researcher Navigant Research recently
published a country index, ranking nations according to their provision of global
ventures in advanced biofuels. Based on their website (www.navigantresearch.com/
research/ advanced-biofuels-country-rankings) an estimated 67 % of all global
ventures take place in the United States. China ranks second with around 3 %,
followed by Germany and France. Brazil, although endowed with the most
132 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

promising resource base, is only ranked fifth overall. Navigant Research forecasts
that the scale-up of advanced biofuels research and technology is likely to happen in
the key markets of the United States, Brazil, China, and the European Union
member states.
Although investments into first generation ethanol production recovered
recently, they are still more cautious than before the crisis. Investments into second
generation production facilities have become more interesting, especially since the
development of new technologies in laboratories and small-scale applications.
When it comes to the readiness for commercial and industrial-scale production of
second generation biofuels, there are currently three major companies that are
competing for the set-up of Brazil’s first commercial cellulosic ethanol production
facility according to Jagger (2013): GRAALBIO, a new company cooperating with
MOSSI&GHISOLFI (M&G) a large plant constructor from Italy, RAÍZEN,
resulting out of a merger between COSAN, Brazil’s largest sugar and ethanol
producer and SHELL, and PETROBRAS, the state-owned Brazilian oil company,
who basically owns a monopoly on the exploitation and extraction of fossil oil in
Brazil, are all planning to set up cellulosic ethanol production plants.
GRAALBIO has yet to finish the construction of its plant in Alagoas but claims
this plant to be the first commercial cellulosic ethanol plant in the Southern
hemisphere. The production capacity is calculated to be around 82 million liters
while the overall investment costs are estimated to be around US$ 137 million (R$
300 million). According to Dias et al. (2012a), a conventional distillery that crushes
two million tons of cane per year and operates with 22 bar, low-pressure boilers
requires an investment of around US$ 145 million, based on data provided by
DEDINI. Assuming that 82 l of ethanol can be produced per ton of cane, this usina
is able to produce more than 150 million liters of first generation ethanol.
RAÍZEN plans to build nine commercial-scale cellulosic ethanol production
facilities within the next 10 years, with the first to start production by 2014 in
Piracicaba, São Paulo state (Jagger 2013). RAÍZEN estimates a potential of 1.5
billion liters of cellulosic ethanol derived from six million tons of biomass.
PETROBRAS is not expected to begin commercial production before 2015
according to Jagger (2013). The expert from MME voices slight skepticism as he
states that
I hope the potential will not be the same as with hydrogen, when it was said than in 25 years
will we have hydrogen cars and now, 25 years later, we still don’t have them. So I hope that
second generation ethanol will be here in 5 years without delay. But everything indicates
that it will happen and even the specialists firmly believe in it.

The expert from ETANOL VERDE is convinced that second generation will be
the next step.
São Paulo state, the FAPESP (. . .) has invested in partnerships with companies for second
generation technology. These are not huge volumes not like the Unites States. But with
respect to the Know-how of sugarcane and the technology, Brazil is on the head of the table.
Even if the technology for second generation is in different hands our expertise with this
crop and the dependency on other products leads to the situation that some people invest in
the technology, others don’t.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 133

There are many possible reasons, such as the competing technology of cogen-
eration against the frailties of new technologies and innovations, as to why signif-
icant investments into second generation technology are only reluctantly realized.
Another aspect is brought up by the expert from GREENPEACE. He mentions that
there are a lot of jokes regarding second generation ethanol. A professor and other people
say that we already have second generation ethanol because our ethanol is much more
efficient so we already have second generation ethanol but we don’t know it.

The expert from APLA also questions the necessity and the motives for produc-
ing second generation biofuels.
Cellulosic ethanol from bagasse has been done by DEDINI already 20 years ago but it was
not viable. And today it is viable to burn the bagasse and produce electricity rather than
second generation ethanol. Who searches for second generation ethanol anyway? The
United States and Europe and why? Because they don’t have sugarcane. Second generation
ethanol only serves those who don’t have cane. If you have enough water, do you create a
process to desalinate water? No, because there is enough.

One of the interviewed experts from ESALQ also explains why the US and
Europe promote the development of second generation technology. He states that
the world does not want Brazilian bioethanol of the first generation because it will only
displace the dependency from one place to another. Second generation technology will be a
technical barrier to Brazil because with second generation technology every country has its
own source of biomass.

Should the second generation potential indeed be as high as promised he points

out that
I think that the technology of producing the second and third generation (synthesis gas) is
going to be something to export. The technology, not the fuel itself.

Second generation ethanol has a significant potential that might result in sub-
stantial increases in ethanol production. However, the extent to which the produc-
tion of first generation ethanol and of cogeneration will be affected in the case of
second generation production technology becoming competitive and viable needs
to be clarified.
According to Dias et al. (2012b), the integration of second generation ethanol
production into first generation usinas has several advantages over stand-alone
production processes of second generation. Yet bagasse is not only the feedstock
for the hydrolysis process but is also the basis of the energy production for the usina
and every process within. Thus, the various demands for bagasse as input material
need to be prioritized and allocated. The higher the efficiency of the first generation
production processes, such as reduction in steam consumption, the more bagasse
remains for the second generation production process. High pressure boilers sig-
nificantly increase the ethanol production in usinas where first and second gener-
ation production are integrated (Dias et al. 2012b).
In order to compare the economics and output volumes of stand-alone and
integrated first and second generation ethanol distilleries, including cogeneration
by high pressure boilers, Dias et al. (2012a) simulated and evaluated different
134 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.7 Economic scenarios of first and second generation ethanol/electricity production
Scenario
Parameter 1 2 3 4 5a
Anhydrous ethanol production (l/ TC) 82 102 107 116 35
Surplus electricity (kWh/TC) 173 86 77 81 42
Lignocellulosic material hydrolyzed (kg/TC, dry – 123 133 102 104
basis)
Second generation ethanol production (l/ton dry LMb) – 158 181 335 338
Second generation ethanol production (l/TC) – 19 24 34 35
Investment (million US$) 263 367 346 316 200
Internal rate of return (IRR) in % per year 14.9 11.6 13.4 16.8 10.0
Ethanol production costs in US$/l 0.37 0.39 0.36 0.33 0.35
Electricity production costs in US$/MWh 52.63 55.53 51.83 46.48 49.25
Based on data from Dias et al. (2012a)
a
No sugarcane is processed in scenario 5, feedstock is delivered
b
LM: Lignocellulosic Material

scenarios. Table 4.7 summarizes the different results. All presented scenarios are
calculated without sugar production. Scenario 1 constitutes the first generation
autonomous distillery that maximizes the production of excess electricity (thermo-
electric use of all bagasse and available cane trash). Scenario 2 represents the
integrated first and second generation ethanol production with current hydrolysis
technology. Scenarios 3 to 5 assume hydrolysis technology in 2015–2020 and
different amounts of cellulosic material processed. Scenario 3 has a higher second
generation ethanol production than scenario 2 because of the productivity increases
in technology. In scenarios 4 and 5, pentose fermentation is assumed. A pentose is a
monosaccharide and is the result of a special pretreatment operation that has a high
rate of converting cellulosic material into pentoses; causing the exceptionally high
second generation ethanol production volumes in scenario 4 and 5.
The reduction of investment costs in scenarios 2–4 are assumed mainly because
of an expected reduction in hydrolysis reactor size. The increase in anhydrous
ethanol (first generation) production is due to the fact that in the integrated process
hydrolyzed liquor is mixed with the sugarcane juice (Dias et al. 2012a).
Analyzing the results in Table 4.7, scenario 5, the stand-alone second generation
production plant has the lowest internal rate of return. Though blessed with the
second lowest production costs for ethanol and electricity due to the optimized
future technology (and pentose fermentation), the investment costs are too high for
the comparably low production output. The same applies for scenario 2. The highest
investment costs are not justified because the technology is not yet mature enough
and high production costs are the consequence; even though a total production
volume of 121 l/TC ethanol (102 l of first generation and 19 l of second generation
production process) is reached. Only scenario 4, where first and second generation
of ethanol production are integrated and prospective technologies coincide with
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 135

reduced costs for those very same, has a higher rate of return than the state-of-the art
first generation distillery that maximizes the production of electricity surplus.
In scenario 4 a total of 150 l ethanol per ton of sugarcane is produced. If the yield
per hectare were to increase by up to 80 t/ha in the following years, the overall
volume of ethanol per hectare (first and second generation in scenario 4) would be
12,000 l/ha. When compared to the various assumptions that have been made in
Table 4.6, the 12,000 l/ha range is in the upper level. The ethanol volume within
scenario 2 would be around 9,000 l/ha, assuming the current yield average of 75 t/ha
and 121 l/TC. This figure corresponds to the expectations from EMBRAPA. Their
expert states that
we expect that with cane bagasse the production of ethanol can be increased by 30 % in
relation to the actual production. This will happen when the prices are competitive with the
costs of the first generation ethanol. Since today we have around 27 billion liter this means
that we can increase production by 9 billion liter without expanding the cultivated area of
sugarcane. This is most important.

A study by ‘Bloomberg New Energy Finance’ (BNEF 2012) developed two

scenarios to illustrate the potential of next-generation ethanol which corresponds to
second generation ethanol produced by enzymatic hydrolysis because it is by far the
most advanced technology. In the first scenario 30 % of sugarcane bagasse goes into
the hydrolysis process while 70 % is used for cogeneration. According to BNEF
(2012) this would produce an additional 9 billion liters, requires investments of US$
11 billion and creates 150,000 man-years of employment. The second scenario
calculates the collection of 17.5 % of all agricultural residues for the production of
next-generation ethanol. This residue scenario calculates a potential of 71 billion
liters of ethanol and requires investments of over US$ 90 billion while creating 1.25
million man-years of employment. These figures are presented in order to give an
idea of the potential that is assigned to the technological development of second
generation ethanol.
A remark by the expert from IMAFLORA points to a similar direction. He states
that
sugarcane will be competing with other biomass for the second and third generation.
Eucalyptus is already expanded to generate fuel.

The interviewee from UFMG likewise points out that

there are researchers that produce ethanol out of eucalyptus and they say that in a few years
we are ready to overcome sugarcane.

One argument for promotion and political support is always that second gener-
ation biofuels do not compete with the cultivation of food crops which is only
partially true. As long as the feedstock for second generation production processes
comes exclusively from existing agricultural and forestry residues this argument
might bear comparison with the reality. But as soon as the biomass which is
supposed to be converted into energy is priced and facilities are constructed to
produce second generation biofuels, there is a demand for the feedstock. Supplying
the product to satisfy this demand might well lead to a displacement of other crops.
136 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

The additional expected revenue from second generation ethanol supply might be
the decisive factor for an investment decision over constructing an usina in new
territory. Additionally, there is some controversy regarding possible land-use
changes that have occurred in relation to the cultivation of crops destined for
production of second generation biofuels. In particular, the commercial production
of non-food crops such as jatropha on fertile land places its production in direct
competition with crops cultivated for food production (Adenle et al. 2013).
Furthermore, as indicated in Table 4.7, the investment costs for a second
generation production facility are quite substantial and with current technology
only slowly becoming competitive. Moreover, the process and production technol-
ogy of second generation biofuels requires very science-based research and devel-
opment that can only be realized in large-scale and specially-equipped research
facilities, which might impede efficiency gains and process optimization by indi-
vidual usinas, at the same time creating market entry barriers for other stakeholders
within the sugarcane complex. According to Ensinas et al. (2013), the high water
consumption during the production processes poses another shortcoming of this
technology. Yet the primary problem of second generation ethanol is the high costs
of the enzymes. Even if the technology is integrated into the existing production
processes in an optimal way, production will not be competitive on a commercial
scale until there is a significant cost reduction of enzymes. Ensinas et al. (2013)
calculate the production costs of first generation ethanol (around 0.49 US$/l of
sugarcane ethanol) to be over four-times lower than the costs for the production of
second generation ethanol (between 2 and 2.6 US$/l).
Finally, as elaborated upon previously, the competition for the input feedstock
bagasse between cogeneration and second generation technology is hampering both
applications and thus might slow down the diffusion and the development of both
technologies. The opportunity costs currently seem to be a little in favor of the
cogeneration application. Nevertheless, other scenarios that were presented drew a
different picture and with strong political signals lacking, the seesaw between the
two technological developments will probably continue.
Dias et al. (2013) argue for a more flexible approach. A biorefinery with the
capacity to divert the cellulosic material (be it bagasse or cane trash) either to
electricity production or as input into the production of second generation ethanol
might help to maximize revenues when taking the respective prices into consider-
ation. For instance the surplus electricity might be sold not primarily by long-term
contract but rather when spot market prices are more favorable than the production
of second generation ethanol (Dias et al. 2013). Hence, the flexible biorefinery may
offer economic and environmental advantages over the conventional usina with
fixed production capacity.
Furthermore, producing second generation ethanol partially out of bagasse and
cane trash collected at the fields is an aggregation of value with significantly less
competition for agricultural land. Additionally, when produced out of biomass
residues or when the whole plant is converted into energy, second generation
biofuels require considerably less fertilizer, water, and pesticide. The GHG reduc-
tion potential is quite likely to be higher when producing additional ethanol out of
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 137

the available bagasse and cane trash which is substituting fossil gasoline, than
substituting electricity from hydro or gas-powered plants.
Taking the effects of second generation ethanol production that are expected to
be more favorable into account, one might argue that first generation ethanol
production should not be supported at all, since the whole technological trajectory
of biofuels might be jeopardized if negative attention is created (Suurs and Hekkert
2009). But, as has been argued by various researchers (Dias et al. 2012a, b), there
are important learning by doing processes that are initiated by the first generation
ethanol production. Integrated production technology is assumed to be more viable
in the sugarcane complex than stand-alone second generation technology. Further-
more, the continuous technological developments of first generation ethanol pro-
duction and cane cultivation technology have facilitated the application of second
generation technology. In return, the prospective technological advances of second
generation biofuel technologies seem accomplishable, thus continued support for
first generation technology as bridging technology and strategy is given. This
implies high amounts of uninterrupted investment into research, development and
diffusion (Suurs and Hekkert 2009).
There are still great uncertainties with regard to future improvements and
technological developments, and the introduction of innovative technologies such
as hydrolysis and gasification as second generation fuel technology, where the
speed of technological advance was expected to be much faster than it is today.
Apart from deciding which technology to promote and invest into, it should be
ensured that sugarcane processing may be improved by using the whole plant, be it
either for electricity or second generation ethanol production. Within that in mind,
the expert from EMBRAPA states that
today we do not have the answer to decide whether the bagasse should go into electricity
production or cellulosic ethanol but we should master both technologies and within the
national energy strategy decide for one or the other or the use of both.

4.3.3.2 Genetically Modified: Transgenic Sugarcane

The increases in yields per hectare and sugar content over the last three decades
have been significant, as already presented in Fig. 4.8. The productivity of Brazilian
sugarcane in tons per hectare increased by 66 % between 1975 and 2010 while the
total recoverable sugar (TRS) content increased by 34 % during the same time
period, according to Dal-Bianco et al. (2012). Further increases and efficiency gains
are still expected through both new cultivation methods and technologies as well as
the development of new hybrids and an enhanced breeding technology (Scortecci
et al. 2012). Nevertheless, genetically modified sugarcane promises a whole new
range of increased yields, new pest and disease resistance with a resulting lower
application of pesticides and chemicals thereby further improving the crop perfor-
mance (Adenle et al. 2013). Yet there are no commercially-cultivated transgenic
sugarcane cultivars at the time of writing (Arruda 2012) as opposed to soy beans
where the genetically modified organism (GMO) hybrids are ubiquitous. According
138 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

to Araya-Quesada et al. (2012), Brazil is placed second in the world in terms of

GMO crops per hectare, behind the United States and in front of Argentina. Thus, to
better understand the role that GMOs might play in sugarcane, probable develop-
ments and likely impacts based on statements of the interviewed experts and on the
literature review are referred to in the subsequent section.
In order to understand why experts promote or oppose the application of
genetically modified sugarcane, possible features and expected characteristics of
transgenic sugarcane cultivars are presented first. According to a professor from the
department of biosystem engineering at the ESALQ/USP, there are
two main features within transgenic sugarcane research. On the one hand, there is the
development of resistance, for example against pests and pythoclimatic issues such as
droughts or poor soil. On the other hand, the objective is to increase yields, be it the total
recoverable sugar content (TRS) or biomass per hectare.

The expert from FEARP states that

we will have a vertical expansion in terms of more productivity in the same areas going
faster than what we had in the last 10 years, because of the new varieties and genetic
modified sugarcane.

He goes on that
in 2020, let’s say 70 % of the sugarcane will be GMO, in my view. There are several
different traits, GMO for electricity, GMO for crop protection.

In the view of an expert from ETANOL VERDE, which is a program initiated by

the ministry of the environment from the São Paulo State,
there will be a limit of further productivity increase per hectare and then transgenic
cultivars are expected to be the ones that still might increase productivity.

The argument that yield increases of conventional breeding may have reached a
ceiling and will only be marginal in the future is elaborated by Dal-Bianco
et al. (2012). They argue that the yield increases have been between 1 and 1.5 %
p.a. in recent years and that the future increases of conventional sugarcane produc-
tivity will be even lower. According to Della-Bianca et al. (2013), the amount of
sugar per ton of sugarcane seems to have reached an upper limit at around 140 kg.
Additionally, 80 l of ethanol per ton of sugarcane indicates a high efficiency within
the industry as well as a likely stagnation around that level. Thus, transgenic
sugarcane and other biotechnology may become crucial to conquer the limitations
of classical breeding.
An expert from one of the largest governmentally-owned research facilities in
agriculture, EMBRAPA, refers to
an increased storage capacity of nitrogen within sugarcane. This promises a reduction of up
to 40 % nitrogen fertilizer that is normally dispensed on the plant during cultivation which
leads to an enormous cost reduction. In his opinion there are yields of 200–220 tons of
sugarcane per hectare to be reached.
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 139

One of the interviewed experts, a researcher at CANAVIALIS, a private

research facility with a focus on cross breeding and genetically modified sugarcane
that was bought by MONSANTO, thinks that
GMO research can contribute a lot to bioelectricity using the sugarcane fiber. Originally, it
was always assumed that the fiber would be designated for cellulose processing (Second
generation ethanol). But since global energy is lacking there is much to improve. Maybe the
largest gain of genetic modification lies in this route.

Looking into the literature, a similar picture is drawn regarding the potential of
genetically modified sugarcane. According to Arruda (2012), genetically modified
sugarcane becomes even more interesting with regard to the second generation
ethanol using a cellulosic feedstock. Instead of increasing the TRS content in the
sugarcane stalks, cultivars with high fiber and high biomass might be cultivated for
the production of cellulosic ethanol resulting in massive increases of ethanol per ton
of sugarcane. All the residues left on the sugarcane fields when harvesting with
mechanized machinery as well as the millions of tons of bagasse could be an
excellent feedstock for second generation ethanol (Arruda 2012), as already elab-
orated upon previously.
Dal-Bianco et al. (2012) point out that the current world yield average is around
80 t/ha and that the calculated theoretical potential yield is 380 t/ha which leaves a
lot of room for advances and developments. Cheavegatti-Gianotto et al. (2011)
even mention the goal of a 10 % ethanol addition to gasoline worldwide and
according to them, transgenic sugarcane will play a key role providing farmers
with the varieties that will produce more sugarcane with decreased requirements of
fertilizer and water. A similar scenario is described by Della-Bianca et al. (2013).
Due to productivity increases and horizontal expansion onto larger areas up to 10 %
of the world’s demand for gasoline might be substituted by sugarcane ethanol even
before second generation ethanol reaches maturity and economic competitiveness.
If the application and cultivation of genetically modified sugarcane promises so
many benefits and productivity increases, it is important to fathom the role of
governments and the reasons for their behavior. According to the expert from
Canavialis,
the Brazilian government has, until today, not permitted genetically modified sugarcane to
be cultivated on a commercial scale but only in confined research facilities. The technical
requirements to multiply transgenic cultivars exist likewise but there are still no transgenic
varieties to do so.

The interviewed expert from the ministry of agriculture (MAPA) assumes that
the admission of genetically modified cultivars is a complicated and time-consuming
process because it involves a variety of different authorities. And until recently transgenic
sugarcane was not really on the agenda.

Dal-Bianco et al. (2012) confirm that until today there are no genetically
modified cultivars commercially cultivated, but there are field trials in a number
of countries.
140 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Until today, the National Technical Commission on Biosafety (CTNBio), the

authority responsible for approving and declining GMOs within Brazil, has
approved more than 40 applications. Those approvals comprise trials with higher
sucrose content, herbicide and drought tolerance as well as insect resistance.
Additionally, field trials with genetically modified cultivars have been approved
and are being conducted in South Africa, Australia and the United States. It is very
likely that these trials which were and are promoted and conducted through
enormous efforts by private companies and public institutions, will in the mid-
term result in the approval of commercial transgenic sugarcane cultivars
(Cheavegatti-Gianotto et al. 2011).
The research associate with CANAVIALIS states that
today the admission of transgenic cane faces a big problem” but after 2020, he believes that
“this won’t be a problem anymore because the Brazilian market and the Brazilian society
accepts transgenicos or at least does not reject it strongly. There is no such ideology against
GMOs in Brazil like there is in Europe. Additionally, part of the regulating institutions and
agencies are staffed with researchers that have a technical education and a will to promote
the questions of transgenic sugarcane.

An industrial strategic development manager from the ‘Centro de Tecnologia

Canavial’ (CTC) elaborates more on that issue of acceptance and states that
transgenic sugarcane will exist for sure. But at the moment the principal reason why
transgenic sugarcane doesn’t exist is that the most important product is sugar and sugar
that is being exported.

A researcher from the IAC strengthens this argument. He states that

there are no transgenic cultivars of sugarcane because the market impedes it, in especially
the international market for sugar. There are countries such as the European Union and
Japan that do not accept GMOs which results in a commercial barrier to cultivate transgenic
sugarcane because these markets would be lost if transgenic sugar would be offered. If it
would be only for the production of biofuels, it would not be a problem at all. But there is no
possibility to control the transgenic sugarcane for the production of biofuels and the
conventional one that goes into the food sector.

Considering the possibility that transgenic and conventional sugarcane are both
commercially cultivated, it is of importance to prevent both species from cross-
pollination and thereby from the contamination of the conventional sugarcane.
According to the research associate from CANAVIALIS, this is not a problem
with sugarcane. He states that
with other crops such as maize and soy bean this issue really poses a huge problem but the
sugarcane pollination in the central-west and southeast region of Brazil is quite difficult,
especially between different cultivars. Besides that, the dimensions of the cultivation of one
single variety of sugarcane are enormous and the fertile pollen disperses after a couple of
meters. The maximum spread of sugarcane pollen is 50 m. So the space between transgenic
and conventional sugarcane varieties doesn’t need to be large.

To guarantee a distinction between conventional and transgenic cane, DNA tests

can be applied. The expert from CANAVIALIS points out that
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 141

with a DNA test the sugarcane cultivars that were developed by CANAVIALIS can be
identified. A small residue of the plant, be it a leaf or the bagasse, is sufficient for that test.
There are other possibilities which might allow identification such as monitoring by
satellite.

So although one can distinguish between a transgenic and a conventional

sugarcane cultivar during processing at the usina, it is impossible to make this
distinction in the final product, according to the expert from CTC. He states that
it is not detectable whether the principal export product (sugar) is made from transgenic
sugarcane or not. The crystallization of sugar is basically a purification process and until
today no method exists to distinguish between transgenic and conventional sugar. Trans-
genic sugarcane will come but it will be impossible to say that this alcohol (ethanol), this
electricity or this sugar was produced out of transgenic cane. While with maize, soy beans
and others it is possible.

There is still much to be understood when it comes to the production of stable,

long-term transgenic cultivars of sugarcane. Its genome is one of the most complex
of all cultivated crops and this complexity has prevented a better understanding of
the sugarcane plant and thus constrained the ability to improve the biotechnologies
for sugarcane genetics (Cheavegatti-Gianotto et al. 2011). According to Arruda
(2012), the research community and the biotech industry must therefore closely
cooperate in order to establish the best chances for results and for approval of
transgenic sugarcane, as the technology is key to maintaining and increasing yield
and bioenergy production from that source.
Within that context, international organizations and networks provide training
opportunities to instruct and qualify personal within several Latin American coun-
tries on mainly regulatory issues regarding GMO application and approval. The
Food and Agricultural Organization (FAO), for example, has provided technical
assistance to enhance regulatory and legislative frameworks in Brazil and other
countries in Latin America while the United Nations University-Program for
Biotechnology has developed a South-South network strategy by which some
more experienced countries can advise their program partners. Yet capacity-
building measures on traceability and GMO detection are still much needed
(Araya-Quesada et al. 2012).
A professor from UFScar points out that
sugarcane is vegetatively multiplied. I can give you a piece of stock sugarcane, and you can
plant. It is very hard to control this. So, companies like MONSANTO, SYNGENTA, their
main purpose is to develop GMO because with GMO it is easy to control. They can charge
and people will pay.

These royalties constitute a considerable profit for the companies that develop
the respective varieties, if they can track the cultivation of their own cultivars. The
expert from CTC elaborates on that issue of royalties and revenues out of GMOs.
He explains that
to produce a transgenic cultivar the CTC for example signs a contract with a company that
is developing GMOs such as BASF. CTC gets such a gene strain with a certain character-
istic and tries to develop a sugarcane cultivar with that gene and see what benefit this
142 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

cultivar causes. The profit will be divided between three parts. One third of the revenue
would go to the farmer that cultivates the cane, one third to CTC that developed the cultivar
and one third of the revenue to, as the CTC expert calls it, the dono do gene, the owner of
the gene.

Genetically modified organisms are already applied within certain sugarcane

processing technologies like those used by AMYRIS. This American company,
which has a joint venture with the French oil company TOTAL, is working with
genetically modified yeasts instead of modifying the sugarcane crop. The
interviewed expert, a biochemist from AMYRIS, explains the process and the
objectives of their research thus:
For the process, AMYRIS is using the same enzyme that produces ethanol and that is being
used as ferment in most of the alcohol production. The only difference is that at AMYRIS it
is genetically modified. And while the other usinas produce ethanol out of the production
process, AMYRIS is producing hydrocarbons. And hydrocarbons are basically elements of
petroleum. Thus, a huge range of petrochemical products can be replicated by the AMYRIS
process.

Currently, AMYRIS is applying for ASTM (formerly known as the American

Society for Testing and Materials) certification in order to commercialize an
AMYRIS sugarcane product as renewable jet fuel. According to a press release
by TOTAL and AMYRIS the fuel is expected to be commercially available by 2014
following the ASTM approval (Amyris 2013).
Yet despite a lot of euphoria from the research and business community, a
precautionary approach is recommended by other authors since unidentified threats
of GMOs to the environment such as cross-pollination, contamination of conven-
tional crops and the long-term impact on human health are still unresolved issues
(Adenle et al. 2013). Furthermore, as explained by Service (2013) in a recent
article, the reliance of transgenic crops on Glyphosate (also known as Roundup)
leads to the evolvement of herbicide-resistant weeds because of the abandonment of
crop rotation and thus herbicide rotation as well. Additionally, as Benbrook (2009)
states, the claims that GMO crops reduce the use of pesticides and herbicides are
unfounded.
Furthermore, as noted above by some of the interviewed experts, the primary
driver for the introduction of transgenic sugarcane seems to be the collection of
royalties through being able to pinpoint the origin of each genetically-modified
cultivar. Therefore, even in cases when GMOs promise yield increases and higher
efficiencies and thereby might contribute to an economically and environmentally
more desirable development, the reasons and motivations for their support should
be more openly discussed (Adenle et al. 2013).
Figure 4.14 confirms the argument from some of the interviewed experts that the
principal reason for the inert and hesitant approval of transgenic sugarcane is the
fact that the commodity sugar is such a successful export product, if it is assumed
that most sugar importing countries have a rather negative view on genetically
modified foodstuff such as sugar. Figure 4.14 clearly shows Brazil as the world’s
largest sugar producer and by far the world’s largest sugar exporter. In 2010 Brazil
produced over 39 million tons of sugar and exported more than 28 million tons,
4.3 Developments in the Agricultural and Industrial Systems: Product/Process Level 143

Top-five sugar producers wordwide - in million tons

45

40

35

30 Brazil
25 India

20 European Union
China
15
USA
10

0
1985 1990 1995 2000 2005 2010

Top-five sugar exporters worldwide - in million tons

35

30

25
Brazil
20 Thailand
Australia
15
European Union
10
Guatemala
5

0
1985 1990 1995 2000 2005 2010

Fig. 4.14 Top five worldwide sugar producers and exporters (1998–2010). Based on data from
MAPA (2013)

which is an export ratio of over 70 %, up from around 50 % at the beginning of the

new millennium. This might indeed explain the cautious approach of the Brazilian
government and the export-oriented parts of the sugarcane complex towards the
introduction of transgenic sugarcane cultivars and consequently the suspected
possible decrease of international demand for GMO sugar.
144 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.4 Actors, Networks and Institutions: The Institutional

Level

After the analysis of various ‘physical’ technologies on the product/process level

and their current developmental stages (research, demonstration or diffusion) has
been conducted, the ‘social’ technologies on the institutional level are going to be
analyzed. Actors, networks, and institutions are the focus of this analysis and their
mechanisms used to influence the sugarcane complex. Overall, their contribution to
a possible energy technology innovation system is evaluated. These actors, net-
works and institutions are constituted by the Brazilian government, research insti-
tutions and the industry as well as international stakeholders that have an interest in
the setor sucroenergético.
First, the most important government institutions, their strategies and politics are
portrayed. Different strategies of current politics are presented and shortcomings as
well as future scenarios for the energy matrix in Brazil and the sugarcane complex
elaborated upon. Second, laws and regulations are presented in order to evaluate
whether previously mentioned policies and strategies have been implemented and
sufficiently enforced. Demand-pull and supply-push mechanisms that might pro-
mote innovations and the overall development of the sugarcane complex are
addressed within that context. Considering the integration of actors, networks and
institutions, the third section looks into the industrial cooperation within the
sugarcane complex.
The fourth section has an international perspective and analyzes the concentra-
tion and internationalization of the sector and the role of transnational companies
(TNC). The fifth section evaluates the immersion of international certification
schemes that might affect future market demand and at the same time could
influence prospective cooperation between actors, networks and institutions. The
final section concentrates on the expected future national and international market
demand for sugar, ethanol and fossil oil. Relevant questions for the analysis of the
actors, networks and institutions look at the mechanisms that these stakeholders use
to promote or impede the development of an innovation system within the sugar-
cane complex. Where these mechanisms result in strong feedback from other actors
between the institutional levels or between the institutional and process levels, such
dynamics are indicative of the likelihood of an effective innovation system.
Figure 4.15 indicates the frequency of occurrence of institutions that were
mentioned by the experts during the interviews. Institutions that were mentioned
only once were excluded. The mention of their own institution by the experts when
presenting themselves was not counted as an occurrence. COSAN, PETROBRAS
and UNICA were mentioned mostly by the experts of the 48 interviews (for a
detailed enumeration, see annex Table A.2) and thus seem to be very important
stakeholders in the setor sucroenergético. COSAN is one of the largest sugar and
ethanol producers in Brazil and recently merged with the Brazilian subsidiary of
SHELL into RAÍZEN. This merger will be elaborated upon in Sect. 4.4.4 on
4.4 Actors, Networks and Institutions: The Institutional Level 145

Fig. 4.15 Institutions mentioned in the interviews. Size related to frequency of mention. Design
based on http://www.wordle.net/

internationalization and concentration. PETROBRAS, the state-owned oil com-

pany, is portrayed later also.

4.4.1 National Perspective: Governmental Institutions,

Strategies and Politics

Suurs and Hekkert (2009) argue that a close affiliation of actors, networks, and
institutions leads to higher levels of innovation system functions and as a result
increases the chances of technology diffusion. When evaluating the actors, net-
works and institutions that have an impact on the sugarcane complex and on related
innovations and technological developments, the decisive role that government
plays has to be understood. The importance becomes obvious when looking at the
very close and rather ancient relationship the government and a variety of its
institutions have with the setor sucroenergético. In case of ethanol the collaboration
started with the ‘Proalco
ol’-program almost 40 years ago, as described previously.
In the following, some of the most important governmental institutions (minis-
tries, agencies, and research institutes) are presented and their impact on the
sugarcane complex is shown. Furthermore, the governmental councils that are
assumed to predominantly define the national bioethanol policies in Brazil are
portrayed. Problems and shortcomings of policies that affect the sugarcane complex
are presented afterwards. The characteristics and contents that a prospective gov-
ernmental energy strategy should incorporate according to the experts and the
literature are likewise discussed.
146 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.4.1.1 Important Actors, Governmental Agencies and Institutions

This chapter focuses on governments and politics, therefore only public or publicly
funded institutions are presented. The Energy Research Company (EPE) was
founded in 2004 in order to plan, develop and evaluate mid- and long-term
scenarios for the Ministry of Mines and Energy (MME). The Campinas Institute
of Agronomy (IAC) was established by the state government in the nineteenth
century and has been one of the first research institutes to develop new, more
resistant sugarcane cultivars (Furtado et al. 2011). EMBRAPA, the Brazilian
Agricultural Research Corporation is associated with the agricultural ministry
(MAPA) and one of the largest publicly funded research institutes in Brazil.
EMBRAPA coordinates the National Agricultural Research System, which
includes most public and private entities involved in agricultural research in the
country. EMBRAPA Agroenergia is one of the 38 research centers dedicated to
agricultural energy production and was established in 2006.
PLANALSUCAR, the National Sugarcane Breeding Program, was established
in 1972 in the vicinity of ESALQ. The primary objective was to increase sugarcane
yields throughout Brazil. The program opened 30 research stations that contributed
to an increase in productivity. By 1990 the program was closed and incorporated
into RIDESA. RIDESA (Rede Interuniversit
aria para o Desenvolvimento do Setor
Sucroalcooleiro) is a network of seven federal universities that was established to
continue the activities of PLANALSUCAR regarding breeding programs and the
development of new cultivars. The network was quite successful and by 2008 over
56 % of the sugarcane cultivated in São Paulo state derived from RIDESA cultivars
(Furtado et al. 2011).
In 2005 and 2007 the Center for Strategic Studies and Management (CGEE) with
strong political ties, published two detailed reports on the possibilities for substitut-
ing up to 10 % of worldwide gasoline consumption by Brazilian sugarcane ethanol
(CGEE 2005, 2007). The interdisciplinary center for energy planning (NIPE) at the
University of Campinas (UNICAMP) had been assigned by the CGEE to this task.
The scholars involved were among the most renowned regarding the setor
sucroenergético. The results of this project raised questions regarding the future
role of Brazil within innovation and technology research of ethanol. The
researchers stated that the future application of emerging technologies such as the
hydrolysis process to produce ethanol out of bagasse and cane trash is of highest
importance for Brazil to maintain its leading position in the production of this
biofuel and to be well positioned for coming developments (CGEE 2005).
Furthermore, the study ascertained that substantial investments into research,
science and technological developments were needed if Brazil wanted to keep its
competitive edge in the ethanol industry. Based on the findings of the study, the
Brazilian Bioethanol Science and Technology Laboratory (CTBE) was established
in 2008 at UNICAMP under the patronage of the Ministry of Science and Tech-
nology (MCT). The primary objective of this research institute is to ensure the
Brazilian leadership in the sustainable production of sugarcane-based ethanol and
4.4 Actors, Networks and Institutions: The Institutional Level 147

the development of second generation hydrolysis process technology as well as

strategies for low-impact mechanization, according to Furtado et al. (2011).
The Ministry of Mines and Energy (MME) has no special interest in biomass or
sugarcane-based energy but that of being another major part of the Brazilian energy
matrix. For the ministry, the agricultural perspective is rather negligible. The
Ministry of Agriculture, Livestock and Food Supply (MAPA) is one of two
agricultural ministries in Brazil, the other being the Ministry of Agrarian Develop-
ment (MDA). It is responsible for the agri-business rather than representing small-
holders. MAPA is considered to be the most important governmental representative
within the sugarcane complex. The strong agricultural basis of the Ministry and the
variety of products derived out of sugarcane indicate the importance and the
influence of the setor sucroenergético. The relationship is solid and information
is regularly exchanged. The expert from MAPA points out that
every 15 days we receive information about sugarcane, processing of sugar and ethanol,
storage volumes and sales as well as how much of the ethanol is sold as fuel or sold to the
chemical industry. This is our principal activity to generate this data.

The formulation of biofuels policy is coordinated and drafted officially by

various inter-ministerial councils. The following advisory bodies exist: The
National Energy Policy Council (CNPE) that is chaired by the Ministry of Mines
and Energy. According to the expert from the MME,
the council proposes the energy macro-policies. And when we are going through a crisis of
ethanol production and investments as we are doing at the moment, relevant proposals for
action for the Presidency of the Republic are certainly on the agenda.

Additionally, there are two inter-ministerial councils that deal with issues
regarding ethanol and biodiesel. The Inter-ministerial Executive Committee
(CEIB) is responsible for biodiesel and ethanol and the smaller Inter-ministerial
Council for Sugar and Ethanol (CIMA) which is controlled by MAPA and only
includes the Ministries of Finance (MF), Mines and Energy (MME) and Foreign
Trade and Development (MDIC). Policies regarding the increase or decrease of
anhydrous ethanol blending are mostly drafted by this council (de Andrade and
Miccolis 2011).
Another council is the Chamber for the Sugar and Alcohol Sector (CSAA) which
rather functions as an exchange platform. According to the interviewee from
MAPA,
(we) founded the chamber in 2005, to promote the dialogue between the private sector and
the government, to bring together the rural producer of sugarcane, the ‘usina’, the ANP,
government officials and business associations. The chamber meets at least twice a year and
should function as a strategic agent of the sector and to further develop the sector and to
discuss ordinary problems such as the blending.

Although the CASA CIVIL and thus the presidency are not formally represented
in those governmental bodies that decide ethanol policy, Dilma Rousseff and the
CASA CIVIL are strongly involved in the decision making processes. The
148 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

importance that is given to the sugarcane complex is reflected by the expert from
MME, as he states that
(regarding) issues of biofuels, neither the MME nor any other ministry has the final word.
That lies with the Presidential office, the CASA CIVIL. And since energy issues got the full
attention of the President, she participates directly in the decisions and it was her personal
decision to reduce the blending quota to 20 % in October 2011. She decided even on minor
matters that other times were decided by us or the CIMA.

The National Development Bank (BNDES) is known as a lender for large-scale

infrastructural or other development projects in Brazil. Although other sources of
financing exist, the loans given by the BNDES are the most important source for
funding for the sugarcane complex. BNDES disbursements in 2012 were R$
156 billion in total with infrastructure, industry, trade & services, and agriculture
representing the different activities. In the boom years the loans granted by BNDES
to the setor sucroenergético increased more than tenfold from R$ 604 million in
2004 to over R$ 6.5 billion by 2008 (Giersdorf 2012). Besides loans for the
sugarcane complex, BNDES looks into alternative energy generation. The bank
approved financing for wind energy project of R$ 3.4 billion in 2011 (BNDES
2012). BNDES is now actively pushing technological development and innovation
in order to meet domestic and international demand. Detailed information about
current funding schemes for the sugarcane complex is provided later on.
With a turnover of US$ 128 billion (R$ 281 billion) and a net profit of US$ 9.6
billion (R$ 21 billion) in 2012 according to its website, PETROBRAS is Brazil’s
biggest company and contributes to around 10 % of GDP. According to The
Economist (2012), the industrial and technological development of Brazil largely
depends on the performance and the innovations realized by PETROBRAS. Since
more than 55 % of PETROBRAS shares are held by the Brazilian government, the
company’s decisions are regularly influenced by political considerations. The main
activities within the setor sucroenergético used to be the transport and distribution
of ethanol using its extended infrastructure. Recently, the company began to invest
into ethanol production. PETROBRAS is responsible for developing and exploiting
the vast reserves of Pré-Sal that are only accessible through several thousand meters
of ocean and rock layers (Moreira et al. 2014).
The Agency for Petroleum, Natural Gas and Biofuels (ANP) was established in
1997 as a regulatory agency linked to the MME. ANP complies with policies
coming from the ministry and other governmental bodies. Competencies with
regard to ethanol are limited to distribution and commercialization. ANP monitors
the quality of anhydrous and hydrated ethanol and the compliance with the required
quality parameters and thus functions as an agent of consumer protection.
The elaborate description of these various research institutes, governmental and
other institutions is necessary in order to understand the affiliation that the respec-
tive bodies have with each other, to portray the multitude of relations and linkages
between government and the sugarcane complex. A close relation of actors, net-
works and institutions and their influence on technologies at the product/process
level indicates the existence of an innovation system. The portrayal of the
4.4 Actors, Networks and Institutions: The Institutional Level 149

previously mentioned institutions indicates that the Brazilian government not only
provided market incentives to the sugarcane complex but also that decades ago the
cornerstones of governmental support already lay in the establishment of well-
equipped and capable (research) institutions.
During Luiz Inácio Lula da Silva’s first term as President of Brazil, with the
promising perspectives and technological development, the sector regained impor-
tance on the agenda of the government. The President’s promotion of the setor
sucroenergético and its potential was phrased as ‘ethanol diplomacy’ (Hanson
2007). The expert from REDE SOCIAL states that
he (Lula) said that Brazil would become the Saudi Arabia of ethanol. So in his head Brazil
would become a global player if we could provide ethanol to the world [. . .] and at the
beginning there was that idea that ethanol would solve climate change. And Lula used that
and the whole Brazilian diplomacy was very much investing in this. And Lula became the
Garoto Propaganda (advertiser) for it, mainly that was all he talked about, it was like a
mantra.

The attitude of Brazil’s current President Dilma Rousseff towards the sugarcane
complex is more ambiguous.
Dilma Rousseff and her government of the PT (the ‘workers party’) are considered to act
very authoritarian

stated an expert from EMBRAPA. An expert from ESALQ added an off-record

statement that the widely acknowledged President of UNICA, the sugarcane
industry’s business representative, had to resign because the President disliked
the demanding manner and denied UNICA her attention. UNICA’s new President
is said to have good relations with the government. Besides, there seem to be other
issues that have a clearly higher priority such as the exploitation of Pré-Sal as well
as inflation targeting which also affected the competitiveness of ethanol (The
Economist 2012). Lately, the gasoline prices were allowed to fluctuate more widely
and a price increase could be seen.

4.4.1.2 Shortcomings of Current Policies: Inflation Targeting, Lacking

Strategy

In order to control inflation, the Brazilian government capped petrol prices by

influencing the pricing of PETROBRAS (Covrig 2013). To meet rising demand,
PETROBRAS bought at the world market if the domestic production did not suffice
and then sold the fuel at a loss on the domestic market. When PETROBRAS
published its quarterly report for the third quarter 2013, the state enterprise listed
US$ 1.5 billion profit which was 39 % less than the year before. The analysts were
surprised by the negative extent of the performance and most claimed ‘government
intervention’ as the main cause according to Fleischer (2013). PETROBRAS was
obliged by the Brazilian government to keep the prices of gasoline and diesel below
international prices. In January 2013, after months of pressure and mounting losses,
PETROBRAS was allowed to increase gasoline prices by 6.6 %. Nevertheless,
150 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

according to Soto and Ewing (2013), analysts still estimate the local gasoline prices
around 15 % below international levels, undercutting the competitiveness of
hydrated ethanol.
Thus, this action not only affected PETROBRAS’ performance but had addi-
tional negative effects on the demand for ethanol. The pricing to counter inflation
resulted in artificially low gasoline prices that competed against ethanol prices
which are not regulated at the pump. As one expert from IAC states
it is problematic that the gasoline price is regulated by PETROBRAS. All these years the oil
prices increased a lot at the external markets and the price for gasoline in Brazil stayed
constant which is bad for us and the usinas because the price for alcohol is fluctuating and if
the price is increasing above a certain level, consumption falls. So, the price for ethanol is
regulated by the price of gasoline which is determined by the government.

Not only did PETROBRAS sell fossil oil at a loss but Brazilians were also
encouraged to stop buying ethanol due to the low price of gasoline. Figure 4.16
shows that in 2012 it was viable to purchase hydrated ethanol instead of gasoline in
only three out of 27 state and federal capitals in Brazil on average. The dashed line
at 70 % indicates the point above which gasoline becomes more favorable because
of the lower density of hydrated ethanol (Jagger 2013). Nevertheless, the munici-
palities of Cuiabá, Goi^ania and São Paulo represented around 18 % of the total
consumption, primarily because of the size of São Paulo. The inability to compete
with gasoline drove investors away from the sugarcane complex and towards other
ventures (The Economist 2012). As a consequence the sector lacked necessary
investments, such as for renovation of cane cultivation, putting at risk all previous
investments made in the sector for decades to stimulate ethanol production and
consumption (Goldemberg et al. 2014b). Consequently, Brazil was ill-prepared for
meeting (inter-) national demand for sugarcane ethanol.
The expert from MME, however, defends the inflation-control policy by the
government. He states that
PETROBRAS is losing money today, they are. But some time ago they earned a lot when in
2007 the price for the barrel of oil was US$ 157 but then in 2008 the price fell to US$ 39 or
US$ 40 and they did not readjust the price for gasoline. So from 2008 to 2010
PETROBRAS earned so much by selling the gasoline here to a higher price than you
could buy it externally.

Another shortcoming of late Brazilian politics that was often criticized by the
interviewed experts and the literature is the lack of a conclusive and long-term
strategy for the sugarcane complex in Brazil. Ethanol has been consumed as fuel for
decades and still there is no national strategy to further promote and improve the
sector according to Bajay (2011). The expert from GREENPEACE remarks that
I think that it lacks structural will from the government to protect this sector. The
government works with a model of the absence of planning, which I heard other people
call the ‘ciclotimia’ (figuratively translated as instability of mood). Every 3 or 5 years it has
a different ‘trend’ energy carrier. Ethanol, then wind energy, Pré-Sal.

The prospective design of a Brazilian energy matrix and its contributing energy
carriers, be they electricity, liquid or solid, and the required conversion technology
4.4 Actors, Networks and Institutions: The Institutional Level 151

Mean prices of hydrated ethanol compared to gasoline in 2012 in %

100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

Fig. 4.16 Mean prices of hydrated ethanol compared to gasoline in % (2012). Based on data from
ANP (2013a)

is considered of high importance. The absence of valid and reliable strategies

impedes necessary investments and creates suspicion into the government’s action
and policies. Innovations and technologies might become stranded between devel-
opment and market formation or diffusion because neither conclusive strategies nor
supporting policies can be identified (Gallagher et al. 2011). The expert from
EMBRAPA that was asked about the barriers for cogeneration points out that
I see only one issue; lack of planning. Because companies and industry need to be more
certain what will happen within the next 10 years in order to invest in modernizing the grid,
for example.

4.4.1.3 Governmental Strategy: The Future Energy Matrix

In the 70s during the initial Pro-Álcool program, the Brazilian government was
responsible for the majority of the investments into the sugarcane complex. It was
the strategy at that time to counter the rising price for fossil oil and the falling prices
for sugar at the world markets, and the Brazilian government considered this
program as a stimulus not only to agriculture but to the overall economy. Never-
theless, the main beneficiaries of the Pro-Álcool program were the traditionally
quite influential landowners and agricultural entrepreneurs (Borges et al. 1988). So,
in the past, biofuel policies in Brazil have been driven more by an agricultural
agenda than by energy or even environmental concerns (Bajay 2011). Yet as
pointed out previously, the setor sucroenergético and the various promising
152 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

technological developments and products cannot be looked at in isolation. A

prospective long-term strategy for the sugarcane complex needs to be integrated
into a national Brazilian energy strategy and the future composition of the energy
matrix without ignoring the particular characteristics of energy carriers based on
agricultural renewable resources.
According to Bajay et al. (2009), concepts for the prospective design of the
Brazilian energy matrix include multiple objectives but three are emphasized. First,
energy demand needs to be satisfied at low costs, while second, the energy sources
need to be diversified in order to reduce risks of lacking supply and avoid the
dominance of few energy providers. Third, negative environmental and social
impacts need to be minimized while positive effects should be promoted.
In 2006, the Energy Research Company (EPE) was assigned by the MME to
project future developments of the national energy carriers and to develop a
national strategy accordingly. The National Energy Plan 2030 (PNE—Plano
Nacional da Energia) can be considered the first integrated plan within the Brazilian
government, developing long-term instruments and identifying trends for an alter-
native energy supply within the next decades. The goal was to provide the MME
and the Brazilian public with an integrated view of the long-term developments
within the energy sector. Expanding of energy supply while respecting energy
efficiency and technological innovation, the plan tried to combine environmental,
economic and social objectives.
The demographic scenario assumed a population growth from 185 million
inhabitants to 238 million by 2030. The reference scenario of energy consumption
was calculated for 2030 and assumed an increase in final energy consumption from
206 milliontoe (ton of oil equivalent) in 2010 to 406 milliontoe in 2030. The data
presented in Fig. 4.17 refers to that respective scenario. The assumed development
from 2005 to 2030 shows some very significant changes within the Brazilian energy
matrix. According to the reference scenario the overall demand for fossil energy
will fall from 54.4 % in 2005 (Coal, Natural Gas and Mineral Oil) to 50.4 % in
2030. Mineral oil and its derivatives are expected to be significantly reduced while
natural gas faces the second strongest growth of over 6–15.5 % of the total energy
supply in 2030, overtaking the energy supply from hydropower. The major growth
within natural gas consumption is expected to come from the production of
electricity from around 20 % in 2005 to 25 % of the applications by 2030 (EPE
2007).
Sugarcane products, other renewables and hydropower, which are expected to be
around 70 % of total electricity production, are estimated to provide more than one
third of the total energy supply by 2030. Energy derived from sugarcane is expected
to experience the third strongest growth, providing 18.5 % of the domestic energy
supply by 2030. The projected ethanol production is more than 60 billion liters
while sugarcane is cultivated on almost 14 million ha with a yield productivity of
81.4 t/ha (EPE 2007). Other renewables which are mostly compiled from biodiesel
and alternative fuels based on vegetable oils show the strongest increase, up to
9.1 % of total energy supply by 2030. Wind and solar energy are not explicitly
mentioned within the PNE. The blending ratio is expected to be increased to B12
4.4 Actors, Networks and Institutions: The Institutional Level 153

Development of the domesc energy supply 1970 -2030

100% 0 1.2 3.0
5.5
13.0
90%

15.5
80% 9.4
Uranium
47.6
6.3 6.9 Wood and Charcoal
70%
Natural Gas
60% Coal
0.3 28.0
Mineral oil and derivaves
50% 3.6 38.7
Other renewables
40% Hydropower
9.1
Sugarcane products
30% 37.7 2.9
13.5
20% 14.8

.0,3
10% 18.5
5.1 13.8
5.4
0%
1970 2005 2030

Fig. 4.17 Domestic energy supply regarding different energy carriers in % (1970–2030). Based
on data from EPE (2007)

(12 % biodiesel within the fossil diesel) in 2030 and a consumption in agricultural
applications of over 60 % compared to fossil diesel (EPE 2007).
Another study which led to the establishment of the CTBE as previously
mentioned, indicated the large-scale, worldwide substitution of gasoline by sugar-
cane ethanol and was developed between 2005 and 2007 by the CGEE in cooper-
ation with NIPE from UNICAMP.
Two scenarios were developed within the CGEE study. In scenario 1, a substi-
tution of 5 % gasoline worldwide by Brazilian ethanol was projected while in
scenario 2, which was the primary reference scenario, the volume of substitution
was 10 % (CGEE 2005). A total of 43.5 million ha would be needed to arrive at the
envisaged 205 billion liters and an additional production of 61.5 million tons of
sugar by 2025 (CGEE 2007). Thus, additional to the cultivation of around 9 million
ha in 2010, 34.5 million ha would need to be cultivated with sugarcane as presented
in Table 4.8.
In 2009, scholars who were among the authors of the CGEE studies confirmed in
an article that a 5 % substitution of worldwide gasoline consumption with Brazilian
ethanol based on sugarcane is possible. The substitution of 5 % gasoline would
require 104 billion liters of ethanol which would result in a required cultivation area
of 21 million hectares with existing technologies (de Cerqueira Leite et al. 2009).
Yet the authors conclude that such a production volume would require the reduction
of production costs and the application of more modern technologies. Advanced
technologies could result in a higher productivity of ethanol yield per hectare and
additionally provide better environmental performances. According to de Cerqueira
Leite et al. (2009), this study shows that although no single fuel or technology will
154 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.8 Expansion of

Current Demand—sugarcane area
sugarcane area by 2025.
CGEE-10 % substitution 2010—Ethanol Production 4.0 million ha
scenario 2010—Sugar Production 5.0 million ha
Future Demand—CGEE - 10 % substitution scenario
2025—Ethanol Production 31.0 million ha
2025—Sugar Production 3.5 million ha
TOTAL demand in 2025 43.5 million ha
Based on data from CGEE (2007)

be able to replace fossil fuels single-handedly, strategies and production scenarios

can be found that can substitute significant amounts of gasoline. Furthermore, the
authors mention that as long as strategies are developed and deployed with care,
especially concerning energy derived from agricultural biomass, environmental,
economic and social benefits can be realized.
The National Energy Plan as well as the CGEE scenarios have been presented to
show the huge potential that is attributed to sugarcane and its products when it
comes to the prospective composition of Brazil’s energy matrix as well as national
and international fossil fuel substitution scenarios. Yet it should be stated that
within the last few decades, not only have the world market prices for oil, gasoline
and ethanol fluctuated widely but also the prices for sugar and other agricultural
commodities have been subject to dramatic changes and all-time highs. The price
sensitivity for the setor sucroenergético is especially high, since Brazil is by far the
largest exporter of sugar worldwide. Brazil therefore repeatedly had shortages of
ethanol because the sugarcane complex opted for the production of sugar instead of
ethanol when prices favored the former. Besides, it is likely that the projected
expansion of agro-industrial monocultures will lead to further land conflicts and
pressure on vulnerable biome. Therefore, strict regulation and the monitoring of
that are a prerequisite to guarantee a diversity of agriculture and rural land.
Both the scenario from CGEE and the National Energy Plan were realized
during a time when the sugarcane sector was booming and had not yet experienced
its recent setback. Furthermore, and likely even more important, the discovery of
the Pré-Sal oil fields (the pre-salt area below a thick layer of salt and more than 4 km
below the sea bed) and the discoveries in the Santos Basin had not been made when
these plans were formulated. Thus, that huge potential of fossil oil and natural gas,
even though extremely complicated to exploit, shifted the focus of interest back
towards fossil energy carriers.
The expert from WWF argues that
Pré-Sal changed the discourse of the government. The discourse used to be ‘we would be
the largest producers of biofuels’ and now this is ruled out by the Pré-Sal discourse.

And the interviewee from GREENPEACE states that Pré-Sal dominates the
political agenda, while the expert from CASA CIVIL remarks that
4.4 Actors, Networks and Institutions: The Institutional Level 155

when we have an excess of petroleum this will change the Brazilian situation. When the
international oil prices are around US$ 80–100, we should rediscuss the setor sucroenergé
tico.

The expert from MAPA thinks that

the cultivation of cane that will not be negatively impacted by Pré-Sal, but the production of
ethanol might lose a little of its competitiveness.

Brazil’s recently discovered oil reserves off the coast present an immense
opportunity for the country to further boost growth and development. The proven
oil reserves are expected to double by 2020 while the Brazilian oil production is
projected to expand by between 70 and 90 % between 2010 and 2020. The
estimations of the Pré-Sal reserves vary significantly (between 14 billion and
90 billion barrels) while several assessments assume 40 billion bbl (oil barrel) or
6,360 billion liters (1 bbl ¼ 159 l) according to Moreira et al. (2014). The authors
compare the long-term viability of fossil oil production from Pré-Sal and ethanol
production (substituting both gasoline and diesel) out of sugarcane until 2070. They
see the estimated peak production of 5 million bbl per day by 2020, as unlikely and
expect it to be reached by 2035 instead. Furthermore, Moreira et al. (2014) expect in
their most optimistic scenario that by 2052 Brazil will again be dependent on fossil
oil imports, while they project a production of ethanol by 2070 between 54 billion
(low scenario) and 162 billion liters (high scenario). They assume a productivity of
11,700 l/ha.
Total investment costs of US$ 350 billion (low) and US$ 756 billion (high
scenario) required for the ethanol supply and US$ 1,287 billion for Pré-Sal includ-
ing costs for CO2 emissions are assumed. Moreira et al. (2014) state that when
maintaining the lower tax rates for ethanol, the return on investment (ROI) is higher
with both ethanol scenarios than with Pré-Sal. Additionally, they remark that the
soil that is cultivated with sugarcane will still be productive by 2070 when peak oil
of Pré-Sal is long exceeded. Fajnzylber et al. (2013) identify another problem
resulting out of the production of Pré-Sal oil. They assume that the generated oil
rent from the export of fossil oil likely lead to an appreciation of the exchange rate
and thus result in Dutch disease effects.
Nevertheless, the authors assume that Brazil will pursuit fiscal discipline and
optimize the rent for macroeconomic stabilization and investments in social poli-
cies. Furthermore, accessing and extracting the oil additionally might augment the
expertise and knowledge base and result in development potentials. If
PETROBRAS sticks to the plan of investing over US$ 900 million annually
between 2011 and 2015 in research and development within the development of
Pré-Sal, the company would be responsible to 5 % of the country’s R&D efforts
(Fajnzylber et al. 2013).
Another approach combines the development of the Pré-Sal resources with the
promotion of renewable energy sources. Goldemberg et al. (2014b) explain that the
challenges for the development of the oil resources are huge. Large amounts of
economic and human resources are bound into the Pré-Sal exploitation, and mac-
roeconomic risks related to exchange rates might build up for example. Besides,
156 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

although the oil reserves are considered substantial, they are finite. So Goldemberg
et al. (2014b) employ the Hartwick Rule that recommends owners of finite
resources (especially governments) to diversify and invest into ‘reproducible’
capital such as machines. They suggest investing a fraction of the oil rents (8 %
of the total rents perceived) into renewable energy resources. The study assumes an
average budget of US$ 1.5–2 billion annually from 2013 to 2030. This would be
invested into an innovation agency for research on highly prospective energy
technologies and into the deployment of 1 GW of solar power in Brazil by 2020
and finally into ethanol annex distilleries to improve ethanol fuel security
(Goldemberg et al. 2014b).
What the National Energy Plan, the CGEE gasoline-substitution scenario and
even the Pré-Sal projections have shown was that the sugarcane complex is of high
importance and likely to play a significant role within the future energy strategies.

4.4.2 National Perspective: Laws, Regulations

and Enforcement

After having presented influential government-related institutions and shortcom-

ings as well as strategies related to the future composition of the Brazilian energy
matrix, the subsequent section refers to existing laws and regulations that support or
impede the development of the setor sucroenergético. The drivers for promoting
governmental push or pull policies seem evident. First, a stable and efficient energy
supply is considered a prerequisite for economic growth and prosperity, and
therefore the government generally supports and promotes private and public
efforts. Second, the negative ecological and environmental impacts induced by
applying today’s energy carriers have to be mitigated. Third, the supply of energy
services satisfies human needs. Better services, such as reduced costs of access or
secure availability, therefore can improve welfare and well-being.
Supply-push as well as demand-pull mechanisms such as blending quotas or
bank loans and their impulses on the sugarcane complex are analyzed. Furthermore,
problems of enforcing legislation are addressed. Proponents of the industry often
argue that ethanol production is not subsidized by any means on the part of the
government. Yet as will be shown, there are a variety of laws and enactments that
foster the sugarcane complex and have a quite palpable effect on the competitive-
ness of ethanol. Additionally, economic stimulation programs are implemented that
contain generous loans. Concerning this matter, the interviewee from UFMG
remarks that
perhaps there are no ‘open’ subsidies, but research is paid, the government pays everything.
The universities are integrated when you see the sector. This is a strategic model since
500 years.

Presenting and analyzing the Brazilian legislation that strongly influences the
sugarcane complex, the ways in which as possible innovation system is affected
4.4 Actors, Networks and Institutions: The Institutional Level 157

needs to be considered within the context of the research question, too. According
to Gallagher et al. (2012), assurance of political stability is an important factor since
uncertainty about prospective developments increases the private risk of investing
into innovations. Technology development itself is a risky endeavor and thus if
policies are credible, long-term oriented investments are more likely. Gallagher
et al. (2011) elucidate that different policies and incentives should be applied to the
various stages of innovation. Infant industries and technologies require a different
extent of protection to more mature developments. Whereas the former are
expected to be more dependent on research inducing mechanisms, the importance
of private actors increases in the latter.
A frequent argument for the promotion of biofuels is innovation (Erdmann and
Zweifel 2008). If legislation creates a niche or protects the market for biofuel-
related technologies and processes, learning effects and efficiency increases are
expected that result in cost reduction and finally lead to a competitive technology,
process or product. Apart from this argument for biofuels promotion, overly
protected industries where the technologies and processes are established are very
likely to become inert and innovation-adverse. Thus, in the following, Brazilian
legislation is presented that deals with environmental, economic and social aspects
of the sugarcane complex and thereby addresses different demands from govern-
ment, industry and civil society.

4.4.2.1 Laws

Table 4.9 provides an overview of the Brazilian legislation concerning the setor
sucroenergético. A variety of laws, decrees, resolutions and programs are listed.
The National Forest Code that was issued in 1965 was for many years considered to
be an advanced and relatively strict law, just like the overall Brazilian environmen-
tal legal framework.
Yet the modifications made in 2012, on the one hand are supposed to facilitate
the compliance with the Forest Code while on the other hand grant amnesty to prior
offences and the restoration of forest and the protection areas is reduced and more
flexibly handled, which is likely to result in significant loss of forest-covered area
(Stickler et al. 2013).
The National Environmental Law (No. 6.938) of 1981 installed environmental
licensing for potentially polluting industries such as ethanol distilleries and sugar
mills while the resolution of 1997 (No. 237) introduced stricter rules for certain
activities such as the application of vinasse on the fields close to riverine areas
(de Andrade and Miccolis 2011). Another legislation that is considered to result in
beneficial environmental impacts is the São Paulo state law No.11.241 that stipu-
lated in 2002 the elimination of pre-harvest burning by 2021 and 2031, respectively.
The agro-environmental protocol of 2007 agreed on an early elimination of the
burning practice in 2014 and 2017. This protocol is more a settlement between the
sugarcane complex and the state of São Paulo and is driven by economic motivation
as elaborated in Sect. 4.3.1.
158 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.9 Brazilian legislation with reference to the sugarcane complex (1965–2012)
Year Law/Regulation Description
1965 Law No. 4.771 revoked by National Forest Code (C
odigo Florestal): requiring prop-
2012 Law No. 12.651 erty owners to maintain permanent protection areas (APP);
constituting the legal reserve (Reserva Legal) which
demanded up to 80 % (in the Amazon) of forest to remain
untouched on all properties. The alteration in 2012 led to a
reduction of the required recovery of deforested APPs.
1974 Decree No. 76.593 Foundation of the Pro-Álcool Program
1981 Law No. 6.938 National Environmental Law. Environmental zoning and
environmental licensing for potentially polluting or dam-
aging activities such as the construction of processing
plants, distilleries and refineries
1993 Law No. 8.723 Compulsory blending of anhydrous ethanol into gasoline.
Fixed rate of 22 %—reserved rights to modify between
18 % and 25 %.
1997 Resolution No. 237 Specifying activities or Projects Subject to Environmental
Licensing
1997 Law No. 9.478 National Energy Policy. Foundation of the ANP and
the CNPE.
2002 Law No. 10.438 Foundation of PROINFA
2002 State Law No. 11.241 Phasing out the pre-harvest burning of sugarcane by 2021
on areas where mechanization is feasible and by 2031
elimination on all areas.
2004 Resolution Norm No. 77 ANEEL enacted the reduction of the distribution charge
and transmission charge for electricity out of small-hydro
power plants, photovoltaic and wind energy, and biomass
cogeneration. No charge for electricity derived from
burning at least 50 % municipal solid waste.
2007 Agro-environmental Additional agreement in São Paulo state between UNICA
Protocol and secretary of environment that pre-scheduled the
renouncement of pre-harvest burning to 2014 on feasible
and to 2017 on non-feasible areas.
2008 National programs by the The Ministry of Labor created two programs: the National
MPT Program to promote decent work in the sugar and alcohol
sector and the National Plan to eradicate slave labor.
Employers reported with labor violations are listed in a
registry and they are barred from access to public
financing.
2008 Law No. 11.727 Reduction of tax rates for the producers and importers of
hydrated and anhydrous ethanol while distributors are
likewise taxed
2009 Decree No. 6.961 Approvement of agroecological zoning of sugarcane
(ZAE—zoneamento agroecol
ogico da cana-de-açúcar)
2011 Law No. 12.490 Amendments of Law No. 9.478. The National Energy
Policy aims to ensure a national supply of biofuel and to
promote Brazil’s competitiveness. Incentivizes energy
generation from biomass and residues. Biofuels explicitly
part of the national strategy to reduce GHG emissions and
to curb air pollution from the transport sector.
(continued)
4.4 Actors, Networks and Institutions: The Institutional Level 159

Table 4.9 (continued)

Year Law/Regulation Description
2013 Plano Inova Empresa The ‘Company Innovation Plan’ initiated by the CASA
CIVIL provides US$ 15 billion to Brazilian companies to
invest in innovation and technology to become competitive
in the international markets. Seven sectors are the main
focus of funding: Agriculture & livestock, energy, petro-
leum & gas, health, defense technology, information tech-
nology and socio-environmental sustainability.
Based on information from de Andrade and Miccolis (2011); Cassuto and Gueiros (2013)

Apart from other legislation that contained regulations for improving labor
conditions of Brazilian workers but were not specifically formulated for the sugar-
cane sector, two national programs were launched in 2008 by the MPT to improve
working conditions of workers in the setor sucroenergético. One mechanism that
penalizes labor violations is a registry which will be elaborated upon subsequently.
Decree No. 76.593 of 1974 has been the legal foundation of the Pro-Álcool
program in Brazil. It regulated the ethanol distribution and consumption for the
sugarcane complex—the blending margins were between 10 and 15 %. In 1983, law
No. 8.723 was stipulated that regulated the mandatory blending of anhydrous
ethanol into gasoline. A blending margin between 18 and 25 % was possible
while a fixed rate of 22 % was initially assumed. In 2013, the blending ratio was
again raised to 25 %. The laws No. 9.478 and No. 10.428 of 1997 and 2002
respectively resulted in the establishment of the ANP, the CNPE and PROINFA,
and therefore were of importance for the sugarcane complex. In 2004, the energy
regulating agency introduced resolution No.77 that resulted in a 50 % discount in
distribution and transmission charges for electricity generated from renewable
energy carriers (Silva and Magalhães Sobrinho 2013).
According to Giersdorf (2012), Law No. 11.727, introduced in 2008, was quite
successfully influenced by the ethanol lobby because tax rates for the producers and
importers of ethanol were reduced while distributors were taxed as well. This
mechanism is presented in detail in the subsequent sections. In 2009, the agro-
ecological zoning of sugarcane (ZAE) was approved by decree No. 11.727. The
zoning is not considered a legally binding ruling but rather understood as a
governmental initiative to define priority expansion areas for the sugarcane industry
and its agricultural activities. Thus, further details are provided in the section on
supply-push mechanism of ethanol promotion. Law No. 12.490 of 2011 mostly
contains amendments of the National Energy Policy of 1997. The generation of
electricity out of biomass and residues is mentioned as well as the objective of
biofuels to reduce GHG emissions.
From the funds of the Company Innovation Plan initiated in 2013, around US$
1.37 billion is invested into agriculture and animal husbandry and more than US$
2.6 billion into the energy sector. Over US$ 1.5 billion of the funds for the energy
sector are provided to the sugarcane complex within the context of the Support Plan
160 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

for Industrial Technological Innovation in the Sugar-energy and Sugar-chemical

Sectors (PAISS) which is presented in more detail subsequently.

4.4.2.2 Demand Pull: Market Led Mechanisms

According to Gallagher et al. (2011), different effects or policies are applied at

different stages of innovation. For example, as innovation systems increase in
maturity, the importance of private actors increases, because entrepreneurship
which scarcely can be supplied by governmental institutions is needed, unlike at
the stage of basic science and early research when the supporting role of the
government is crucial and quite clear to identify. Yet policies and legislation are
important at all stages of the innovation process (from research to diffusion). The
supply-push and technology-pull mechanisms are understood as complements
rather than substitutes (Gallagher et al. 2012).
There are various demand-pull mechanisms that can be implemented by the state
such as market (niche) creation, public procurement and appropriate market incen-
tives such as the levy on taxes and tariffs or their abolishment. International
regulations and norms that create incentives for certain technologies or products
can likewise be understood as demand-inducing mechanisms. For example, the
classification of sugarcane ethanol as ‘advanced fuel’ by the United States Govern-
ment (2007), makes the Brazilian first generation ethanol eligible for a 79 billion
liter (21 billion gallons) market by 2022 and thus constitutes a huge international
demand-pull mechanism which will be discussed in more detail in the section on
market demand.
The mandatory blending of 18–25 % anhydrous ethanol into gasoline provides a
more fixed purchase quantity and therefore can be considered one if not the most
important policy instruments and pieces of legislation to influence the ethanol
demand in Brazil. As Fig. 4.18 shows, the demand for anhydrous ethanol has
been far more stable than for hydrated ethanol. The demand for anhydrous ethanol
basically alternated between around 1.2 and 2.4 billion liters in the 80s and early
90s and then started to increase and more than triple by 2005. Still, compared to the
highly volatile demand for hydrated ethanol, anhydrous ethanol was consumed on a
relatively consistent and reliable scale. Within the years of crises for the ethanol
producers, when the demand for hydrated ethanol dropped significantly, anhydrous
ethanol kept the production going. The government announced an increase of the
ethanol blending quota from 20 % to 25 %, starting in May 2013, a decision which
increases the demand for anhydrous ethanol by 1.47 billion liters to meet the new
mandate according to Covrig (2013).
As presented previously, the Interministerial Council for Sugar and Ethanol
(CIMA) is responsible for decreasing or increasing the blending quota upon con-
sultation with the CASA CIVIL. The regulation of the blending volume is an
instrument to control supply and demand and thereby prices for anhydrous and
hydrated ethanol which has been used recurrently. In 2011, high world market
prices for sugar coincided with poor sugarcane harvests. In order to prevent price
4.4 Actors, Networks and Institutions: The Institutional Level 161

Anhydrous and hydrated ethanol consumpon in Brazil

25

23.230

20

16.593
16,141

15
billion liter

13.318 13.054
12.690 12.286
11.613
10.839 11,068 10,366
9,946
10 9,387
10,265
8,397
7,717 7,451 7,089
6.008 6,227
5,147 5,337
4,835
5 4,257
2.682 3,372
2,95
2,442 2,226
2,253 1,622
0,429
0

Anhydrous Hydrated Total ethanol

Ethanol Ethanol consumpon

Fig. 4.18 Ethanol consumption in Brazil in billion liters (1980–2010). Based on data from MAPA
(2013)

spikes and shortages, the blending ratio was decreased and ethanol imported,
demonstrating the flexibility of the blending quotas (Meyer et al. 2012).
Taxation is another demand-pull mechanism that enables the government to
control the price for hydrated ethanol at the petrol station and thereby influence
consumer behavior. There are various taxes on gasoline and hydrated ethanol, both
at state and national level, which influence fuel consumption patterns. Different
taxes on gasoline cars, alcohol and FFVs are further mechanisms to promote
hydrated ethanol, by levying less tax on FFVs and alcohol cars. Table 4.10 provides
an overview of the different taxes and their tax levels with reference to FFVs,
ethanol and gasoline.
Sales of passenger cars are taxed with the tax on industrialized products (IPI—
Imposto de Produtos Industrializados). Cars with an engine displacement of up to
1,000 cc do not differ in IPI taxation while vehicles that have a higher engine
displacement than 1,000 cc have a lower tax on FFVs than on gasoline-powered
cars. In terms of revenue, the state tax for circulation of goods and services
(ICMS—Imposto sobre Circulação de Mercadorias e Serviços) is the most impor-
tant tax in Brazil. The tax is very opaque and complex and is levied by the federal
states and not the national government, and as a consequence there are different tax
regimes depending on the federal state (Giersdorf 2012). The ICMS tax levied on
162 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.10 Taxation on hydrated, anhydrous and gasoline C (2010)

1,000 cc 1,001–2,000 cc Over 2,000 cc
Gasoline/ Ethanol/ Ethanol/
Year Taxes FFVs Gasoline FFV Gasoline FFV
As of April IPI in % 7 13 11 25 18
2010 ICMS in % 25–31/12– 25–31 12–27 25–31 12–27
27
PIS/COFINS 11.6 11.6 11.6 11.6 11.6
in %
As of May IPI in % 7 13 11 25 18
2013 ICMS in % 12 12 12 12 12
PIS/COFINS 11.6/0 11.6 0 11.6 0
in %
Based on data from Barros (2013)

ethanol varies from 12 to 27 % while for gasoline it varies from 25 to 31 % (Barros

2013).
The taxation of PIS (Contribution to the Social Integration Program) and
COFINS (Contribution for Financing Social Security) has the purpose of a social
contribution from basically all economic activity and therefore they function in
practice more like consumption taxes. According to Giersdorf (2012), the combined
PIS and COFINS taxation had been around US$ 55/m3 (RS$ 120/m3) since the end
of 2008. For gasoline, PIS/COFINS are set at around US$ 120/m3 (R$ 260/m3). In
April 2013, Brazilian Finance Ministry Guido Mantega announced that PIS/COFIN
taxation would be cut to almost zero, starting on the first of May 2013 according to
an article from Reuters (Soto and Ewing 2013). The authors stated that the tax cuts
were assumed to bring an additional demand of 1.6 billion liters of hydrated ethanol
according to analysts from the ITAU bank. The tax reduction is unlikely to reach
the final consumer but is considered as an incentive to realize more investments into
the sugarcane complex. The reduction results in an expected loss of US$ 480 million
of tax revenue for the Brazilian government (Soto and Ewing 2013).
The CIDE (Contribuição de Intervenção no Domı́nio Econômico) fuel tax is
levied as an excise tax on the importation and commercialization on fuels. The
CIDE tax revenues are assigned to finance infrastructure projects for the transport
sector as well as environmental projects according to Cavalcanti (2011). The rate
for both ethanol and gasoline is zero and therefore no preferential treatment for
ethanol exists under CIDE as it did before June 2012 when the tax amounted to US$
105/m3 (R$ 230/m3) of gasoline.

4.4.2.3 Supply Push: Research Induced Mechanism

As previously stated, a supporting role of the government is especially important at

the early stages of technological development. According to Gallagher et al. (2012),
a variety of policy instruments can be applied to promote innovation. Investments
4.4 Actors, Networks and Institutions: The Institutional Level 163

in R&D, the protection of intellectual property, the provision of laboratory and

testing infrastructure, training and skills development, university-industry collabo-
ration, knowledge exchange and financial incentives (tax credits for private invest-
ments) are among the most important instruments that can be provided by the
government and related institutions.
As discussed in previous sections, state-of-the-art technology such as cogenera-
tion, mechanized harvesters and prospective second generation technology require
high investments and thus the willingness to accept substantial financial and
entrepreneurial risks. Credits and loans provided to the sugarcane complex are
therefore highly important for continuous investments and thus the maintenance
and advancement of the sector.
The by far most important individual institution for financing the setor
sucroenergético is the Brazilian Development Bank (BNDES). Since its foundation
in 1952, the bank has been the main financing agent for development in Brazil,
investing in the expansion of industry and infrastructure in the country. Over the
last 5 years, the BNDES disbursed between US$ 60 billion (R$ 130 billion) and US
$ 87 billion (R$ 190 billion) annually. More than US$ 5 billion (R$ 11 billion) have
been disbursed to agriculture and cattle farming constituting 7 % of the total
disbursements (infrastructure ranked first with 34 % and industry second with
31 %) (BNDES 2013).
The bank is and traditionally has been the largest provider of loans and credits to
the sugarcane complex and as a body of the Brazilian government, the BNDES has
created incentives to stimulate new investments, especially since the lack of
investments resulted in a crisis of the sector and a temporary fall of productivity
in yield per hectare. The following measures are among the most important funding
programs for the setor sucroenergético:
Between 2008 and 2011, the disbursements of the BNDES to the Brazilian
sugarcane industry were an average of US$ 3.3 billion annually, according to
Goldemberg et al. (2014b). In 2012, the BNDES disbursements dropped by around
30 % while in 2013 the overall disbursements reached the levels of 2008–2011.
The BNDES and FINEP joint Support Plan for Industrial Technological Inno-
vation in the Sugar-energy and Sugar-chemical Sectors (PAISS) recognizes the
strategic value and importance of second generation ethanol technology. Thus,
since 2011, the development of adequate technology is supported by the PAISS
with a budget of R$ 1 billion. The plan’s objective is the selection of business plans
and the promotion of projects that focus on technologies such as cellulosic ethanol
and sugarcane-based ‘bio’plastics. BNDES and FINEP chose 35 business plans
from 25 companies during the final selection stage that are supported with invest-
ments into innovations of around R$ 2 billion over the next few years. BNDES
(2012) expects that this will stimulate Brazilian companies to develop the needed
technologies to sustain Brazil’s position as a global leader in the production of
ethanol.
Furthermore, within the scope of PAISS several investment operations were
analyzed, especially an operation that aimed at building the first commercial
industrial-scale cellulosic ethanol production facility (BNDES 2013). In 2013,
BNDES started to be active not only as a lender of loans but as an investor,
164 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

according to the Bloomberg website (http://www.bloomberg.com/news/2013-01-21/

brazil-ethanol-maker-graalbio-to-get-294-million-from-bndes-1-.html). BNDES
invested US$ 274 (R$ 600 million) into GraalBio, a Brazilian owned company,
that is expected to construct usinas which produce second generation cellulosic
ethanol. The funds will be disbursed through 2020 by BNDES in exchange for a
15 % share in the company as well as a seat on the board.
BNDES PRORENOVA is a newly-created program to support the renewal and
implementation of new sugarcane plantations. The PRORENOVA portfolio
reached almost US$ 640 million (R$ 1.4 billion) in 2012. Around 390,000 ha
were planted of which more than 80 % are dedicated to renewing sugarcane
cultivations (BNDES 2013). The overall BNDES credit line is supposed to provide
around US$ 1.8 billion (R$ 4 billion) in credits for farms that intend to renew their
plantations as well as to stimulate investment in mechanization. According to the
minister of finance, the loans, which are also accessible for foreign owned compa-
nies, fall to 5.5 % from 8.5 to 9.5 % in 2012 (Soto and Ewing 2013). Also, the
government disburses more than US$ 900 million (R$ 2 billion) to finance storage
units for ethanol in order to mitigate price spikes during the inter-harvest period
when supplies are usually most tight.
In order to provide a comparison for the volume of disbursements offered by the
BNDES: When the CGEE study was realized under the assumption of a 10 %
worldwide substitution of gasoline with Brazilian sugarcane ethanol, the authors of
the study added their estimated investment costs. In total they calculated more than
US$ 87 billion (R$ 190 billion) for the usinas, the infrastructure and the agricultural
equipment. Since they based their calculation on a time period of 20 years (2005–
2025), they assumed yearly investments of up to US$ 4.6 billion (R$ 10 billion)
(CGEE 2005). Compared with the recent BNDES disbursements listed in Table 4.11
of US$ 3 billion per year between 2008 and 2013 on average, the numbers
emphasize the substantial financial inflow into the sugarcane complex.
The protection of intellectual property is another important trait of government-
induced mechanisms to promote a stimulus for innovation and technological
development. Law No. 9.456 on the protection of plant varieties was stipulated in
1997 and aims to strengthen and standardize intellectual property rights. Since its
establishment, more than 1,700 cultivars have been registered in Brazil at the
National System of Cultivar Protection (SNPC) that is attached to the agricultural
ministry MAPA, and nearly 2,000 applications for protection have been reviewed
or still are under review. Table 4.12 presents data provided by the SNPC regarding
the most important agricultural crops.
Of these 110 protected sugarcane cultivars 58 % were registered by the private
sector and 42 % by the public sector according to Ribeiro Vieira Filho and Pinto
Vieira (2013). A detailed overview of the institutions that registered their sugarcane
cultivars at SNPC can be found in Table A.3 in the annex.
The agro-ecological zoning for sugarcane (ZAE—Zoneamento Agroecol
ogico
da Cana-de-Açúcar) was initiated by the Brazilian Ministry of Environment
(MMA) and the Brazilian Ministry of Agriculture, Livestock and Food Supply
(MAPA) and carried out by a number of research institutions, analyzing climate and
4.4 Actors, Networks and Institutions: The Institutional Level 165

Table 4.11 BNDES disbursements to the setor sucroenergético in US$ million (2008–2013)
BNDES disbursements (US$) 2008 2009 2010 2011 2012 2013
Plantations 343 344 477 455 548 913
Industrial facilities (sugar and ethanol) 1,971 2,092 2,570 2,064 1,050 2,146
Cogeneration 936 761 742 431 320 93
Total (US$ million) 3,250 3,197 3,788 2,949 1,918 3,152
Based on data form Goldemberg et al. (2014b); Batista (2014)

Table 4.12 Protected sugarcane cultivars in numbers—listed at SNPC/MAPA

Protected cultivars 1998 2001 2004 2007 2010 2012 Total
Soy Bean 39 55 85 123 140 97 539
Sugarcane 6 26 19 20 19 20 110
Maize 0 17 11 4 17 2 51
Café 0 0 0 6 1 1 8
Cotton 1 10 19 18 8 4 60
Other 5 50 114 183 321 267 940
Total 51 158 248 354 506 391 1,708
Based on data from Ribeiro Vieira Filho and Pinto Vieira (2013)

soil conditions in various regions in Brazil (Goes et al. 2011). According to

Manzatto et al. (2009), the ZAE was proposed in order to control the expansion
of sugarcane in the context of an increasing world demand for biofuels and the
intention of national and transnational companies to invest into Brazilian ethanol
production. Another important impulse towards the development and approval of
the agro-ecological zoning was the strong international pressure and worries related
to the expansion of sugarcane plantations and the deforestation of rich biomes such
as the Amazon forest, Pantanal and the remainder of the Atlantic forest (Manzatto
et al. 2009). The agro-ecological zoning emerged as unprecedented government
initiatives to define priority areas for expanding agricultural activities (de Andrade
and Miccolis 2011).
Amongst the major features of the program are the prohibition of removal of
native vegetation (especially in the Amazon area, Pantanal and Paraguay river
basin), the prohibition of expansion into indigenous territories and nature reserves
and the priority of use of pasture and agricultural land (Manzatto et al. 2009).
Figure 4.19 illustrates the scope of this zoning within Brazilian territory.
Within the context of the ZAE, over 34 million ha with a high and medium
aptitude were identified as agricultural areas currently being underutilized or
occupied by meadows for livestock all of them suitable for sugarcane production
(Manzatto et al. 2009). The areas that are currently in use for cattle or livestock
farming have a low productivity of 1–1.2 in head of cattle per hectare in Brazil.
Increasing the amount of head per hectare would release vast areas because 80 % of
the total agricultural land is pasture and 80 % of pasture is occupied with cattle
farming. As a consequence, the sugarcane expansion in Brazil would primarily take
166 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Capon:

Suitable Areas

Upper Paraguay River

Basin, Amazonas and
Pantanal Biomes

Fig. 4.19 The ZAE and suitable areas for sugar cane expansion and protected areas. http://blog.
planalto.gov.br/wp-content/uploads/2009/09/mapabrasil.jpg

place on areas previously used by livestock (Nu~nez et al. 2013). Yet according to
the expert from WWF,
the intensification of cattle per hectare is not an automatic process but is in need
of public policies.
The expert from IMAFLORA states that
agricultural zoning is very important but it should not be done for sugarcane because this is
a limited concept and expansion occurs in various agricultural sectors in Brazil.

And according to the interviewee from REPÓRTER BRASIL

the problem is that the zoneamento is not a law it is marco técnico (technical specification).
So they say the soil here is good and here is not good. It is a technical analysis for the
government to develop public policies.

So the ZAE is not a binding regulation prohibiting the expansion of cane

cultivation but rather designating apt areas for sugarcane expansion.
4.4 Actors, Networks and Institutions: The Institutional Level 167

4.4.2.4 Constraining Legislation: Barriers to the Promotion

of Sugarcane

Having elaborated upon the different mechanisms and regulations that were
implemented by the government and affiliated institutions, legislation is presented
here that is supposed to control and restrict the developments of the sugarcane
complex and thus impede negative impacts. One example is the restricted regula-
tion of transgenic sugarcane cultivars as previously presented in Sect. 4.3.3.2. The
volume and importance of Brazilian sugar exports prevents the approval of genet-
ically modified sugarcane because repercussions resulting in substantial declines of
demand are feared.
An instrument of penalizing usinas and companies that violate labor contracts
and conditions is the establishment of a registry of employers known to perpetrate
human rights violations. Since 2008, companies listed in that registry are barred
from public financing according to de Andrade and Miccolis (2011). Furthermore,
the National Program to promote decent work in the sugar and alcohol sector as
well as the National Plan to eradicate slave labor were constituted in order to
establish a monitoring and reporting system jointly with inspection groups of the
Ministry of Labor (MPT). The expert from REPÓRTER BRASIL calls the registry
the lista suja (the ‘dirt’ or rather the black-list). As she elaborates
if you get caught with slave labor as a farmer, you suffer a civil process and if you are
condemned your name goes to this dirt list and you are not able to get public funds for
2 years. But then, this is something interesting. [. . .] the national pact to eradicate slave
labor and this pact is signed by lots of important companies, banks, etc. It means that this
entire business sector does not do business with people that are on the lista suja.

According to Busch (2010), companies listed at the lista suja are sometimes
even excluded from business associations and other institutions because their
reputation is dramatically damaged and international companies often refuse to
buy products from such companies. This mechanism of social and economic
penalties seems to be effective and relatively easy to apply.
Another regulation that was introduced by the Brazilian government in order to
impede and control developments in agriculture and the sugarcane complex has
been the limitation of land purchases by foreigners. The world’s largest agricultural
frontier with approximately 130 million hectares was subject to significant invest-
ment by foreign capital. In the wake of the global financial crisis, the relatively
cheap arable land in Brazil and the growing demand for food, feed and fuel, led to a
massive influx of foreign investments which resulted in concerns about selling out
Brazilian territory. Thus, in 2010, the Brazilian Attorney General issued a ruling
signed by the President that prohibited foreign companies and individuals to
acquire land larger than 5,000 ha or less, if it accounts for more than 25 % of a
municipality (de Andrade and Miccolis 2011).
Yet having presented legislation that e.g. stipulates environmental protection
and the assurance of labor rights, the lack of enforcement and the lack of stringency
have to be mentioned which are typical in a nation as vast as Brazil. Brazilian
168 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

environmental legislation is considered to be quite strict and advanced compared to

most other countries, yet many of these ambitious policies that are fine on paper are
difficult to implement and to enforce in reality (de Andrade and Miccolis 2011).
One of the interviewees from EMBRAPA points out that
the problem of deforestation is not one of agricultural dynamics but of lacking control and
monitoring. But with rising international pressure, the Brazilian government needs to
change that.

One interviewee from ESALQ remarks that

the little farmers and companies are much more difficult to be monitored and furthermore,
the Brazilian government is lacking resources to monitor. From the moment you leave the
large center behind, self-monitoring diminishes or ceases to exist.

According to the experts from Grupo Tonon,

here in São Paulo there already exists a strong culture with respect for legislation, respect
for the worker. The monitoring and the fines are severe and heavy. There are unannounced
controls by mobile units from the MPT. Today, people say that working illegally costs
much more than working correctly.

Looking at the sugarcane complex and its energy-related products, a heavy

participation from the state can be seen. Public funds are used to subsidize produc-
tion, distribution and final use as well as increasing demand by blending mecha-
nisms and tax advantages (Faucher and Langlois-Bertrand 2009). Analyzing the
different instruments and mechanisms, it can be concluded that the setor
sucroenergético probably would not be producing substantial volumes of other
products except sugar without the support of the government. Efforts are made to
increase the efficiency of ethanol production and electricity generation by modern-
ization and the application of new technologies and innovations. Nevertheless as
already mentioned, some experts criticize the lack of a consistent, long-term
strategy for the Brazilian energy matrix and hence the sugarcane complex and its
energy carriers.

4.4.3 National Perspective: Industrial Cooperation

Looking at the conceptual design of ETIS, the institutional level is characterized by

actors, networks and institutions and their interaction/cooperation. The effects of
support mechanisms induced by governmental institutions and legislation have
been described in the previous sections. Thus, cooperation on the part of the
government with private stakeholders as well as interdependencies with the prod-
uct/process level has been analyzed in detail. The following section assesses
industrial cooperation. Mechanisms of this interaction/cooperation between private
actors, networks and institutions have been the basis for defining the ‘industrial
cooperation’ code during the evaluation of the transcribed interviews. The impor-
tance of cooperation with regard to innovation is also discussed. Furthermore,
4.4 Actors, Networks and Institutions: The Institutional Level 169

important networks e.g. lobbying associations such as UNICA are portrayed and
their objectives and position within the sugarcane complex analyzed.

4.4.3.1 The Importance of Cooperation with Regard to Innovation

The concept of innovation systems is based on the central idea that the determinants
of innovation and technological advancement do not (exclusively) derive from
individual companies and specialized R&D networks but that broader social struc-
tures in which the institutions are embedded are similarly influential. The better
actors, networks, and institutions are arranged and connected, the easier to realize a
higher level of system function activity which results in an increased likelihood of
technological development (Suurs and Hekkert 2009). Poor connectivity of net-
works, the lack of political support or a general uncertainty of prospective scenarios
and developments are listed among the main barriers or blocking mechanisms of
establishing technological innovation systems according to Foxon et al. (2007).
Exceptionally high investment costs into state-of-the-art technology and
processing equipment constitute another scenario where the establishment of net-
works and cooperating institutions and associations is said to be helpful if not
necessary. This applies even more for small and medium-sized enterprises (SME)
and their often insufficient inability to incorporate all elements needed for the
relevant innovation processes (Bos-Brouwers 2010). The development of innova-
tions from laboratory-size technologies to commercial-scale applications requires
substantial and permanent investment, especially concerning biomass-based energy
technologies and other bio-chemical innovations, e.g sucro-pharmaceuticals,
sucro-cosmetics, and sucro-plastics (Sims et al. 2010).
The small probability of developing a commercial technology is reflected by the
fact that venture capitalists build their energy technology portfolios with an
expected failure rate of 90 %, according to Gallagher et al. (2012). The expected
10 % breakthrough technologies are likely to return the investments for the entire
portfolio. Motives for cooperation are said to be the reduction of uncertainty by
sharing risks and costs, gaining additional market knowledge as well as the devel-
opment of industry standards. The cooperation with stakeholders in order to
overcome resource limitations e.g. input material, process energy or capital invest-
ments in technology is even considered an indicator for sustainable innovation
practice in SME beside the sustainability orientation of the company’s management
and the design of innovation processes within the company according to Bos-
Brouwers (2010). Furthermore, the author explains that in case external funding
is difficult to acquire, more attention is focused on the improvement of human
resources and at the expansion of cooperation because more partners might increase
the likelihood of joint innovations.
Besides, as analyzed in the section on the product/process level developments,
modern biomass-based energy technologies not only promise higher rates of effi-
ciency but enable a cascade utilization of biomass. This implies that co-products
such as bagasse or vinasse can be converted into additional energy carriers or other
170 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

products by the application of accessory processes. Cooperation might promote the

exchange of Know-how in those areas and result in improved biomass conversion.

4.4.3.2 Examples/Structures of Successful Cooperation

The commercialization of university science, particularly in biotechnology and in

the US, has often been mentioned as a successful mode of cooperation between
different actors and institutions within an innovation system. The relationship
between industry and universities is assumed to foster the flow of knowledge and
technology from the universities to the industry, thereby promoting economic
growth while generating increased funding for basic research (Lacy et al. 2014).4
A patent policy that has allowed universities to retain their claim on innovations
made under federally-funded research programs has been an important factor. Also,
universities were encouraged to cooperate with commercial institutions to further
promote and disseminate the applications of the respective innovations (Lacy
et al. 2014).
An area in Brazil where industrial cooperation seems to have improved signif-
icantly over the last years, is the relationship between the usina and the supplier of
sugarcane. The latest agricultural census in 2006 stated that 79 % of the sugarcane
cultivation area in Brazil is harvested by the owner while 15 % of the cultivation
area is harvested by tenants (IBGE 2006). The usinas do not necessarily own the
entire area where the sugarcane for their production processes is cultivated. Some-
times the usinas lease the land and contract the supply for sugarcane, other usinas
only own marginal amounts of land and are supplied by contracted farmers. An
interviewee of ESALQ states that
the ‘usina’ recognizes the quality of a supplier and leases some of the land to him. 30 years
ago it would have been unthinkable. It was a lose-lose system. One wanted to trick the
other.

According to the same expert from ESALQ, positive effects can be observed
when looking at the cluster of the companies within the sugarcane complex. These
are not necessarily conscious decisions of cooperation, but results of strategic
corporate management. He points out that in Piracicaba
everything started with DEDINI. DEDINI outsourced parts of their business and many
former employees started their own companies to supply DEDINI. The decision to base a
new HYUNDAI production plant in Piracicaba, São Paulo state, was made due to the fact
that a strong metal-working industry is established there. So the industrial cluster expanded
on the strength of biofuels, specifically sugarcane.

4
Nevertheless, some critics indicate that the commercialization of university science threatens the
distinct culture, in particular the incentive system of universities which in return shifts the focus of
basic research. However, this aspect is not pursued within the context of industrial cooperation and
innovation systems and it is not further discussed here.
4.4 Actors, Networks and Institutions: The Institutional Level 171

The success of research cooperation, in particular with respect to the breeding of

new sugarcane cultivars, such as RIDESA and CTC additionally indicates the
decisive role of institutional and industrial cooperation. As presented previously,
the RIDESA network, a cooperation of seven Brazilian universities, began its work
in 1991, in response to the breakup of the National Program of Sugarcane Improve-
ment (PLANALSUCAR). CTC is a private research facility, founded in 1969 by
usinas of the COPERSUCAR cooperative to provide research and develop more
productive cultivars, and to increase the quality of sugar and ethanol production
(Ueki 2007). CTC claims to be the most important research center in sugarcane
worldwide. According to its website, the investments throughout its history have
been around US$ 1.8 billion while the contribution to the Brazilian economy is said
to be US$ 450 billion.
COPERSUCAR and RAÍZEN are the majority owners, while all the share-
holders of the CTC account for 60 % of the sugarcane processed in South-Central
Brazil. Together, the SNPC-registered cultivars of CTC, COPERSUCAR and the
RIDESA network account for almost 80 % of all sugarcane cultivars. Thus, pooling
resources as well as Know-how and establish networks can be considered fertile
with regard to the development of new technologies and innovations.

4.4.3.3 APLA and UNICA

The CTC is not the only institution of significance for the sugarcane complex
coming from the city of Piracicaba, located in São Paulo state. The ‘Luiz de
Queiroz’ College of Agriculture (ESALQ) is one of the top rated universities in
agricultural sciences, affiliated with the University of São Paulo and it can be
considered a ‘technological incubator’, according to Ueki (2007). The Center for
Nuclear Energy in Agriculture (CENA) and the Center for Advanced Studies on
Applied Economics (CEPEA) are likewise located on the ESALQ campus.
The local ‘ethanol-cluster’ APLA (Arranjo Produtivo Local do Álcool) is a
network of over 70 companies from agriculture, industry, commerce and service,
including international companies e.g. DEDINI, BOSCH and CASE. Members of
APLA are grouped alongside the supply chain of sugarcane products. For this
network, it is crucial to promote interaction and cooperation among its members
in an organized and structured way in order to create opportunities of added value at
national and international levels. Training of entrepreneurs and employees, resolv-
ing bottlenecks and promoting technological innovation in various segments of the
supply chain as well as increasing sales of their members are the main objectives
according to Tavares de Almeida (2008). One of the interviewed experts of APLA
states that
as an entity APLA actually produces nothing. Our idea is to be a link that establishes
contacts to the government. APLA can be understood as a facilitator. We support compa-
nies to find financing or other resources. For example we talk with the ESALQ to create
training courses for biofuel technicians.
172 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

In cooperation with the Brazilian Trade and Investment Promotion Agency

(APEX) and the Ministry of Development, Industry and Foreign Trade (MDIC),
APLA promotes products and services offered by the sugarcane complex in inter-
national markets, and supports the internationalization of the APLA network
members. Together with other institutions, APLA endorses the establishment of a
‘technology park’ in Piracicaba. The expert from APLA points out that
the idea is to establish some laboratories to bring together people from universities and
from the industry and promote the integration of academia and business. In Brazil you do
not have that culture. Here, the government funds the universities. Out of 100 projects that
are created in the universities, 5–6 % reach the industry. So the idea is that the technology
park shows the mutual benefits, one depending on the other. The industry depends on
innovation and research, and the researcher depends on resources. The majority of patents
with regard to technological innovations in Brazil come from multinational companies.

UNICA is the largest business association within the setor sucroenergético and a
very influential consortium of regional organizations that consolidated in 1997. Its
members, mostly usinas, represent more than 60 % of the total sugar and ethanol
production in Brazil. UNICA promotes rather agri-business-friendly policies and
represents the interests of the sugarcane complex within the respective governmen-
tal forums and platforms as well as abroad (Giersdorf 2012). UNICA was in charge
of proposing and signing the agreement with São Paulo state to phase out pre-
harvest burning. Additionally, UNICA has a strong international agenda and
UNICA submitted the comments to US American EPA comprising enough scien-
tifically credible evidence that sugarcane ethanol was declared as ‘advanced bio-
fuel’ by US authorities (Huertas et al. 2010, p.382). As presented previously, the
association promoted the elimination of pre-harvest burning which led to a signif-
icant increase in demand for mechanized harvest machinery. UNICA has also been
one of the initiators of the ‘RenovAção’ project which aims at re-qualifying
sugarcane cutters. Thus, it can be argued that by representing the interests of its
associates, UNICA induced changes in the sugarcane complex that possibly have
overall beneficial effects.
Not only did a local industry cluster of the sugarcane complex evolve as well as
associations that represent the industry on a national and international level, but the
variety of products and possible demands has made the Brazilian setor sucroenergé
tico an interesting area for transnational companies and foreign investments. The
following section analyzes the consolidation and concentration of the industry as
well as tendencies of internationalization.

4.4.4 International Perspective: Concentration

and Internationalization

In this section, the perspective of the institutional level is enlarged and includes a
stronger international angle compared to the rather national perspective in the
previous sections. Though, as will be discussed subsequently, the consolidation
4.4 Actors, Networks and Institutions: The Institutional Level 173

and concentration process of the sugarcane complex still affects mostly Brazilian
companies and usinas, a multitude of mergers and acquisition that have occurred
over the last few years have led to the participation of transnational companies
(TNC) within the originally all-Brazilian industry. To discuss this shift in owner-
ship and property is important because transnational companies follow different
rules and are subject to different logic to regional or national SME and also national
agri-business groups. The identification of the characteristics that such develop-
ments entail and fathoming the implications a trend of concentration and interna-
tionalization has on the aptitude of the sugarcane complex to function as an
innovation system is the objective of the following section.
In the context of innovation and the development of new technologies, transna-
tional companies had their own, sometimes very significant, impact on the sugar-
cane complex already. The expert from APLA remarks on that subject that
people say that the Flex-Fuel Vehicle was born here (Brazil). But actually, DELPHI,
MAGNETI MARELLI and BOSCH did the development and these are American, Italian
and German companies.

4.4.4.1 Concentration of the Sector and of Land Holdings

Globally, the average sizes of farms differ widely. In the 1990s, there was a mean
size of 1.0–1.8 ha in Asia to over 110 ha in South America and around 180 ha in the
US according to Eastwood et al. (2010). Yet the difference between the average
farm size of 32 ha in Europe, 4.9 ha in West Asia and North Africa and 10.7 ha in
Central America is relatively small. All of these farms often rely on family labor
which might imply that agriculture is rather owner-dominated. According to
Deininger and Byerlee (2012), a principal reason is that agriculture allows the
co-existence of various forms of production and has only few technical disecon-
omies of scale.
Yet over the last decades increasing demands for agricultural products due to a
larger population, the shift towards a more meat-based diet and the development of
new industrial products based on agricultural biomass such as biofuels, led to an
expansion of commercially oriented, industrial-scale agri-business and in conse-
quence to a concentration of land as well as a rising cultivation of monocultures. In
many countries with abundant agricultural area, investment into agri-business and
large-scale industrial-sized farming increased within the last years. The expert from
MME considers that the run of things as he states that
a normal development in agriculture comprises the reduction of workers needed in the
fields as the technological innovation intensifies. The tendency of mechanization and other
productive working schemes with reduced manual labor to result in urban migration can be
identified in every country where agriculture becomes rather mechanized.

Economies of scale can be realized in particular with ‘plantation crops’,

according to the World Bank authors Deininger and Byerlee (2012). These crops,
such as sugarcane require swift logistics to avoid deterioration after harvest and
174 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

therefore a close coordination between harvest and follow-up processes. This

makes the usinas center in the cultivation areas and they often run their own
plantations to ensure a base load supply. The authors give three main factors that
are considered to contribute to an increase in farm size. First, new technologies that
standardize production and cultivation processes and their supervision such as GPS-
equipped mechanized harvest. Second, limited availability of manual labor and
high capital requirements for new technologies that substitute labor. Third, increas-
ing demand for certification requiring traceability of agricultural processes and
products (Deininger and Byerlee 2012). Even though, new technologies might be
similarly beneficial to smallholders, they rather reinforce economies of scale as
well as advantages from horizontal or vertical integration.
The size of sugarcane area that is cultivated for a single usina has grown
significantly over the last decade. A greenfield mill that is constructed may have
contracted up to 70,000 ha compared to 20,000 ha 10 years ago. The interviewed
expert from REPÓRTER BRASIL elucidates on the issue of increasing size as she
states that
we have an example in Pernambuco. You had kind of 35 usinas 10 years ago then you had
22 and then you have 17 usinas this year, working right now. The others are broke and other
problems. But the amount of land used by these 17 usinas didn’t decrease, it just increased.
So, we have a concentration, the usinas which are still working, buy the land of the other
usinas.

Although the majority of mills are individually-owned, looking at one of the

bigger companies e.g. RAÍZEN, COPERSUCAR, SAO ~ MARTHINO Group, one
usina is only one of many operating units. The corporation might control hundreds
of thousands of hectares. RAÍZEN, one of the largest companies within the sugar-
cane complex cultivated 860,000 ha in 2012 (Gaspar Oliveira et al. 2013). Increas-
ing cultivation area and processing higher volumes of sugarcane per year with
larger mills reduces the transportation costs from the field, especially with a bulky
and relatively low-value mass product such as sugarcane. According to Deininger
and Byerlee (2012), the increased size and spatial concentration of the cultivation
areas can reduce the total costs up to 20 % by lowering transport costs compared to
smallholder production.
A common practice to acquire more area for sugarcane cultivation is leasing the
land from farmers and smallholders. The increasing demand for area by the usinas
over the last 15 years has led to tremendous price increases in leasing agreements.
According to Novo et al. (2010), the sugarcane complex paid an average of US$
80/ha per year in 1995. By 2008, the rent that was paid had increased to US$ 230/ha
per year. This implies an increasing competition for land, in particular since the
leasing agreements are normally 6-year contracts (for up to five sugarcane har-
vests). The land prices in São Paulo quadrupled between 2000 and 2008 which can
be considered an effect of sugarcane expansion because that has been the only
growing agricultural activity in most of the regions of São Paulo state (Novo
et al. 2010).
4.4 Actors, Networks and Institutions: The Institutional Level 175

When presenting these effects it should be mentioned again that the agricultural
census of 2006 identified around 4.3 million family farmers as opposed to close to
one million people directly and indirectly employed by the sugarcane complex
(La Rovere et al. 2011) which implies that smallholders are by far the largest work
force in Brazilian agriculture. By satisfying growing national, and in particular
international demand for a variety of agricultural produces, the sugarcane complex
and other agri-businesses expansion results in land concentration and concomitant
displacement of smallholders. The following figure illustrates this tendency. Direct
funding by grants and loans to family farming has been increased significantly from
around US$ 910 million in 2003 to US$ 7.3 billion in 2010/2011 by the Brazilian
government. However, compared to approximately US$ 45 billion in often subsi-
dized rural credits for corporate farming during the same period these amounts
seem fairly small, according to de Andrade and Miccolis (2011).
Besides the increasing concentration where 50 % of the production was con-
trolled by approximately 40 companies in 2008 and that figure is expected to result
in six to eight companies within the next 10 years, internationalization of the sector
is a likewise important subject. Although foreign investments traditionally have
been low, projections show that foreign companies are expected to increase the
market share up to 50 % from the current levels of 25 % (de Andrade and Miccolis
2011). This development is discussed below.

4.4.4.2 Internationalization of the Sector

Not only has the concentration of land increased over the last few years, but more
international actors, networks and institutions have entered the setor sucroenergé
tico looking for investment opportunities. Foreign Direct Investments (FDIs) have
mainly come from oil and petroleum companies, international agri-businesses and
finance-related enterprises. These investments, which often involved ‘greenfield’
developments or the takeover of smaller usinas and the expansion of production,
ranged between several US$ millions, invested by medium-sized companies and
US$ billions, spent by TNCs. According to de Andrade and Miccolis (2011), rural
activities with an investment volume of over US$ 45 billion between 2002 and 2008
represented approximately 29 % of all FDIs into Brazil during this period.
During the harvest of 2005/2006, the five largest sugarcane mills were compa-
nies under Brazilian ownership. By 2010, four of the five largest companies within
the sugarcane complex were at least 50 % owned by foreign companies. The
participation of international actors in the sector tripled within 3 years. The
percentage of usinas with the participation of foreign investors, either with minority
or majority shares, increased to 22 % during the 2010/2011 harvest from 7 % in
2007/2008 according to Marcatto et al. (2010). Nowadays, transnational companies
from various regions and countries across the globe operate actively in the Brazilian
sugarcane complex. The mergers and acquisitions accelerated in particular after the
global financial crisis in 2008. Usinas that had high debt burdens due to ambitious
expansion plans or other problems of refinancing were often taken by surprise.
176 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

These mergers and acquisitions were understood as rather safe investments within
the context of the crisis (Riveras 2012).
The setor sucroenergético that was traditionally dominated by families and
private owners, became increasingly controlled by deep-pocketed transnational
companies by means of joint ventures or acquisitions and mergers. Within that
context, the expert from IMFLORA states that
what we see in Brazil is a reorganization of the sector. Mergers lead to the exit of families
and the entry of oil companies.

Oil and petroleum companies like SHELL, BP and PETROBRAS, agri-business

companies of the ‘ABCD’ cartel5 as well as companies specialized in mining and
trading of natural resource such as GLENCORE and NOBLE Group have actively
participated in this conquest as Table 4.13 illustrates, while SÜDZUCKER (May
2014) and NORDZUCKER (April 2014), two of Europe’s biggest sugar producers,
have very recently announced that Brazil represents an interesting market for
acquisitions.
Every transnational corporation mentioned in the above table entered a joint
venture or bought at least one usina to get a piece of the cake, apart from DOW
CHEMICAL and MITSUI who established a joint venture for bio-plastics based on
sugarcane and thereby directly challenged BRASKEM, Brazil’s biggest chemical
company, who opened their bio-plastic plant by the end of 2010 (Scheyder 2011).
COPERSUCAR is the largest trader of sugar and ethanol and the largest exporter
worldwide according to the company website http://www.copersucar.com.br/. This
trading, as well as production company of sugar and ethanol, opposed the trend of
foreign acquisitions and bought US American ECOENERGY in November 2012.
By deciding to diversify into corn-based ethanol, COPERSUCAR secures a con-
stant supply even in cases of harvest losses during years when the Center-South
sugarcane regions face too little or too much rain (Gomes 2012).
Yet some of the joint ventures and acquisitions do not seem to be as profitable as
assumed. By the end of last year, Bunge signaled plans to part from the Brazilian
usinas that generated losses. Bunge reported a quarterly net loss of US$ 137 million
for the sugar unit. Bunge is also estimated to have purchased assets of more than US
$ 2 billion, now owning eight mills in Brazil. Relatively low world market prices for
sugar and caps on Brazilian gasoline prices to mitigate inflation coincided with poor
weather conditions. Bunge would be one of the first transnational companies exiting
the sugarcane complex while BioSev (owned by Louis Dreyfus) sold one of their
usinas to rival SAO ~ MARTINHO Group (Polansek 2013). According to Barros
(2013), only two new ‘greenfield’ usinas were invested in in 2011/2012 and 2012/
2013 as well as three new usinas in 2013/2014. In contrast, 15 usinas closed in
2011/2012 and 12 each in 2012/2013 and 2013/2014.

5
Globally, the four largest traders of and investors in agricultural commodities are Archer Daniels
Midland (ADM), Bunge, Cargill (all three US American based companies) and Louis Dreyfus
(French). Collectively, they are known as the ‘ABCD’ cartel or traders and control, for instance, as
much as 90 % of the global grain trade, according to Murphy et al. (2012).
4.4 Actors, Networks and Institutions: The Institutional Level 177

Table 4.13 Joint Ventures, M&A in the Brazilian sugarcane complex (2009–2012)
Country of
Year Companies involved origin Type of acquisition/cooperation
Oct Louis Dreyfus France Dreyfus takes over Santelisa Vale to create
2009 Santelisa Vale Brazil the world’s second largest sugarcane pro-
cessor for US$ 460 million. Company
name: BioSev.
Dec Bunge USA Bunge buys Brazilian sugar and ethanol
2009 Moema Brazil producer Moema for US$ 452 million.
Feb Shree Renuka Sugars India India’s biggest sugar refinery signs 51 %
2010 EquipavAcucar e Alcool Brazil stake in Equipav for US$ 389 million.
June Açúcar Guarani France Açúcar Guarani (owned by French Tereos)
2010 ‘Usina’ Mandu Brazil buys the Mandu mill in SP state for US$
188 million
June Shell Netherlands A 50:50 Joint Venture (RAÍZEN) between
2010 Cosan Brazil Shell and Cosan assumed value of US$12
RAÍZEN billion. Companies Iogen and Codexis are
part of the deal.
Dec Noble Group Cerradinho Hong Kong Noble Groups pays US$ 950 million,
2010 Acucar, Etanol & Energia Brazil including debt, for two sugar mills and
SA increases sugar production by 81 %.
Dec Glencore Rio Switzerland Commodities trader Glencore buys a 70 %
2010 Vermelho Brazil stake in the ethanol plant. First investment
ever in the sugarcane complex.
Jan Cosan Brazil Cosan purchases Brazilian mill Zanin for
2011 Zanin US$ 224.7 million including cash and debt.
April ADM USA ADM buys the remaining 51 % stake in the
2011 Limeira do Oeste Brazil Limeira do Oeste ethanol mills.
June Cargill USA Joint Venture (JV) to operate in sugar, eth-
2011 Usina São João Brazil anol and bioelectricity. The JV will include
a cane mill and a second one being built.
Cargill entered sugarcane sector in 2006
buying Cevasa Group.
July Dow Chemicals USA Mitsui will buy a 50 % stake in Dow’s
2011 Mitsui Japan Brazilian sugarcane operations. Joint Ven-
ture to turn sugarcane into ethanol and
plastic.
Aug Petrobras Brazil Both companies announce a US$ 328 mil-
2011 São Martinho Group lion investment that will quadruple ethanol
output at their joint Boa Vista mill.
Sep BP United BP increases its share in biofuel company
2011 Tropical BioEnergia Kingdom Tropical BioEnergia S.A. to 100 %.
Brazil Acquired from JV partners (Maeda S.A. and
BioSev) for a total of approximately US$
71 million.
Nov Copersucar Brazil Copersucar SA takes control of US-based
2012 EcoEnergy USA Eco-Energy and becomes the world’s larg-
est ethanol trader with a 12 % global market
share.
(continued)
178 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.13 (continued)

Country of
Year Companies involved origin Type of acquisition/cooperation
Dec BP United BP invests US$ 350 million to double
2012 Tropical BioEnergia Kingdom capacity of the Tropical BioEnergia project
Brazil while other producers hold off investments.
A new mill and 35,000 ha will be developed.
Own composition based on information of the URLs provided as Hyperlinks

4.4.4.3 The Rationale Behind the Foreign Investments

and the Consequences

Having illustrated the variety of investments by transnational corporations into the

sugarcane complex and even the first considerations for exiting this industry again,
the rationale behind the acquisitions and mergers should also be made clear. The
benefits and advantages for foreign investors and domestic companies joining
forces are evaluated in the following. Possible negative impacts and risks will
likewise be discussed.
One driver for foreign investment into the agricultural sector in Brazil is
considered to be the exemption of FDI from income tax. National and foreign
capital invested in Brazil is granted the same legal status while the profits earned by
foreign residents are tax exempt. Yet capital gains even for foreigners are taxed at
15 % (de Andrade and Miccolis 2011). Another driver could be the development of
profitable second generation technologies. As discussed in Sect. 4.4.1.3, Moreira
et al. (2014) project a higher ROI for both ethanol scenarios compared to the
Pré-Sal scenarios, as long as lower tax rates are maintained. This might imply
that the future reduction of easily accessible fossil oil will increase the likelihood of
investments into alternative energy carriers.
A primary motive for FDIs into Brazilian agriculture and the acquisition of
domestic companies is securing the supply of natural resources. As discussed in
previous sections, the technological development is expected to result in an increas-
ing range of products that can be processed out of renewable biomass aside from
food and feed products (de Almeida Souza 2013). The prospective demand for such
products that promise similar characteristics to petro-chemical based ones in
combination with a possible mitigation of GHG emissions is very likely to sharply
increase.
One of the experts from ESALQ considers the motivation for mergers, joint
ventures and cooperation. He remarks within that context that
I hope that this will be the future (bio-refineries, bio-plastics and other uses for ethanol) and
that ethanol will continue to play a role in this transition to a more efficient energy system
[. . .]. I hope as the attention moves to Brazil, the international players, and especially
German biotechnology, which come here to have cheap access to feedstock, because this is
where feedstock might be the cheapest in the world and therefore—they cannot transport
feedstock large distances, and therefore the facilities need to be closer, so this is why. We
have knowledge of some elements of the chain. But the knowledge [. . .] of value-adding is
still not in our hands.
4.4 Actors, Networks and Institutions: The Institutional Level 179

The setor sucroenergético is seen as a more fertile ground for innovations and
technological developments than comparable agricultural sectors elsewhere
(Gomes 2012). At the same time transnational companies are mostly endowed
with larger resources for R&D than Brazilian companies and their knowledge
base is extensive. Thus, investments into the Brazilian sugarcane complex often
promise mutual benefits for the Brazilian as well as the foreign part of the acqui-
sition or joint venture.
Almeida and Machado Filho (2013) analyze the joint venture between SHELL
and COSAN and the benefits for RAÍZEN, the joint company. According to their
analysis, the primary motives are a broader access to ethanol markets in Brazil and
abroad, economies of scale from the integrated structure and knowledge and
technology transfer. In particular, a joint R&D department seems promising,
building a unique platform for the development of second generation biofuel
technologies and related innovations (Almeida and Machado Filho 2013). Further-
more, the cooperation of SHELL with IOGEN, a developer of second generation
cellulosic technology and enzymes has been part of the joint venture deal and
RAÍZEN is supposed to apply IOGEN technology in the second generation pro-
duction plants that are being constructed. The SHELL-COSAN joint venture has
been the largest and most prominent of its kind and therefore has been most
thoroughly analyzed; regarding the acquisitions and mergers listed in Table 4.13
it is considered exemplary. Although the reasons are not likely to be identical for
each merger and acquisition, similar motives are assumed considering that there is a
common ground of interest for the participating actors. The access to biomass,
technologies and Know-how as well as domestic and international markets are
understood as the primary motives for the multitude of mergers and acquisitions
that could be observed, especially between 2009 and 2012.
In a study on the role of BRIC countries in global innovation, Wang and Li-Ying
(2013) compare patents granted by the US Patent and Trademark Office (USPTO).
Part of their findings implies that most technological innovations in BRIC countries
are owned by foreign companies and that there are constraints to access the global
knowledge base, especially for Brazil and Russia (Wang and Li-Ying 2013).
Furthermore, they assume that the BRIC countries employ foreign inventors to
make influential global innovations which they are otherwise unlikely to create
because of lack of capital, knowledge or other resources.
Within that context, the expert from CTC stated during an informal conversation
at a workshop that was organized in cooperation with the ESALQ in 2012 that the
institute searches for international cooperation partners with regard to development
of transgenic sugarcane and second generation technology because the CTC has a
backlog of 2 years compared to the most modern laboratories and research facilities
in the US or in Europe. Table 4.14 shows the number of patents registered at the
USPTO between 1997 and 2012. The number of patents originating in Brazil more
than tripled between 1997 and 2012. Yet China is the only emerging country that
has significantly increased the number of registration of patents at the USPTO over
the last 15 years and comes closer into the range of highly industrialized countries
e.g. Germany, Japan and the US.
180 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.14 Number of patents granted by USPTO by year of patent grant (1997–2012)
Country 1997 2000 2003 2006 2009 2012
Argentina 35 54 63 38 45 63
Brazil 62 98 130 121 103 196
China 62 119 297 661 1,655 4,637
Germany 7,008 10,235 11,444 10,005 9,000 13,835
Japan 23,179 31,295 35,515 36,807 35,501 50,677
Mexico 45 76 85 66 60 122
Russia 111 183 203 172 196 331
USA 61,708 85,068 87,893 89,823 82,382 121,026
Based on data from www.uspto.gov

Within the discussion on the capabilities of innovating and developing new

technologies, patents only represent a minimal fraction of the innovation effort
according to Santos et al. (2014). Inventors and companies must overcome the
scrutiny of the patent office as well as the analysis of the economic feasibility of a
given patent. Furthermore, patents can only represent the process/product level of
innovation systems while the institutional level is most likely neglected. The Global
Innovation Index (GII) which is generated on an annual basis and ranks the most
innovative countries relies on two indices (innovation output and innovation input
index) which are based on a total of 84 indicators. The highest ranked Latin
American country in the GII of 2013 is Chile, ranked as number 46 (see
Table A.4 in the annex for an overview). Brazil ranks 64th place, six places down
from the 58th it was ranked in 2012. Argentina gained 14 places (from 70th in 2012)
while Mexico was 79th in 2012 and improved to 63rd place (Cornell University,
INSEAD, WIPO 2013).
The dramatic difference of registered patents between countries as well as the
explicit ranking by the GII support the argument that the sugarcane complex needs
foreign input in the form of financial investments and knowledge transfers to foster
innovation and technological developments, while the transnational companies
obtain access to markets and specific knowledge by acquisition of more nationally
oriented companies.
Another aspect which is considered beneficial among some of the interviewed
experts is the fact that the joint ventures, mergers and acquisitions are accompanied
by the reduction in family-run businesses. The interviewed expert from
CANAVIALIS states that
in the long run a professionalization of the companies and usinas of which several are still
administered by families might resolve problems of social responsibility.

The expert from CASA CIVIL also refers to that argument as he states that
the government finds it a bit difficult to understand that the sector is not dominated by
family businesses as 10 years ago but by entrepreneurs. Companies with a large investment
portfolio that only invest into the sugarcane complex when it promises to be more profitable
than other possibilities.
4.4 Actors, Networks and Institutions: The Institutional Level 181

According to The Economist (2014), a meta-study confirms conventional

wisdom by stating that the best-managed companies are US American followed
by places like Germany and Japan. Furthermore, transnational companies have the
highest management scores while public-sector institutions and family-run compa-
nies have the lowest score.
However, the concentration and internationalization of the sugarcane complex
likewise produces some rather negative impacts. The Brazilian government and
society in general might not profit from innovations helping to boost taxable
revenue by transnational companies since they are likely to pay taxes elsewhere.
Joint ventures and mergers do not necessarily result in shared knowledge and the
expansion of the knowledge base, especially when innovations and technological
developments take place in the laboratories and headquarters abroad. As indicated
in the expert statement from CASA CIVIL, transnational companies move their
interests and their investments elsewhere when business opportunities decrease.
This happened during the crisis of the sugarcane complex when needed investments
were lacking as discussed in Sect. 4.2.3.3. As a consequence, the Brazilian gov-
ernment tried to attract new investments by offering large credit volumes and loans
at reduced interest rates such as the PAISS and PRORENOVA programs by
BNDES to the sugarcane complex and agri-businesses, presented in Sect. 4.4.2.
Another argument often brought to the fore is the sell-out of Brazil’s natural
resources as agricultural area and soil to foreign parties. Mergers and acquisition
tend to result in the concentration of the cultivation area. Small and less capitalized
farmers cannot compete against large conglomerates and international companies
and the rising prices for land. So they are likely to end up selling or leasing their
lands (Verı́ssimo and Caixeta Andrade 2012). On the contrary, Deininger and
Byerlee (2012) state that cultivation of agricultural crops is flexible and can be
operational and competitive not only with large-scale agri-businesses but also with
smaller farm sizes. A possible instrument that might be able to incentivize the
participation of smaller farmers and companies as well as providing environmental,
economic and even social benefits might be the international certification of
biofuels.

4.4.5 International Perspective: Certification

As elaborated upon previously, an increase in production of sugarcane and an

expansion of cultivation area in Brazil is likely and projected by the majority of
the experts and the research presented. However, large monocultural cultivation
and industrial production processes have a variety of negative environmental and
social impacts. Deforestation, rising food prices, depletion of resources and loss of
biodiversity, among other things, are expected to be concomitant consequences.
One instrument for avoiding these impacts is considered to be certification. Initially
an instrument for quality control, certification of products, processes and institu-
tions has become a mechanism applied universally. According to Pavanan
182 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

et al. (2013), certification is an evaluation process that assesses the quality of data
(information on a product, process etc.) in relation to a pre-determined set of
standards by an independent third party. Generally, these standards or criteria
have to be adhered to in order to be certified.
During the last decades, certification of forestry and agricultural products has
been imposed more and more frequently, in particular in the food as well as the
forest and timber sector. Based on stipulated principles and criteria, a multitude of
certification schemes has been developed for biomass and biofuels over the last
years. These schemes were either based on governmental requirements or private
sector decisions, either with a mandatory or a more voluntary character. Content,
complexity and area of application differ quite substantially between the various
schemes (Goovaerts et al. 2013). Yet most biomass/biofuel certification systems are
referred to as schemes that evaluate and monitor the adherence to sustainability
criteria.
Within the context of innovation systems, certification can be considered as a
demand-pull mechanism. When the volumes of a product that requires certification
are substantial, as for example possible biofuel imports into the European Union,
the schemes might incentivize technologies that improve the ecological, economic
or social impacts of biofuel production and thereby induce innovation. In the
following the rationale and motives that have led to the introduction of biofuel
certification schemes are described as well as the role that governments and private
actors have played. Certification schemes with different characteristics and require-
ments are compared and evaluated. Criteria of high importance such as Land-Use
Change (LUC) and indirect Land-Use Change (iLUC) are explained as well as
shortcomings and open questions of biofuel certification discussed.

4.4.5.1 The Rationale of Certification

The motives for the establishment of certification schemes depended largely on the
products and the intention as to how the product should be employed. This might be
explained with an analogy of the famous ‘Michelin Star’ for gourmet restaurants
and the MOT (Motor Ordinance Test, the test of roadworthiness of a vehicle,
corresponds to the German TÜV-tag) for a car. The former is considered an
award for excellence. This product is expected to fulfill certain criteria
e.g. superior quality, time and effort of preparation that distinguishes the ‘Michelin’
product from others and which justifies the premium price paid. The latter is a
legally required examination which checks the basic but vital functions of a product
in order to make sure that the product is safe for everyday application. No car is
allowed on the street without the MOT certificate.
The expert from IMAFLORA likewise considers this distinction. He states that
there are two approaches to certification. The first is the ‘certification of do-nots’ which
implies a certification that guarantees the absence of bad things like deforestation, slave
work, child work, ban of the most aggressive agricultural toxins. This stands in contrast to
4.4 Actors, Networks and Institutions: The Institutional Level 183

the certifications—and IMAFLORA tries to work with those kinds—that actively try to
promote improvements and contributes to quality of life and to the well-being of people.

The expert from REPÓRTER BRASIL argues that

you have the environmental laws and you have the labor laws. [. . .] If they are paying three
sal
arios mı́nimos for the workers and not using the pagamento por produção (piece-work)
anymore, ok, we can think of certifying this guy because they are trying to do something.
[. . .] And if you are obeying the law you shouldn’t be certified, no, of course not. If you do
something more than requested by the law, if you have Reserva Legal bigger than you
should have, ok, you can think about it.

The concept of the ‘Michelin Star’ of certification originates more from the food
sector but is also frequently applied within the industrial sector, certifying both
products and processes. Sugar, for instance, was asked to be certified by transna-
tional companies realizing that the end consumer wanted certainty regarding the
product quality. Furthermore, campaigns by NGOs on COCA COLA, NESTLÉ and
UNILEVER for example, resulted in bans of agricultural products of questionable
origin. According to Edwards and Laurance (2012), the threat of purchasing
boycotts exercised enough pressure on primary producers within the tropics to
encourage the adoption of so-called sustainable production policies. Offering
premium quality products, protecting their reputation, avoiding boycott campaigns
and reacting to pressure from NGOs and other social groups on regional, national
and international levels have been the main objectives of the private sector in
demanding certification of both food and industrial products.
The mandatory certification of biofuels as an MOT-style certification was
demanded by governments such as Germany’s, in order to justify the promotion
of biofuels. In 2007, when detailed research and the respective findings highlighted
adverse effects of the allegedly clean energy carrier, official bodies and public
opinion became resentful towards biofuel subsidies as Kaup and Selbmann (2013)
elucidate. Thus, the establishment and implementation of certification schemes
intended to provide tax benefits and blending quotas only to those biofuels that
fulfilled a variety of criteria, thereby trying to avoid negative environmental and
social impacts caused by the production of biomass destined for biofuel production.
Setting thresholds for minimum reductions of GHG emissions and minimizing
thinks like deforestation and competition with food products are requirements of
most certification schemes (Gamborg et al. 2014). Yet the sustainability and
therefore the worthiness of promotion of biofuels as well as the functionality of
certification schemes is still the subject of a heated public, political and academic
debate, in particular in Europe.
The motives for the establishment of certification schemes are similar, though
coming from different product and stakeholder groups. Both private companies and
governments perceive certification as an instrument to legitimize past and future
actions with regard to agricultural products for themselves and for the public. Since
most of the usinas in Brazil produce sugar and ethanol within the same facility, the
sugarcane complex favors the certification of sugarcane as a raw material, and so
later on allows sugarcane to be input as a material for any type of product (e.g. sugar
184 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

or ethanol) according to Huertas et al. (2010). The authors state that certification of
biofuels with regard to sustainability criteria is regarded an essential instrument for
the future expansion of sugarcane in Brazil. Yet a stakeholder-wide acceptance of
the environmental, economic and social criteria is considered a pre-requisite.
Some of the interviewees and other experts consider the requirement of being
certified in order to import biofuels into the European Union as Non-Tariffs
Barriers (NTB) that are established to protect the inferior European products from
international competition and markets. The expert from SANTAL remarks that
I think these (certification schemes) are protectionist policies. There are lobby groups
interested in protection from competition, because no country that produces sugar and
alcohol cheaper than Brazil exists.

In 2008, Brazil, Argentina and Colombia, together with some countries from
Africa and Asia, filed a complaint at the World Trade Organization (WTO) that
failed. According to Kahl (2008), the different categorization of biofuels regarding
cultivation and processing methods and thus the distinction between ‘clean’ and
‘dirty’ biofuels is legitimate even under WTO law.
These countries asked the EU not to adopt legislation that would force other
nations to designate areas within their territory on which crops for biofuel produc-
tion could be cultivated or not. Furthermore, to require the adherence to pre-
determined social standards constitutes an intervention into national sovereignty.
Though some industry stakeholders in exporting countries consider this European
certification initiative as ‘green protectionism’ according to Janssen and Rutz
(2011), who argue that an universal scheme for sustainability certification would
result in mutual benefits for Europe and the exporting countries. The acceptance for
biofuels could be increased in Europe while negative environmental and social
impacts would likely be mitigated or avoided in the exporting countries. The expert
from CASA CIVIL states that
it is obviously a necessity to increase the control over production in more economic
activities in order to conduct them in a more sustainable manner, consequently to enable
future generation a minimum of a decent life. Yet the big problem is to establish the balance
between the ideal and the possible.

4.4.5.2 Governmental and Private Certification Initiatives

Having explained the different motives and rationales behind certification, the basis
for the various certification schemes, initiated by government, private companies,
academia or NGOs is described below. The majority of certification criteria and the
demand for those standards come from the industrialized countries.
Over the last decades, the European Union and some of its member countries
have tried to position themselves as role models in combating climate change.
Renewable energies have been one of the main pillars within the strategy of
reducing GHG emissions. Biomass-based energy thereby was, and still is, consid-
ered to play a crucial part since the solid and liquid form qualifies biomass for the
4.4 Actors, Networks and Institutions: The Institutional Level 185

substitution of fossil energies apart from electricity and heat. Yet the unexpected
extent and speed of expanding biomass-based energy carriers resulted in serious
concerns on the ecological, economic and social impacts of bioenergies. In 2009,
the EU introduced the Renewable Energy Directive (RED) that stipulated a 20 %
mandatory target of energy production from renewable resources by 2020 and a
mandatory 10 % minimum target for the share of biofuels in transport petrol and
diesel consumption to be achieved by all Member States (European Union 2009a).
Table 4.15 presents the mandatory sustainability criteria for liquid biofuels as
listed in the Directive that had to be complied with in order to be eligible for being
counted as part of the substitution target. Currently, there are 15 certification
schemes registered with the European Commission (last amended January 2014)
according to their website. Though these schemes are voluntary because the
selection of a scheme depends on the preferences, compliance with the required
sustainability criteria is mandatory (Goh et al. 2013) which corresponds to the MOT
not the ‘Michelin Star’ approach.
The criteria listed above remained quite general but were further specified in the
German ordinances (the national implementation laws) on sustainable production
of bioliquids for electricity and sustainable biofuel production (Lieberz 2011). To
Brazilian ethanol the required minimum GHG savings of 35–60 % do not pose any
problems. However, the EU-directive prohibits the production of biofuels from land
with high biodiversity value and assigns ‘highly biodiverse grassland’ to this
category. According to Zezza (2012) this classification has been conceived as
very controversial by the Brazilian authorities. Some of the major expansion
areas of sugarcane are considered to be on grasslands such as the ‘Cerrado’.6 The
EU legislation referred to the Convention for Biological Diversity (CBD) when the
high biodiverse land was classified. Yet the Brazilian authorities demand the
recognition by the EU of national initiatives that have been developed with the
intention of protecting biodiversity such as the Brazilian agro-ecological zoning
(ZAE). Social sustainability criteria are not stipulated in the EU regulation (Zezza
2012).
The legislation on bioenergy certification is considered to be among the strictest
worldwide and as mentioned above, is subject to debates whether this directive had
the intention to protect the European biofuel industry which is heavily subsidized.
According to Goh et al. (2013), this criticism is partially legitimate, considering that
besides the reduction of GHG emissions, domestic rural development has been one
of the main objectives.
Referring to the analogy once more, the European RED can be referred to as an
MOT. No premiums for the adherence to the required criteria are paid. But in 2011,
the EU introduced the so-called ‘double-counting’ mechanism that is applied to
biofuels produced from residues such as used-cooking oil, non-food cellulosic

6
The ‘Cerrado’ is a vast savanna ecoregion and Brazil’s second largest biome after the Amazon
rain forest. The ‘Cerrado’ accounts for more than 20 % of the country’s area and can be found
particularly within the Center-West and South-West regions of Brazil.
186 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Table 4.15 Sustainability criteria for biofuels in the EU-Renewable Energy Directive (2009)
Sustainability criteria Details
GHG reduction  Minimum GHG saving of 35 %
 GHG saving of 50 % in 2017
 GHG saving of 60 % in 2018 (for new
installations in 2018)
(Installations that went into production prior
to Jan. 23rd, 2008 only have to apply this
reduction starting in April 2012)
Biofuels and bioliquids shall not be made from Land that had following statuses in or after
raw material obtained from land with high January 2008:
biodiversity value  Primary forest
 Wooded land
 Areas under nature conservation and pro-
tection
 Highly biodiverse grassland
Biofuels and bioliquids shall not be made from Land that had following statuses in or after
raw material obtained from land with high January 2008:
carbon stock  Wetland
 Continuously forested area
Biofuels and bioliquids shall not be made from Production of raw material is prohibited unless
raw material obtained from land that was evidence is provided that the cultivation and
peatland in January 2008 harvesting does not involve drainage of pre-
viously undrained soil.
Based on information from European Union (2009); Lieberz (2011)

material and lignocellulosic material. Biofuels derived from these materials are
counted double on the annual blending obligation of renewable transport fuels as
stipulated in the RED (Goh et al. 2013) which endows the biofuels with premium
criteria similar to a ‘Michelin Star’. If, in theory, 5 % of the total European fuel
(diesel and gasoline) were substituted by the equivalent of biofuels eligible for
double-counting, the required 10 % target for 2020 would be reached. This mech-
anism provides a huge market for advanced or second generation biofuels such as
cellulosic ethanol produced out of cane trash or bagasse and additionally incentiv-
izes technological development and innovation.
In 2010, Brazil started an official initiative to develop a certification scheme on
its own. It was carried out by the National Institute of Metrology, Quality and
Technology (INMETRO) which provides not only criteria referring to social and
environmental conditions but included quality aspects such as physical or chemical
characteristics as well according to Huertas et al. (2010). One of the interviewed
experts from UNICA states, referring to this initiative, that
we have the Brazilian government initiative, which at some point was quite interesting, but
then became so bureaucratic, and I think no one wants another bureaucracy.

Yet after an international project within the seventh framework program of the
EU, the activities came to naught.
4.4 Actors, Networks and Institutions: The Institutional Level 187

Another approach to certification has been the SEKAP initiative. The Swedish
ethanol importer SEKAP, together with a group of ethanol producers in Brazil
e.g. COSAN, established this bilateral, voluntary business-to-business initiative for
verified sugarcane ethanol. The compliance with basic sustainability criteria was
physically verified as a consequence to market demands (Huertas et al. 2010).
Today, the SEKAP complies with seven EU-approved certification schemes
according to its website http://www.sekab.com/ sustainability/what-weve-done/ver
ified-sustainable-ethanol. Another initiative is the ‘ETANOL VERDE’, the Green
Ethanol Program, with the intention to reduce detrimental environmental and social
impacts, similar to a regional certification scheme. According to Lehtonen (2010),
the program has been a strategic project of the São Paulo Ministry of Environment
with the objective of rewarding good practices in the sugarcane complex. The
usinas are required to adhere to mostly environmental criteria in order to obtain
the ‘Agro-Environmental Certificate of Conformity’ which 145 out of 177 usinas in
São Paulo received. Yet those criteria only vaguely include a reference to ‘good
practice’. Nevertheless, the approach shows similarities to the ‘Michelin Star’
concept.
Within the context of certification, the agro-ecological zoning for sugarcane
(ZAE) might provide helpful information for the certification schemes to evaluate
the typology of cultivation area, e.g. grasslands, pasture, etc. Yet as long as the ZAE
does not enforce misdemeanor such as expansion onto indigenous territory and
designates highly biodiverse land as areas that show suitability for sugarcane
cultivation, it cannot be considered a valid instrument for most European and
international certification schemes. Zezza (2012) argues that with regard to sus-
tainability and certification, the Brazilian sugarcane complex has devoted much
effort to be perceived as an industry that is concerned with issues of sustainability.
For example, UNICA published several sustainability reports referring to the
Global Reporting Initiative (GRI), a non-profit organization (www.
globalreporting.org) and half of the usinas associated with UNICA produce
followed suit in order to demonstrate the importance of sustainability for the
sugarcane complex and its ability to comply with the required criteria (Zezza 2012).
So far, the US has not developed governmental certification schemes for
biofuels. Yet there exist emission and fuel standards that require the blending of
ethanol and gasoline. In 2012, the California Air Resources Board (ARB), affiliated
with the California Environmental Protection Agency, issued the amended Low
Emission Vehicle Program (LEV III) with stricter standards for GHG emission and
pollutants for new passenger vehicles according to the ARB website (http://www.
arb.ca.gov/msprog/levprog/levprog.htm). Additionally, the U.S. Environmental
Protection Agency (EPA) sets new vehicle emission and fuel standards (TIER 3)
that are harmonized with the LEV III and will start in 2017. Furthermore, the
Renewable Fuel Standard (RFS) that is considered the first renewable fuel volume
mandate in the US has an important impact on Brazilian sugarcane. The RFS was
expanded under the Energy Independence and Security Act (EISA) and demands a
188 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

volume of 21 billion gallons (78 billion liter) provided by advanced biofuels in

2022 for which Brazilian sugarcane would be eligible (United States Government
2007).
The US biofuel strategy split the domestic market into a first generation biofuel
market and another one for advanced biofuels in order to incentivize biofuels with
less detrimental impacts. The idea of double-counting within the EU can be
considered a similar instrument. For Brazilian producers it is therefore viable to
export even first generation ethanol to the US because a price premium is paid by
the market as if it were an advanced biofuels (Goh et al. 2013).
Apart from the governmental fuel standards, certification schemes and other
initiatives that were established in the three most important biofuel markets world-
wide, there are international private initiatives that are acknowledged and some of
them even registered as certification schemes within the EU legislation. Among the
largest and widely known initiatives that are often self-regulated with at least one
sustainability or responsibility council are: the Roundtable for Sustainable Palm Oil
(RSPO), the Round-table for Responsible Soy (RTRS), the Better Sugar Cane
Initiative (BSI), the Forest Stewardship Council (FSC) and the Roundtable on
Sustainable Biomaterials (RSB). The majority of these initiatives are multi-
stakeholder approaches, whereas some have a stronger vicinity to the industry
(RSPO, RTRS, BSI) and others are rather close to academia and NGOs (RSB,
FSC).
On the global level the Global Bioenergy Partnership (GBEP) was initiated by
the Commission on Sustainable Development (CSD) of the UN with the purpose of
developing effective policy frameworks and suggesting rules and instruments to
promote sustainable biomass and bioenergy development with a focus on develop-
ing countries. According to the website (http://www.globalbioenergy.org/), GBEP
is, among other things, supposed to facilitate international cooperation, promote the
transformation of biomass use towards more sustainable practices and act as a
cross-cutting initiative. Harmonized standards and common methodological frame-
works are to be provided to members and interested parties. Furthermore, the
International Organization for Standardization (ISO) is currently developing sus-
tainability criteria for bioenergy (ISO/PC 248). So far, 36 countries are participat-
ing with the target publication date of April 2015.
The variety of certification schemes and their different objectives result in a
situation where the ecological and social benefits of certification are diluted in the
abundance of criteria, participating institutions and obscurity of enforcement. The
attempt to harmonize sustainability criteria within certification schemes might fail
due to the diversity of input material and different production processes for biofuels
and might in the end not be very desirable anyway. Of the presented criteria, the EU
RED criteria seem to be the most detailed and comprehensible ones and, because of
the MOT concept the most applied ones, while the US approach is considered to
4.4 Actors, Networks and Institutions: The Institutional Level 189

result in the desired outcome of providing premiums to biofuels with a comparably

lower environmental impact.

4.4.5.3 Price Premiums for Certification

With the introduction of the Renewable Energy Directive (RED) in Europe and the
concomitant formulation of sustainability requirements for biofuels, the biofuel
industry faced additional costs. Higher costs for certified biofuels result from direct
and indirect costs. The former are certification fees, information costs, changes to
management systems and audit fees, while the latter are internal adaptation costs
such as more efficient equipment, improved agricultural practices—e.g. mechani-
zation, pesticide reduction and better controls—according to Pacini et al. (2013).
Generally, the costs of certification are difficult to estimate since they differ
decisively from case to case, depending among other things on investments for
modern equipment.
Companies that require their products to be certified in order to sell them in the
European markets, both in developed and developing countries, are affected.
Initially, it was expected that price premiums would be paid for certified biofuels
and that these premiums would function as incentives to improve the ecological and
social performance of the respective biofuels. The introduction of certification was
likewise understood as an opportunity for developing and emerging countries. The
price premiums were hereby considered essential for producers that sought to
export into the EU because they supported the argument of additional investments
and costs as long as additional profits were to be realized. But van Dam et al. (2010)
state that the costs for certification are lower when larger biofuel volumes are
certified, which may result in a preference for large-scale producers and trading
companies. To guarantee the traceability along the supply chain (the so-called
Chain of Custody) is costly, in particular at the start of the chain. This might impede
smaller farmers from participating in the production of certified biofuels (Pacini
et al. 2013).
Considering the price premiums that were realized between Brazil, the EU and
the US, the expectations were not met, in particular regarding ethanol exports to
Europe because of the MOT concept. The strategy of the US, however, to create a
market for advanced biofuels on top of the market for traditional bioethanol, as well
as the strict Californian legislation on GHG emissions, seems to have led to
premiums paid for sugarcane ethanol. This prospective volume of more than
70 billion liters of advanced biofuel by 2022 has been a major driver for the
emergence of a price premium of about US$ 0.20 per liter. The US approach
does not attempt to directly regulate environmental and social sustainability aspects
of biofuel production as the certification systems but assumes that by promoting
advanced technologies and innovations negative impacts of biofuels are reduced
(Pacini et al. 2013). In the EU, price premiums were paid for certified ethanol only
for a short time. Even then, the premiums were rather marginal, being only 0.46 %
over conventional ethanol in average, increased up to 3.93 % in 2011 and
190 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

afterwards practically stopped. Premiums for biodiesel, on the contrary, have been
relatively stable since the beginning of 2012 with an average premium of 3.42 %,
according to Pacini et al. (2013).
Looking at the overall trade flows between Brazil, the EU and the US, ethanol
exports from Brazil to the US obtained average price premiums of 13.6 % between
2008 and 2012, taking freight and insurance costs into account. During the same
period, the price premiums paid for Brazilian sugarcane ethanol within the EU,
amounted to 2.8 % (Pacini et al. 2013). The introduction of double-counting
mechanisms and the possibility of a 5 % cap for conventional, first generation
biofuels in the EU, is expected to increase the prospective demand for second
generation and advanced biofuels significantly and therefore the requirement of
such distinctive characteristics might again result in price premiums for sugarcane
ethanol.

4.4.5.4 Different Certification Schemes

As described previously, the schemes do not only differ regarding the stakeholder
involvement but as well with reference to the functionality, regional applicability
and the scope of criteria. Some systems, created by industry associations and other
commercial entities have a rather lean approach and only include the criteria that
are required by law. Others try to incorporate more extensive ecologic analyses and
sometimes even social aspects, having established stricter certification schemes
based on NGO and multilateral stakeholder participation.
In the following section, some operational differences between the certification
schemes are elaborated upon in order to provide an idea of the different strictness
and demands. In case of certification for the EU, proof for cultivation and
processing methods must be provided, a traceability of the volumes to be certified.
The entirety of operators of the supply chain that need valid certificates to prove the
fulfillment of the required criteria depends on the certification scheme. Typically,
land-management and Chain of Custody (COC) standards are included in a scheme
according to Goovaerts et al. (2013). The land management or product standard
includes management rules, cultivation practices, e.g. the use of water and pesti-
cides and in some cases employment or similar social regulations. The COC system
is a temporal chronological documentation either by a physical or electronic paper
trail that provides information on the purchase, control and transfer of the product.
Physical segregation (or track and trace), mass-balance systems, or book and
claim systems are the most common types of traceability methods applied
(Goovaerts et al. 2013). Segregation is the most complicated and costly system,
physically separating non-certified from certified products. Mass-balance systems
separate non-certified and certified products administratively which implies that the
product can be mixed while the percentage of certified and non-certified material
must be known and communicated to the customer. Least demanding is the book
and claim system. The trade flows of the physical products are completely inde-
pendent from the trade of the certificates. Only the farmer and the producer are
Table 4.16 Selection of most important regional and global biofuel certification schemes
Certification scheme Bonsucro GBEP ISCC NTA 8080 RED Cert RSB RSPO RTRS
Operational since 2010 2007 2010 2011 2010 2011 2007 2010
Feedstock Sugarcane Biomass Biomass Biomass EU-28 biomass Biomass Palm Oil Soy
Geographic focus Sugarcane regions Global Global Global EU-28 Global Palm Oil regions Soy region
RED applicant + – + + + + + +
Chain of custody
Segregation – – + + – – +
Mass balance – – + + + – +
Book & claim – – – + + – +
Sustainability criteria
Biodiversity + + + + + + – +
GHG reduction + + + + + + + +
4.4 Actors, Networks and Institutions: The Institutional Level

Other environmental + + + + – + + +
Social aspects + + + + – + + +
Land-use change + + + + – + + +
Indirect land-use change – – – – – – – –
Based on information from Scarlat and Dallemand (2011); NL Agency (2011)
191
192 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

certified. Each commodity, e.g. bioethanol, vegetable oil and biodiesel, is certified
separately (Goovaerts et al. 2013).
Table 4.16 presents the most important certification schemes mostly developed
after the EU-RED was stipulated. Some of the schemes only focus on one single
biomass, e.g. Bonsucro, the Roundtable on Sustainable Palm Oil (RSPO) or the
Round Table on Responsible Soy (RTRS) while most of the initiatives offer
certification on all biomass. The RED Cert scheme is exclusively focused on the
EU-28 and therefore does not consider social aspects but fulfills the EU agricultural
cross-compliance requirements. Apart from GBEP which can be considered more
as a meta-system and offers instruments to improve common methodologies, all
other certification schemes are recognized with the European Commission.
The aspect of Land-Use Change is addressed in most of the certification
schemes. It refers to the direct displacement effects caused by the analyzed biofuel
products. When sugarcane is cultivated on areas that have been cleared of forest
immediately prior to the sugarcane cultivation for example, a direct change of land-
use can be identified and must be considered in the evaluation and calculated in the
Life-Cycle Assessment (LCA) of the respective biofuel. The indirect Land-Use
Change (iLUC) effect is not addressed in either one of the certification schemes due
to the fact that until today no reliable calculation exists that could represent the
iLUC factor accurately enough. Nevertheless, to incorporate the iLUC factor into
the overall balance of GHG emission of the various biofuels is considered a
necessity by many observers because the GHG emissions resulting out of iLUC
can be very significant. An integration of the iLUC factor into the LCA calculations
might result in the exclusion of biodiesel as a biofuel for Europe because biodiesel
would then fall short of the minimum CO2 reduction required in the RED criteria.
Section 4.6.2 on emissions will provide further information on these issues.

4.4.5.5 Benefits and Shortcomings of Biofuel Certification

The benefits that might derive from a certification of biofuels, in particular of

sugarcane ethanol, are presented in the following. Certification is considered an
instrument that can be established quickly compared to other mechanisms. Further-
more, certification can be applied outside of the own legislative boundaries in order
to avoid negative impacts in the producing countries as the EU-RED shows. Even
though some actors of the sugarcane complex consider the international certifica-
tion schemes as Non-Tariffs Barriers, certified sugarcane ethanol meets large
markets and premiums are paid for the product. Furthermore, certification of
biofuels and a prospective harmonization or the establishment of a meta-scheme
might result in commodification of sugarcane ethanol which is a long-term goal of
the sugarcane complex and the Brazilian government (Lehtonen 2010).
Huertas et al. (2010) argue that the participation in international processes and
networks enables Brazilian stakeholders to actively advocate their position within
the global debate. They can formulate their strategies and act accordingly in order
to keep the Brazilian sugarcane complex competitive on an international level. The
4.4 Actors, Networks and Institutions: The Institutional Level 193

setor sucroenergético resides in the comfortable position of presiding over a biofuel

energy carrier that is notably more competitive in most respects than other
commercial-scale biofuels. This situation led to the introduction of certification
schemes which are very likely to become more and more beneficial for sugarcane
ethanol. The expected volume for advanced biofuels in the US and the double
counting in the EU, which likewise favors biofuels made from waste, residues,
cellulosic and lignocellulosic material, promises immense markets for the Brazilian
sugarcane complex.
According to Zezza (2012), certification fosters intangible benefits such as the
improvement of community governance structures and the strengthening of social
capital. The introduction of certification significantly improved the attitude towards
sustainability and towards the necessity of raising awareness as well as dissemi-
nating knowledge. Furthermore, the expert from BNDES states that
being certified improves the evaluation by the bank or other institutions and makes the
respective usina easier eligible for credit.

According to Huertas et al. (2010, p. 383), certification schemes might be an

instrument to promote integration and cooperation models between small and large-
scale biomass and biofuel producers. Smaller producers might reduce the costs of
meeting certification requirements when cooperating with large companies while
the latter can contract supplies produced in a responsible manner. Successful
integration models might eventually become mandatory and result in faster estab-
lishment of certification schemes. Yet some schemes only certify the final product
and not the process which poses a problem for the smaller farmer (Callenius and
Mari 2012).
Among the experts, let alone the public, the variety of different schemes and
initiatives is considered confusing. One of the interviewees from UNICA states that
we do not want such a multitude of different initiatives and see that as a problem in the
international scenario.

According to Lehtonen (2010), UNICA is worried that the overlapping and

competing certification schemes might impede investments and likewise favor
protectionism. The variety of schemes prevents mutual acceptance and therefore
lacks harmonization. One of the experts from ESALQ refers to the various inter-
national certifications as the “tower of Babel”. Janssen and Rutz (2011) endorse a
harmonization of certification schemes and argue that the multitude of schemes
should not impede development opportunities in developing countries.
Callenius and Mari (2012), have a rather critical view on biofuels. They consider
certification schemes as means of legitimation for an expansion of cultivation
which results in negative ecological and social impacts. Another problem is that
small and medium size farmers and biofuel-producing companies lack the monetary
basis and the time capacity to manage the requirements to participate in a certifi-
cation scheme. As mentioned above, the costs of certification are highest at the
beginning of the supply chain at the cultivation level. Only advanced farming
194 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

systems and large-scale farmers are equipped to face the requirements demanded by
the certification schemes (van Dam et al. 2010).
On the contrary, farmers and producers in lower income countries with less
developed farming systems and infrastructure are likely to encounter problems,
e.g. limited human skills or lack of data, when attempting to fulfill the requirements.
An additional problem according to de Oliveira and Walter (2012), might be the
higher risk perception of investors due to the difficulties in adhering to the
demanded requirements which in consequence would lead to reduced investments.
Due to the previously mentioned reasons, the role of biofuel as a possible instru-
ment for development is thereby weakened according to Pacini et al. (2013).
Another issue that might be of importance is the market of non-certified pro-
ducers and products. Companies that decide against certification are prone to care
less for their environment. The certified, low-impact goods that are produced
according to certification requirements are sold in Europe, the US and other
developed countries whereas the production of non-certified biofuels and similar
products happens much in less developed regions (Knauf 2009). According to
Edwards and Laurance (2012), the problematic situation might occur that if rules
for areas with high conservation and biodiversity value become more stringent,
companies willing to be certified are likely to produce on cultivation areas that have
the least negative impact and have the funds to do so. On the contrary, companies
not interested in certification, which might imply unscrupulous behavior will rather
be left with forested or similar areas sensitive to commercial use.
A problem for the implementation of a functioning certification system is, as
previously discussed, the vastness of Brazil and the lack of control mechanisms.
The expert from GREENPEACE elucidates that
there are always possibilities to find loopholes, be it with satellite supervision or with
precariousness of controls. If you talk to officials from the Brazilian Institute of Environ-
ment and Renewable Natural Resources (IBAMA) and they say that each inspector needs to
control an area equivalent to 20 Ibirapuera Parks (close to 2 km2) with one tank of gasoline
per month then you already know that it will not work.

Critics argue that certification of biofuels, in particular when the sustainability of

biofuels is certified is ‘greenwashing’.
There are many challenges that need to be faced in order to improve existing and
prospective designs of certification schemes. The integration of indirect Land-Use-
Change (iLUC) effects is of importance. Certification schemes need to be modified
in order to avoid disadvantages and the exclusion of smallholders and other
stakeholders in developing countries. According to de Oliveira and Walter
(2012), a strong participation by developing countries throughout the design and
implementation of certification initiatives is needed in order to provide opportuni-
ties for participating countries and stakeholders to develop and expand a sustainable
production of biofuels on their own terms. Knauf (2009) remarks that bioenergy
needs to comply with international standards as well as local and national legisla-
tion. At the same time bioenergy can only contribute to the accomplishment of
4.4 Actors, Networks and Institutions: The Institutional Level 195

climate goals and GHG reduction when biodiversity or food availability is not
jeopardized by cultivation for bioenergy purposes.
Regarding the sugarcane complex in Brazil it can be expected that certification
and the export of ethanol will constitute an important part of its future expansion,
assuming that the sector will adapt to sustainability requirements demanded within
the schemes. The introduction of certification schemes by the EU and the other
global initiatives definitely has already had an impact on the strategies and the
prospective planning within the sugarcane complex according to Huertas
et al. (2010), while at the same time, it has not yet induced any profound changes
in the Brazilian ethanol sector. Today, it seems unlikely that the variety of current
schemes and initiatives will in the near term result in modifications towards more
sustainable production practices by the Brazilian sugarcane complex, one of the
principal reasons being the low priority and marginal demand for certified sugar-
cane products in the domestic market where most of the ethanol is sold. Yet with
respect to certifications and the modifications needed for compliance that have so
far occurred within the setor sucroenergético, the main drivers identified are the
large-volume markets of the EU and the US in spite of their still unclear legal
regulations.

4.4.6 International and National Market Demand

At a time of population growth and changing consumption patterns such as the shift
of dietary preferences which leads to higher stress on agricultural area, on water
consumption and on the absorption capacity of the atmosphere, the primary sector
faces additional demands. As mentioned before, besides food and fodder, new
technologies and innovations enable the use of biomass to produce heat, power
and fuel as well as pharmaceuticals and chemicals. These technologies such as
(lingo)-cellulosic bioenergy are expected to contribute a substantial share to future
energy systems and to the substitution of fossil energies and other refinery products.
Nevertheless, the land to cultivate biomass is limited which implies that the land
needs to serve the demands of the whole range of products (Popp et al. 2014).
The demand for sugarcane products is very likely to increase and, with the
support of the Brazilian government and of transnational companies, an expansion
of the cultivation area can be expected. In particular, the production of sugarcane
ethanol, either first or second generation, is dependent on national and international
biofuel legislation as mentioned before, and the world market prices for sugar and
fossil oil are likewise significantly affecting the demand for sugarcane ethanol.
With respect to the role of innovation, the world market price for crude oil
influences the demand for ethanol and other sugarcane products, thus increasing
or reducing the need for new technologies. In the following, section world markets
for sugar, fossil oil, and sugarcane ethanol are portrayed and potential markets for
other sugarcane-based products are presented from the perspective of the Brazilian
setor sucroenergético. Recent price developments are illustrated, expected
196 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

increases or decreases in demand discussed and possible implications for the

Brazilian sugarcane complex and its innovation system presented.

4.4.6.1 Sugar Markets

Sugar is produced in over 100 countries worldwide and over 70 % of that produc-
tion is consumed domestically, according to Řezbová et al. (2013). Although the
remaining 30 % constitutes a large export market most of the sugar is traded by
long-term bilateral and multilateral agreements. The largest sugar producer and by
far the largest sugar exporter worldwide is Brazil, as Fig. 4.20 shows, with an export
ratio of over 70 % and a total export volume of 27.7 million tons by 2012/2013
(FAS 2013). India, the European Union and China represent the largest sugar
consumers. Among the largest sugar importers were the US, the EU, India,
Russia and Indonesia, importing between 0.6 and 3.9 million tons of sugar in
2012/2013.
Sugar based on sugar beet constitutes around 20 % of the worldwide sugar
supply. Sugar beet is mainly cultivated in developed countries. The remaining
80 % of the sugar supply is produced from sugarcane, mainly cultivated in more
tropical climates and in emerging and developing countries (Řezbová et al. 2013).
The production and trade of beet-based sugar within the European sugar regime has
been repeatedly subject to conflict at the World Trade Organization (WTO). In
2002, Brazil, Australia and in 2003 joined by Thailand, the main sugar producers
besides the European Union, appealed at the WTO against the export of heavily-
subsidized beet-based sugar by the EU. According to Ackrill and Kay (2011), one
argument for the appeal was that sugar produced beyond quota of the EU (so-called
‘C-sugar’) should be exported at world market prices without subsidies, yet it was
cross-subsidized by within-quota production. In 2000/2001, the subsidized EU
exports exceeded the stipulated limit by more than 2.8 million tons. Furthermore,
the export of sugar below world market prices and the import of sugar from
developing countries with preferential access to the European market was treated
as development policy and therefore separated from other sugar transactions
(Ackrill and Kay 2009).
In 2004, the WTO appeal resulted in a Panel ruling by the WTO which was
upheld by the Appellate Body of the WTO in 2005. A key finding by both WTO
bodies was that all exports were accountable for the subsidy commitments. The
outcome implied significant cuts of sugar exports by the European Union and to
respect previously agreed limits (Ackrill and Kay 2011). The EU had to reduce the
total sugar exports by 73 % from their base levels. In the course of the WTO ruling,
the sugar protocol was abandoned by the EU and European markets had to be
opened to imports. The ‘C sugar’ could now only be exported as long as WTO
export limits were not exceeded (Ackrill and Kay 2011). Nevertheless, tradable
sugar volumes are still subject to conflict between the EU and Brazil. According to
a press release from UNICA (2011), the European Union announced by the end of
2011 that European sugar producers were allowed to export an additional 700,000
4.4 Actors, Networks and Institutions: The Institutional Level 197

Top five sugar exporters and importers by 2010 - in million tons

35

30 Main exporters

25 Brazil
Thailand
20 Australia
European Union
15
Guatemala
10 USA
European Union
5
India

0 Russia
Indonesia
5
Main importers
10
1990 1995 2000 2005 2010 2013

Fig. 4.20 The largest sugar exporters and the largest importers worldwide (1990–2013). Based on
data from MAPA (2013); FAS (2013)

tons of C-sugar which infringed the WTO commitment of the EU and was brought
before the WTO general council.
Until the middle of 2013, the price of sugar, which had been between US$ cents
30–40 per pound (lb) of crystal sugar in 2010/2011, dropped to around US$ cents
17 per pound as indicated in Fig. 4.21. According to Covrig (2013), the all-time
high world market prices for sugar between 2009 and 2012 were in the end
precisely the reason for the drop in prices. The prices in 2010/2011 led to a dramatic
increase in world production of sugar.
Another reason for the increase in sugar prices is the sugarcane supply structure
in Brazil, according to the expert from the MME. He states that
around 30 % of the sugarcane produced is cultivated by independent farmers which
correspond to 150–160 million tons of cane. These independent suppliers are paid along
a contract which is based on a formula that takes the prices of the products into account that
the usinas which are supplied with the sugarcane produces. Thus, the more the usina
produces and the higher the prices that are being paid at the respective markets the higher
the remuneration the supplier receives. So, during the last 4 years, the high prices for sugar
resulted in high prices for sugarcane.

The expert from CASA CIVIL expects that the prices for sugar are likely to drop
further. He states that
I don’t think that sugar will be for very long at the level of US$ 500 per ton (which
translates to US$ cents 22.65/lb). The trend will be more like US$ 350 (translates into US$
cents 16/lb) within 2–3 years. At US$ 350, we are talking about 20 % of cost reduction of
sugarcane for the usina which leads to the problem that the farmer needs to be efficient to
produce for such costs.

Even considering the reduced prices, the revenue generated by sugar consumed,
and especially by sugar exported, is still very significant.
Figure 4.22 illustrates the massive increase in Brazilian sugar exports in US$
between the harvest of 1990/1991 and the harvest of 2012/2013. The surge of the
198 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Crystal sugar -price index CEPEA/ESALQ

45

40

35

30

25
US$ cent

20

15

10

0
May-03 May-04 May-05 May-06 May-07 May-08 May-09 May-10 May-11 May-12 May-13

US cents per lb

Fig. 4.21 Price index for crystal sugar—translated into US cent per pound (including 7 % VAT)
(2003–2014). Based on data from http://cepea.esalq.usp.br/acucar/

sugar exports worth US$ 500 million in the early 90s to over US$ 14 billion by
2011/2012 resulted from increased international demand, increased productivity of
sugarcane cultivation and in particular from an all-time-high world market price for
sugar. These numbers demonstrate the importance of sugar as an export commodity
for the setor sucroenergético and Brazilian agriculture. The export of ethanol has
also been subject to significant rises and falls in volumes and revenues. By the
harvest of 1990/1991 the ethanol exports were worth US$ 39 million. The export
value increased and reached a peak of almost US$ 2.2 billion in 2008/2009 and
decreased dramatically within 2 years by more than 50 % to US$ 1 billion by 2010/
2011. This drop in volume and value was principally owing to the global financial
crisis and the resulting crisis of the sugarcane sector in Brazil.
Sugar and ethanol were produced to almost equal amounts from sugarcane
leading to 36 million tons of sugar and 23 million m3 of ethanol in 2011/2012
according to MAPA (2013). Thus, previous Fig. 4.22 indicates the importance of
the international market for Brazilian sugar and the dominance of the domestic
market regarding ethanol. In comparison to the volumes of sugar exports, ethanol
trade is minor. Nevertheless, with regard to certification and new technologies such
as second generation bioethanol the growth potential in demand at the international
markets is likely to be dominated by ethanol (EPA 2010).
Looking at the future development of demand for sugar, the international
demand for sugar can be considered relatively inelastic according to Zuurbier and
van den Vooren (2009). Thus, demand is likely to grow along the global population
4.4 Actors, Networks and Institutions: The Institutional Level 199

Comparison sugar and ethanol revenues

16000
14,771

14000

12,343
12000

10000

8000

6,167 6,009
6000

4000

2,111 2,191 2,028

1,597 1,767
2000 1,474
501 750 798
251 179 486 164
39
0

Sugar exports in Ethanol exports in

US$ million US$ million

Fig. 4.22 Brazilian revenue from sugar and ethanol exports in US$ (1990/1991–2012/2013).
Based on data from MAPA (2013); MDIC (2012, 2013)

growth and the dietary preferences of people. Figure 4.23 illustrates the projections
by MME and EPE regarding the increase in sugarcane for the production of sugar
and ethanol until 2022. While the production volume of sugar increases around
27 % between 2013 and 2022, the amount of harvested sugarcane for the production
of ethanol is projected to increase by almost 84 % within the same time period.

4.4.6.2 Fossil Oil Markets

Fossil oil is globally the single most important energy carrier and accounts for more
than one third of global primary energy supply. Over 95 % of the transport energy is
provided by fossil oil according to Miller and Sorrell (2014). Because of this
dependency on fossil oil a continuous supply is considered crucial to sustain our
globalized economies and societies. Yet since the 1970s an increasing number of
forecasts and projections began to warn of ‘peak-oil’. This term implies the nearby
peak and subsequent depletion of global production of conventional (easily acces-
sible) fossil oil followed by a disruption of the global economy because of the lack
of alternative energies that are unable to substitute the needed energy volumes at
acceptable costs.
Other projections and forecasts countered this scenario mainly by arguing that
increasing prices for fossil oil result in the discovery and recovery of additional
conventional oil and the development of technologies to recover non-conventional
oil resources such as tar sands and deep-sea oil wells like Pré-Sal. Also, the
200 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

Fig. 4.23 Projections: Cane harvested for sugar and ethanol production (2013–2022). Based on
data from MME and EPE (2013)

increasing crude oil prices are likely to reinforce positive effects on innovations and
R&D expenditures and lead to technological advances which provide and diffuse
substitutes, such as biofuels and electric mobility, without the disruption of the
global economy (Cheon and Urpelainen 2012). The global production of all-liquids
(conventional, non-conventional, gas-to-liquid and biofuels) was around 31.2 bil-
lion barrels in 2011 whereas crude oil and condensate accounted for 80 % of the
total production (Miller and Sorrell 2014). Today, even though technological
developments are occurring and more are still to come, a multitude of scientists
and researchers accept that conventional oil resources are at an advanced stage of
depletion and that the era of cheap oil has come to an end. As a consequence fossil
oil and their related products are likely to become increasingly scarce and more
expensive (Miller and Sorrell 2014).
Figure 4.24 illustrates the development of the crude oil prices on the basis of
West Texas Intermediate (WTI) one of the most important trading classification for
light crude oil. Between 2003 and 2008 there has been a sharp rise in world market
price until the all-time-high of almost US$ 140/bbl in 2008, followed by a drop to
US$ 40/bbl and a quick increase again. More recently, the crude oil prices have
resided around US$ 100/bbl. Within the coming years the prices are likely to
increase, according to the U.S. Energy Information Administration (EIA) projec-
tions for WTI in their ‘Annual Energy Outlook 2013’ as illustrated in Table 4.17.
4.4 Actors, Networks and Institutions: The Institutional Level 201

World market prices - oil and sugar

160.00 45

140.00 40

35
120.00

30
US$ per bbl

100.00
25
80.00
20
60.00
15

40.00
10

20.00 5

0.00 0
May-03
Oct-03
Mar-04
Aug-04
Jan-05
Jun-05
Nov-05
Apr-06
Sep-06
Feb-07
Jul-07
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Feb-12
Jul-12
Dec-12
May-13
Oct-13
West Texas Sugar US cents/lb
Intermediate (WTI)

Fig. 4.24 World market prices for WTI crude oil and sugar (2003–2013) Based on data from
http://research.stlouisfed.org/; http://cepea.esalq.usp.br/

Table 4.17 Projections of world market price for WTI crude oil (2010–2040)
Crude oil spot
price in US Annual
$/bbl 2010 2011 2020 2025 2030 2035 2040 growth
West Texas 81.08 94.86 103.57 115.36 128.47 143.41 160.68 1.8 %
Intermediate
Based on data from EIA (2013)

By 2035, all-time-high prices for crude oil are projected by the EIA, which will
likely result in the demand and development of new technologies in order to
provide non-conventional oil resources and alternative energy carriers. A rising
demand for fossil oil and increasing world market prices might be beneficial for the
continuous exploitation of the Brazilian Pré-Sal reserves. The recovery of the oil
below the sea bed and a thick layer of salt is considered extremely difficult and quite
costly. As elaborated upon in Sect. 4.4.2 the Pré-Sal reserves, even if they cannot be
fully classified as reserves according to the US Security and Exchange Commis-
sion, are expected to be considerable (Moreira et al. 2014) and are estimated at
between 14 billion and 90 billion barrels, while several assessments assume 40 bil-
lion barrels. The peak production is estimated to be reached between 2020 and 2035
according to Moreira et al. (2014).
According to ANP (2013b), the National Agency of Petroleum, Natural Gas and
Biofuels, Brazil had a negative foreign dependence on oil and oil products in 2012,
202 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

which implies that although Brazil imported substantial volumes of crude oil in
2012, the exports of crude oil were higher. Nevertheless, in the case of gasoline, the
import volumes have been seven times higher than the export volumes in 2011, and
in 2012 the import volumes were hundredfold those of export volumes (ANP
2013b), representing a dependence on foreign refineries for gasoline production.
Even regarding Pré-Sal, the long-term scenarios do not indicate a significant
expansion of gasoline production because PETROBRAS is expected to direct
most of the new refining capacity which is currently under construction towards
the production of diesel fuel (INTL FC Stone 2013).
Projecting such high world market prices for crude oil as indicated in Table 4.17,
a variety of governmental actions to mitigate the negative impact of the oil prices
can be expected and the promotion of sugarcane-based ethanol is highly likely to
continue. The development of the Pro-Álcool program had been primarily a reac-
tion from high world market prices for crude oil coinciding with low prices for
sugar. Yet within a study on the influence of crude oil prices on alternative
transportation fuels by the IEA, the authors state that higher oil prices do not
automatically result in an increased competitiveness of alternative fuels (Cazzola
et al. 2013). Production processes that rely on input energy from petroleum and
increased feedstock costs due to rising oil prices might result also in higher costs for
alternative fuels and impede the anticipated competitive gain. Regarding the
20 alternative fuels that were analyzed within the study, only sugarcane ethanol,
very large coal-to-liquid (CTL) plants, gas-to-liquid (GTL) and natural gas were
close to being fully cost-competitive with gasoline and diesel at an oil price of US$
60/bbl according to Cazzola et al. (2013).
Figure 4.25 illustrates the world market prices for 1,000 l of gasoline and the
corresponding prices for sugarcane-based, anhydrous ethanol and refined, crystal
sugar from Brazil. Because of the lower heating value/energy density these 1,000 l
of gasoline correspond to 1,400 l of ethanol. To produce this amount of anhydrous
ethanol, 17.07 tons of sugarcane are needed (82 l/TC) that could otherwise result in
the production of 2,356 kg of refined sugar (0.138 kg/TC). While presenting the
corresponding prices for gasoline, sugarcane ethanol, and sugar the cost competi-
tiveness of sugarcane ethanol and the opportunity costs of choosing this alternative
are illustrated.
Figure 4.25 shows that between 2003 and 2013 the majority of times gasoline
has been a more favorable fuel, in the sense of lower costs, than sugarcane ethanol.
In late 2003 until mid of 2004, the chart indicates a higher price for gasoline as well
as between May 2007 and August 2008 when the world market prices for crude oil
increased rapidly and hit record heights in June/July 2008 and the prices for
gasoline followed suit. Yet during most of the illustrated time period the price for
sugarcane ethanol has been higher than gasoline with sometimes significant price
differences to the disadvantages of ethanol. These higher prices imply that the
opportunity costs for the alternative gasoline were lower than the actual costs for
ethanol. Thus, by opting for gasoline, the goal of providing a fuel for gasoline-based
combustion engines could have been reached with lower costs. The economic
advantageousness speaks more in favor of gasoline.
4.4 Actors, Networks and Institutions: The Institutional Level 203

Costs of 1,000 l gasoline and opportunity costs for ethanol and sugar

2000,00

1800,00

1600,00

1400,00

1200,00

1000,00
US$

800,00

600,00

400,00

200,00

0,00
May-08

May-13
May-03

May-04

May-05

May-06

May-07

Aug-08

May-09

May-10

May-11

May-12

Aug-13
Nov-05

Nov-10

Nov-13
Aug-03
Nov-03
Feb-04

Aug-04
Nov-04
Feb-05

Aug-05

Feb-06

Aug-06
Nov-06
Feb-07

Aug-07
Nov-07
Feb-08

Nov-08
Feb-09

Aug-09
Nov-09
Feb-10

Aug-10

Feb-11

Aug-11
Nov-11
Feb-12

Aug-12
Nov-12
Feb-13
2356 kg sugar 1400 l ethanol 1000 l gasoline
correspond to correspond to US Spot Price
1400 l ethanol 1000l gasoline

Fig. 4.25 Costs for 1,000 l gasoline, opportunity costs for ethanol and sugar (2003–2013). Based
on data from http://www.eia.gov/http://cepea.esalq.usp.br/

Additionally, the prices for sugar when corresponding to the same amount of
sugarcane used for the production of ethanol, have been higher most of the time
between 2003 and 2013. Throughout the last 5 years, except from some rather
drastic short-term price increases in early 2011, the price differences have been
substantial as Fig. 4.25 illustrates. This implies that not only has gasoline been the
less expensive alternative most of the time between 2003 and 2013 but that it would
have been reasonable, from a competitiveness purely based on price, to convert all
sugarcane into sugar instead of some into ethanol. Selling sugar at the world
market, assuming that the additional sugar when doing without ethanol would not
have ruined the market prices would have been economically advantageous com-
pared to the production, and largely domestic consumption, of sugarcane-based
ethanol. Thus, the economic advantageousness and the opportunity costs as illus-
trated in Fig. 4.25 would favor the purchase/import of gasoline and the sales/export
of sugar while the production and consumption of ethanol would be stopped.
Only in times when crude oil and gasoline prices are exceptionally high or prices
for sugar particularly low, Fig. 4.25 shows that Brazilian ethanol can be competitive
to gasoline. Should the projections from the EIA of record oil prices from 2035 on
hold true, likewise as the expectations of increased ethanol yield per hectare of
sugarcane as presented in Table 4.6 (Sect. 4.3.3), the economic advantageousness
might turn towards sugarcane based ethanol in the mid- to long-term although yield
increases also positively influence sugar prices. It has to be kept in mind that in
these calculations social and environmental aspects which by many are thought to
204 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

provide important reasons for the production and promotion of sugarcane ethanol
were neglected.

4.4.6.3 Ethanol Markets

The importance of the international and the national ethanol markets for the
sugarcane complex differ decisively. While the former is less important and
considered a growth market with a huge potential, the latter is the backbone of
the ethanol producing industry. A blending ratio between 20 and 25 % stipulated by
the Brazilian government is most reliable as a demand factor which is unlikely to
break away even when price increases occur. Nevertheless, the Brazilian sugarcane
complex and in particular the ethanol production was hit hard by the economic
crisis. Additionally, the world market prices for sugar hit all-time-highs in 2010 and
2011 as described previously in Fig. 4.21. Since the Brazilian usinas preside over
the possibility to re-direct the sugarcane and switch production between sugar and
ethanol, assuming the usina has the two production lines, the mills maximized their
production of sugar to the disadvantage of ethanol (Covrig 2013). As a conse-
quence, the sugarcane complex faced problems to supply enough ethanol to meet
the domestic demand in 2011.
Figure 4.26 illustrates the drop in ethanol exports between 2008/2009 and 2011/
2012. In the 90s Brazil had been an importer of ethanol while with the development
of FFVs in the early 2000s the sugarcane complex started to produce again larger
volumes of anhydrous and hydrated ethanol. Initially, less than 10 % of the ethanol
production was exported (2002/2003) but it increased to around 18 % by 2008/
2009. At the same time, the imports were marginal because the Brazilian sugarcane
complex met the domestic demand.
When the crisis hit and coincided with record prices for the sugar, the ethanol
exports dropped by more than 60 % between 2008/2009 and 2010/2011 in volume
and in US$. In 2011/2012, Brazil had to import ethanol volumes worth more than
US$ 1.0 billion in order to meet domestic demand. At the same time, ethanol worth
almost US$ 1.5 billion was still exported, principally because sugarcane ethanol
classified as ‘advanced biofuel’. This leads to the peculiar situation that although
corn and sugarcane ethanol are chemically largely equivalent, Brazil imports corn
ethanol and exports sugarcane ethanol. Brazilian ethanol has larger GHG reduction
potential and therefore US importers are paying a premium according to Meyer
et al. (2012). Furthermore, tariffs on ethanol imports into the US were cut by US$
54 cents per gallon for the first time since 1980 (Colitt and Nielsen 2012).
According to Covrig (2013), Brazil exported a record volume of more than 2.0
billion liters directly to the US in 2012 and for the coming years the mandate within
the RFS obligations demands increases of ‘advanced biofuels’. As the prices for
sugar stayed only a little above US$ 20 cents/lb in 2012 and 2013, the export of
ethanol might again become more interesting for the usinas.
The volatility of Brazil’s ethanol exports and imports during the last few years
has been affected by often still unclear legislation and volatile world market prices
4.4 Actors, Networks and Institutions: The Institutional Level 205

Brazilian ethanol exports and imports

2.500
$ 2,191
$2.028
2.000

$ 1,474
1.500

1.000
$798

$486
500 $390
$251
$179 $164
$39
0
1990/91 1992/93 1994/95 1996/97 1998/99 2000/01 2002/03 2004/05 2006/07 2008/09 2010/11 2012/13
$7 $1 $ 0.3 $1
$ 201 $ 231 $ 235
$ 360
500
$ 516

1.000
$ 1.054

1.500
Exports in Imports in
US$ US$
million million

Fig. 4.26 Brazilian ethanol exports and imports in US$ million (1990/1991–2012/2013) Based on
data from MAPA (2013), MDIC (2012, 2013)

for crude oil and sugar. Another factor that increases the uncertainty of a stable
supply and production of sugarcane ethanol is the switching capacity of the usinas.
The mills can re-direct part of their sugarcane to the product that promises higher
returns, which has mostly been sugar during the last 5 years, as Fig. 4.25 on
opportunity costs in the previous section indicated. Thus, a concentration on
ethanol exports is not always considered the most prudent option.
Also, several experts argue against an export concentration due to various
reasons. The interviewee from CONAB states that
I say to the people from UNICA who fight over possible exports that we neither have
enough ethanol for us nor for export. We will have enough ethanol but then we might have
to stop the FFVs because the domestic market here grows a lot.

The expert from MME adds that

ethanol is considered an energy product now. So we would have the same rules for import
and export as for petroleum products. This implies that in an extreme situation the sale of
ethanol outside of Brazil could be prohibited.

The expert from the NGOs argues from a different perspective. She refers to a
question from a journalist on how to make sure that the ethanol to be bought has no
negative effects like slave labor etc. She states that
206 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

the answer was, don’t buy! [. . .] So, if you ask us about criteria, don’t come over, don’t
increase, we don’t want you guys buying ethanol from Brazil so that we have an ethanol
boom in Brazil or sugarcane boom.

The projections by MME/EPE made in 2013 say that although there are large
potential markets the main area of growth will be domestic consumption. While the
total demand of ethanol is projected to almost double from 27.3 billion liters in
2013–54.5 billion liters in 2022, the export is estimated to grow by less than 17 %
from 3 billion liters in 2013 to 3.5 billion liters in 2022. The share of exported
ethanol of the total demand for ethanol is expected to drop from almost 11 % in
2013 to around 6 % in 2022 according to the projections made by MME and
EPE (2013).
Arruda (2011) presents data which indicate an even larger increase of ethanol
production within the next 10 years. The cultivation area is projected to increase up
to almost 14 million ha. The sugar production is expected to increase by more than
15 % to 45 million tons in 2021 while the ethanol production is projected to more
than double to 65 billion liters by 2021. Considering the recent cut of import tariffs
and the legislation in the US and the European Union, although still prone to
modifications, the opinion is held that these mechanisms will result in a substantial
increase of prospective ethanol exports from Brazil and a more active international
trade. Nu~nez et al. (2013), develop scenarios on the economic effects of alternative
biofuel policies such as the RFS and the elimination of tariffs in Brazil and the
US. They project the ethanol exports from Brazil to the US within these scenarios to
reside between 10.08 billion liters and 15.14 billion liters by 2022 to meet the
‘advanced fuel’ mandate.
The regulatory impact analysis of the US Renewable Fuel Standard Program
(RFS2) assumes that the most probable source of advanced fuel apart from (ligno)-
cellulosic biofuels and biomass-based diesel would be from imported sugarcane-
based ethanol (EPA 2010). Assessing international ethanol production and demand
the analysis projects availability between 14.4 billion liters and 15.9 billion liters of
sugarcane ethanol between 2020 and 2022. The analysis concludes that in case such
volumes were to be made available to the US, sufficient quantities would be
available to meet the advanced biofuel standard (EPA 2010). According to
Goldemberg et al. (2014a), it is assumed within the RFS mandate that there will
be no expansion of corn ethanol production after 2015. 80 billion liters are expected
to be provided by non-conventional sources, in particular by second generation
biofuel technologies. If second generation technologies have not reached technical
and economic viability by 2020, sugarcane-based ethanol is considered the most
practicable alternative (Goldemberg et al. 2014a).
The introduction of double-counting in mandatory blending within the EU as
described previously in Sect. 4.4.5 can also be considered a mechanism that
increases the worldwide demand for second generation technologies and advanced
fuels (Pacini et al. 2013). The substantial volumes that are incorporated with that
demand for fuels eligible of double-counting such as bagasse-based ethanol might
give additional incentives for second generation biofuel production. Apart from
4.4 Actors, Networks and Institutions: The Institutional Level 207

ethanol based on bagasse, it might become more difficult to import sugarcane

ethanol to the EU because sugar beet-based ethanol is likely to increase according
to Jaggard and Townsend (2014). One reason is considered to be the WTO ruling
that banned the highly subsidized sugar produced from sugar beet from world
markets. Therefore sugar producers need to find other profitable ways to deal
with the production surpluses. According to Jaggard and Townsend (2014), the
released sugar capacities are likely to increase the share of ethanol produced from
sugar beet. By 2020, consumption of sugar beet for the use of biofuels is projected
to increase to 29 million tons, representing roughly one-third of the overall sugar
beet production in the EU.
Looking at the developments and projections of the sugar, crude oil and ethanol
markets, a dependency of the ethanol produced on the level of sugar and crude oil
prices in the international market can be observed, which is intensified by the
switching capacity of the usinas (La Rovere et al. 2011). The mid- and long-term
trends for crude oil markets project price increases that are expected to also lead to
higher commodity prices and increases in demand for biofuels. This is considered a
positive effect by some because they consider high commodity and oil prices an
impulse to promote agricultural growth (Janssen and Rutz 2011). Urgently-needed
investments into the agricultural sector might be the result of a growing demand for
biofuels, especially in many rural parts of the developing world, according to
Janssen and Rutz (2011).
In their article, Meyer et al. (2012) refer to the recent ethanol imports to Brazil
and compare them with the imports in the 90s. They consider the last millennium-
imports as a signal for a crisis of the ethanol sector in Brazil whereas the latest
imports are understood more as a success because ethanol has become an important
transportation fuel in many countries in the meantime. Nowadays, ethanol can be
almost considered a commodity which has been a main objective for the sugarcane
complex because it significantly facilitates global trade. Brazil is well-positioned to
function as a major supplier when the demand for the product ethanol increases
(Meyer et al. 2012). Still, the competitiveness of sugarcane ethanol compared to
gasoline requires favorable world market prices for sugar and fossil oil, and
depends on exchange rates as well as on political support mechanisms as previously
shown. Nevertheless, economies of scale and modern technologies have decreased
production costs to such an extent that ethanol is, and will likely remain, an
important alternative to gasoline in Brazil as well as in other countries that are
looking for gasoline substitutes.

4.4.6.4 Other Markets: Other Products

In recent years, other markets for products derived from sugarcane have been
established besides the largest markets for sugar and ethanol. Companies in the
bio-technological and bio-chemical sector especially identified sugarcane-based
materials as the basis for new products lines. Kerosene-jet fuel and diesel are two
alternative energy carriers that can be produced by the appliance of genetically-
208 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

modified yeast as mentioned in Sect. 4.3.3. The expert from WWF emphasizes the
importance of providing an alternative for jet fuel as he states that
for us it not important that the ethanol is used in cars but when used as a fuel in aviation you
could provide an alternative where there is currently none.

In the area of chemical applications a trend toward the production of bioplastics

is visible. During the record crude oil prices of more than US$ 140/bbl in 2008,
companies from the chemical sector started to look for cheaper alternatives.
According to Philp et al. (2013), there are plastics formed by direct fermentation
which are truly biodegradable and biobased plastics such as polyethylene (PET)
that have practically identical characteristics to the petroleum-based equivalents. In
comparison these biobased plastics are more expensive than the petroleum-based
ones but they have the advantage of GHG emission reductions. In recent years corn-
based cups and fibers used in carpets and clothes were introduced just as PET
bottles out of sugarcane. In 2010, bioplastics had a more marginal market share and
constituted around 0.2 % of the overall 350 million tons of plastics consumed each
year, according to Stein and Malik (2010). The authors state that the volume could
increase by 30 % annually over the next decade.
According to Iles and Martin (2013), the European Technology Platform for
Sustainable Chemistry projects that renewable resources could provide up to 30 %
of all raw materials for the European chemical industry by 2025. The most
important bioplastic is considered PET, used for the production of plastic bottles,
and accounted for 40 % of the global bioplastic production in 2011 due to the
demand from companies like PEPSI and COCA-COLA. The volume for bioplastics
is expected to increase from 1.2 million tons in 2011 to almost 6 million tons by
2016 according to Philp et al. (2013). More than 75 % of that increase is likely to
come from PET. Regarding the expected market demand for bioplastics one of the
experts from EMBRAPA points out that
ethanol as biofuel should be reduced in the future, but for alcohol-chemical appliances it
will be expanded. Because the product can be a lot cheaper than petroleum and is
environment-friendly. The society wants that and the market demand is huge.

With the chemical company BRASKEM, Brazil has one of the biggest players in
the area of bioplastics. In 2010, BRASKEM started the production of PET out of
sugarcane ethanol at its new production plant with an annual capacity of 200,000
tons which made it the largest producer of biomass-based PET worldwide.
According to Iles and Martin (2013), BRASKEM relied on existing ethanol tech-
nology and developed its expertise in conversion of sugarcane ethanol. The
company-communicated strategy includes the plan to become the largest bioplastic
producer worldwide, focusing more on drop-in commodities rather than niche
products. It is interesting to note that BRASKEM has invested in a partnership
with the Brazilian Biosciences National Laboratory (LNBio), in contrast to most
Brazilian companies who understand investments into research institutes as a
governmental affair (Iles and Martin 2013).
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 209

In 2013, DOW CHEMICAL and MITSUI decided to delay the construction of

their biopolymer plant in Brazil which was supposed to be the largest plant
worldwide with a production capacity of 350,000 tons annually and the biggest
investment by DOW CHEMICAL in Brazil (http://www.bnamericas.com/news/
petrochemicals/dow-mitsui-postpone-us15bn-pe-plant). The decision to delay the
construction was due to unforeseen cost increases in the design, construction and
operation of the facility. Additionally, uncertainties about land ownership legisla-
tion impeded the continuation of the project while the usina that had been part of the
project was finalized. According to the website, BRASKEM also delayed the
construction of the second bioplastic plant. It can be assumed that the competitive-
ness of bioplastics is strongly related to the world market price for crude oil as
indicated by Philp et al. (2013), so that record oil prices lead to diversification into
other raw materials. The current delay might be an indicator for high production
costs and low demand expectations due to lower crude oil prices than expected.
The demand for sugarcane and its different products is expected to grow within
the coming years. In a mid-term perspective sugar will stay the most important
export product regarding volumes, unless the price for second generation
bioethanol would receive high premium prices in the European and US markets.
The demand for sugarcane ethanol is expected to face the strongest growth.
Domestic demand and the US American market with the classification ‘advanced
fuel’ are currently considered to be the main drivers. Yet the likely introduction of
iLUC factors within the EU-RED certification schemes and therefore new thresh-
olds for calculating biofuel reduction potential of GHG emissions, as will be
explained in detail in Sect. 4.6.2, might change the demand in European markets
in favor of sugarcane-based ethanol. Therefore, all technological developments and
innovations that are realized within the innovation system of the sugarcane complex
will further contribute to the domination of sugarcane-based ethanol as the most
promising biofuel currently available. However, the world market prices for sugar
and crude oil will continue to play a decisive role in future demand ethanol
volumes.

4.5 Interdependencies Within and Between Levels: The

Sugarcane-based Energy Technology Innovation
System

After having analyzed different technological and institutional developments and

mechanisms in the previous sections, Sect. 4.5 evaluates whether these physical and
social technologies contain aspects which imply the classification of the sugarcane
complex as an Energy Technology Innovation System (ETIS). When assessing the
technological developments on the product/process level and the aspects on the
institutional level, the focus lies on innovative developments identified within the
feedback loops between the different stages of technologies, interdependencies
210 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

between the product/process and the institutional level and the cooperation between
actors, networks and institutions.
A short recapitulation of the concept and the criteria that are deemed most
relevant for the development of an ETIS is provided first. Second, the selected
codes that were analyzed in Sects. 4.3 and 4.4 are addressed with reference to the
ETIS concept. Distinct aspects and drivers such as supply-push and demand-pull
mechanisms, which might promote and incentivize innovation and technological
development, are discussed in order to provide practical criteria whether the
sugarcane complex can be considered an ETIS. The principal research question is
thereby addressed. Ecological, economic and social effects of the technologies and
innovations are addressed below in the Sect. 4.6 on sustainability.

4.5.1 Recapitulation: What Constitutes an ETIS?

Assessing innovation and technological development within a sector or along

regional, national or supranational domains, Energy Technology Innovation Sys-
tems (ETIS) constitute a dynamic non-linear perspective based on complex inter-
actions. Although an evaluation of the physical technologies is essential, an
innovation system resides in an environment where impulses on cultural and
structural innovation also matter and thus are promoted. Actors, networks and
institutions are understood as basic elements of the game where innovations prosper
or wither while the physical technologies can be considered the procedures and
processes that produce the innovation or advancement, influenced by the institu-
tional framework.
On the product/process level, feedback loops between the stages of technolog-
ical development (research, development, demonstration, market formation and
diffusion) are considered crucial because an interaction between different (techno-
logical) processes is thereby indicated. If cascade utilization of one specific raw
material such as sugarcane is promoted and hoped to be achieved, feedback loops
between existing, established processes and new technologies can provide mutual
benefits. A closer interaction between the stages is likely to facilitate innovation
processes and might even increase efficiencies in upstream and downstream pro-
cesses. The development of alternative and secondary usages indicates close feed-
back processes in-between stages. The adaptation of framework conditions suggests
either feedback between stages as the research on new enzymes that affect the
market formation of another product or between the product/process level and the
institutional level which then can be considered an interdependency.
The interdependencies between the product/process and the institutional level
are also considered vital for the establishment of an ETIS. The stronger the
connection between both levels the higher the likelihood of increased system
function activity. Seamless coordination and interaction between different stages
and levels increase the transfer of Know-how and expertise. Compeán & Polenske
(2011) showed that proximity to relevant institutions, financial efforts,
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 211

entrepreneurial skills and the production of intellectual Know-how resulted in the

establishment of research institutes and made the Southern regions of Brazil more
efficient and competitive. In general, governmental policies, subsidies and similar
instruments are considered interdependencies, supply-push and demand-pull mech-
anisms induced by the institutional level to affect the product/process level. Yet
technological developments that affect actors, networks and institutions, for exam-
ple by becoming substituted, are also understood as interdependencies.
On the institutional level the cooperation of actors, networks and institutions is
considered decisive. Strong associations and active collaboration between industry
and government are indicators for close interaction between actors, networks and
institutions. Cooperation of this kind is important, for instance, as innovation
systems increase in maturity. Economies of scale provide leverage for increased
competitiveness and diffusion of technologies. So in the initial phases of develop-
ing a new technology, governmental assistance is often crucial because private
actors, networks and institutions are unlikely to commit substantial resources to
investments with high risks of failing technological developments. As the maturity
of a technology grows, the need for competitiveness increases, so mergers and
acquisitions as well as joint ventures promise cost reductions, efficiency increases,
Know-how transfer and other benefits.
In the end, the analysis of ETIS and its cooperation of actors, networks and
institutions, its interdependencies between levels and its feedback loops within the
development stages are applied to map the development of the physical and social
technologies within the sugarcane complex. The contribution of these various
product/process and institutional level aspects to the sugarcane-based Energy
Technology Innovation System is addressed in the following section.
Initially, the five codes of the product/process level, namely mechanization,
cogeneration, new technologies, second generation biofuels and transgenic sugar-
cane cultivars are evaluated. Afterwards, the six codes that were chosen for the
assessment of the institutional level are analyzed accordingly. A concluding assess-
ment of the sugarcane complex as a possible innovation system is formulated based
on this analysis.

4.5.2 Eligibility of Product/Process Level Codes for ETIS

Aspects of the codes on the product/process level which indicate ETIS criteria are
discussed based on the analysis in Sect. 4.3. Feedback loops between different
stages of technological development and between technologies that are applied
within the sugarcane complex are assessed with regard to aspects such as cascade
utilization. Interdependencies between the different levels where actors, networks
and institutions constitute the framework for physical technologies, influenced by
the technologies and their potential, are identified and presented. Since cooperation
corresponds to actors, networks and institutions and occurs at the institutional level,
any appearance within the product/process level codes is expected to be infrequent.
212 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.5.2.1 Mechanization

When assessing feedback loops and the impact that mechanization has on other
technologies, the most important aspect of mechanized harvest is the additional
biomass that is provided when ceasing pre-harvest burning. The cane trash that is
left on the field during the harvest process and the additional fiber that the bagasse
contains incentivizes cascade utilization by cogeneration or prospective second
generation processes. The development of mechanized planting technology
increased the demand for mechanized harvest because prior to this innovation an
additional labor force for manual planting was needed. Supply trucks for mainte-
nance and refueling of the harvesters on the field were also developed. Furthermore,
the massive deployment of the mechanized harvesters is expected to result in
modifications of the engines so this machinery can also run on ethanol plus other
technical improvements.
Following interdependencies between the product/process and the institutional
level of mechanized harvest were identified. The demand for a stop of pre-harvest
burning was strongly formulated by communities adjacent to sugarcane cultivation
areas. NGOs, the international community and the Brazilian government demanded
the termination of horrible working conditions. The higher sal
ario mı́nimo that had
to be paid to the cane cutters increased the labor costs and made mechanization
viable. These demands resulted in the formulation of the agro-environmental
protocol that stipulated the phasing-out of pre-harvest burning. The phase-out of
burning resulted in positive health effects within the communities. Mass unem-
ployment, still often subhuman working conditions and the exclusion of financially
weaker actors have also been impacts of mechanization on the institutional level.
The interaction and cooperation between actors, networks and institutions can be
considered responsible for the introduction of mechanized harvest and the agree-
ment of the protocolo agro-ambiental, the crucial legislation promoting mechani-
zation. International pressure and the demand from the communities close to cane
cultivation areas had their share in the cooperation of UNICA and the Ministry for
Environment in São Paulo, agreeing on this protocolo agro-ambiental.

4.5.2.2 Cogeneration

On the product/process level the most basic objective that is fulfilled by cogenera-
tion is the provision of electrical, mechanical and thermal energy to the production
processes of the usina. This self-supply is unique within biofuel production tech-
nologies. Another positive aspect of the technology is its maturity, so cogeneration
has already been modified and it can be applied fast. The application of modern
boilers with higher temperature and higher pressure, as well as modern turbines, can
result in a surplus of two-thirds of the produced electricity that can be provided to
the national grid. Retrofitting technologies are promoted. By burning either bagasse
or cane trash, cogeneration can be considered as an important step with an
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 213

integrated process of cascade utilization. Cogeneration mitigates the demand for

large-scale hydro power and its concomitant negative impacts. The high costs for
retrofitting less efficient systems of cogeneration result in a propensity towards
‘greenfield’ mills within expansion areas. However, the resource competition with
second generation bioethanol and biorefinery products for bagasse and cane trash is
likely to result in delayed technological developments due to insecurity over the
advantageousness of those various technologies.
The interdependencies between levels of electricity provided by cogeneration to
the Brazilian energy matrix, even in the dry and in the off-season, is a main
contribution of this technology just like the local production and decentral supply
with electricity is. Cogeneration can provide stable revenues for the usina which are
less dependent on world market prices. The Brazilian government created a regu-
latory framework reducing transmission and distribution charges and by holding
auctions. High investment cost of retrofitting existing boilers and turbines or
purchasing state-of-the-art cogeneration technology exclude actors that are not
endowed with substantial financial resources. Furthermore, the industry is critical
because indecisive policies from the Brazilian government over promoting elec-
tricity from biomass impede further investments into cogeneration.

4.5.2.3 Other New Technologies

Assessing the code on new technologies a focus on cascade utilization can be

identified on the product/process level. A biorefinery that will produce bioplastics
such as PETs or resins, pharmaceuticals or cosmetics requires either ethanol or
other sugarcane-based material. The huge range of products that can be
manufactured is one of the positive aspects and enables the selection of products
with high aggregated value. Considering the potential applications of vinasse,
cascade utilization is very likely because of the high water content, which makes
it too costly to transport over large distances. Vinasse might incentivize biogas
technology being the main ingredient of the fermentation process mixed with ash, a
residue from cogeneration. Alternatively, the availability of large volumes of
vinasse promotes the production of fertilizer, based on vinasse with its water
extracted and mixed with soot and ash from cogeneration processes. The extracted
water can be reused within the usina. A prospective resource competition of
biorefinery products with other goods based on sugarcane might emerge.
Looking at interdependencies and effects from the product/process level, the
government supports the alcooldutos within its ‘accelerated growth program’
(PAC). The alcooldutos are expected to reduce the transport costs of ethanol and
they are certainly an important technological innovation because only Brazil
realizes the transport of alternative fuels in this way. However, pipelines for the
transport of natural gas and crude oil have been established since a long time.
214 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.5.2.4 Ethanol from Second Generation

Looking at the product/process level, one of the main advantages of second

generation ethanol is the large resource base. (Ligno)cellulosic hydrolysis can
derive ethanol from most agricultural and forestry biomass and biomass residues.
In addition, first and second generation ethanol can be produced within a cascade
utilization process. The fermented sugar produces first generation ethanol while the
remaining bagasse can be used for second generation fuel production. The conver-
sion of the whole plant with second generation processes increases the overall
efficiency in yield/ha. The second generation production processes are also more
science-based technologies in contrast to first generation processes. The research
and development requires high technology and expert knowledge in chemical and
other biotechnological processes. The second generation production processes are
largely at the demonstration stage with some already at market formation. Thus the
processes are immature and face high costs.
In terms of interdependencies, the R&D of second generation technology mainly
happens in the US. Yet joint ventures, mergers and acquisition within the sugarcane
complex have led to the development of second generation technology, also in
Brazil. In 2011 the Brazilian government established a support plan with regard to
second generation (PAISS). Knowledge and experiences of well-established first
generation fuels can be used within a ‘Bridging Strategy’ to promote integration of
both technologies and a transition towards second generation ones. Negative
aspects of second generation technologies are the high investment costs and long
periods of technological development to market formation and diffusion as well as
the needed expertise in chemical and biotechnological R&D, which requires an
emphasis on science-based research.
Looking at the interaction between actors, networks and institutions, second
generation technologies were promoted by countries without sugarcane-based
ethanol. As a consequence Brazil ranks only fifth regarding global ventures into
biofuels and needs to promote its knowledge base. With the foundation of the
CTBE in 2008, a research institute with the objective of technological innovation
has been established which is renowned in Brazil and abroad.

4.5.2.5 Genetically Modified Sugarcane

Genetically-modified transgenic sugarcane is considered to have several beneficial

impacts on the product/process level. Higher content of fiber or higher total
recoverable sugar content per ton are expected advantages of transgenic cane.
This impacts first and second generation ethanol production as well as cogeneration
and sugar production. Higher resistance against drought, pests and diseases is
projected as well as a lower need for fertilizer, water and agro-chemicals. Mid- to
long-term scenarios assume the replacement of conventional sugarcane with mar-
ginal growth by transgenic cane cultivars with higher growth rates. New lines of
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 215

products and applications of genetically-modified cane are expected. Negative

impacts are constituted, first of all, by the unclear risks and unidentified threats of
transgenic cultivars regarding effects on flora and fauna including humans. Cross-
pollination mixed with conventional sugarcane cultivars is possible with
unpredictable outcomes. Furthermore, the reliance on GMO cultivars might lead
to the evolution of herbicide resistant weeds.
Interdependencies between product/process level and institutional level can be
identified with regard to the traceability of transgenic cultivars. Modified cane can
be easily recognized and traced, and thus royalties that are to be paid to the
companies that developed the cultivars can be claimed without difficulties. Until
today, the Brazilian government has been reluctant to strongly support transgenic
cane and has prohibited any commercial-scale cultivation. On the international
level many actors, networks and institutions are opponents of GMO products and
the likely refusal of sugar derived from transgenic cane impedes a further promo-
tion by the Brazilian government.

4.5.3 Eligibility of Institutional Level Codes for ETIS

The six codes on the institutional level that were analyzed in Sect. 4.4 are assessed
below regarding criteria that might represent an innovation system within the
sugarcane complex. As done previously, feedback loops, interdependencies and
cooperation are the criteria along which the codes and their impact on the institu-
tional level are evaluated. A close affiliation of actors, networks and institutions is
needed to lead to higher innovation system functions and increases the chances of
technology diffusion.

4.5.3.1 Governmental Institutions, Strategies, Politics

Subsequently, the code on governmental institutions, strategies and policies is

assessed. Regarding the interdependencies between product/process and institu-
tional level, MAPA is the most important governmental body for the sugarcane
complex. Biofuels have a close affiliation to agriculture, more than energetic or
environmental objectives. MAPA represents the agri-businesses not the small-
holders and it favors large-scale approaches. The MME has no particular relation-
ship with the sugarcane complex and considers sugarcane-based energy as another
if major part of the Brazilian energy matrix. The CASA CIVIL, although not
formally represented within the interministerial councils of ethanol policies,
actively participates in the decision-making processes. Additionally, the govern-
ment dictates the strategies of PETROBRAS. The petrol prices capped by
PETROBRAS had a negative impact on the sugarcane complex resulting in less
competitive prices and lower demand for hydrated ethanol. This drove away
investors. By 2012, hydrated ethanol was viable only in 3 out of 27 state and
216 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

federal capitals. In the future, when the Pré-Sal reserves are tapped, PETROBRAS
and the Brazilian government might decide to invest part of the oil rents into the
development of renewable technologies and promote support of the sugarcane
complex. But it is also possible that oil products are made accessible to the
population by low prices as has been the policy in oil rich countries like Venezuela.
Assessing the cooperation between actors, networks and institutions, several
institutions can be identified that were established to promote the energy and
bioenergy sector. In 2004, the EPE was founded to provide mid- and long-term
scenarios on the Brazilian energy matrix for the MME. In 2006 EMBRAPA
Agroenergia was established with the objective of doing research on agricultural
bioenergy. The CGEE developed scenarios for a 10 % worldwide gasoline substi-
tution and in order to ensure leadership and competitiveness the CTBE was founded
in 2008 in cooperation with the MCT. These research institutes represent the goal of
providing innovation and technological development to maintain a leading position
in the production of ethanol. Furthermore, the National Energy Council and the
interministerial councils CEIB and CIMA demonstrate the inclusion of various
actors, networks and institutions into the formulation of policies with regard to
ethanol and the sugarcane complex.
The CSAA with its limited functions and staff seems to be the only regularly
organized platform where industry and government exchange ideas and strategies,
and where dialogue is promoted. In principal, a central institution is missing that
coordinates the different actors from industry, politics, research and NGOs. Fur-
thermore, the Brazilian government is strategically exerting influence on
PETROBRAS, while since Pré-Sal the exploitation of fossil oil dominates the
discourse of the government and is the focus of its energy strategies.

4.5.3.2 Laws, Regulation and Enforcement

Looking at the code, most laws and regulations can be considered interdepen-
dencies that influence the product/process level with adaptations of framework
conditions occurring on the institutional level. Mandatory blending quotas for
anhydrous ethanol and reduced taxes on hydrated ethanol and FFVs are the most
important demand-pull mechanisms to induce technological development and
innovation. Legislation that reduces the distribution and transmission charges for
biomass-based electricity directly promotes cogeneration technology and can also
be considered a demand-pull. Various governmental programs represent supply-
push mechanisms as, for instance, the PAISS—support plan with the objective to
promote industrial and technological innovation and the PRORENOVA program
that addresses the renewal and cultivation of new sugarcane plantations. Also, the
protection of intellectual property which is considered a requirement for promoting
innovation is addressed within the sugarcane complex by SNPC with regard to new
sugarcane cultivars.
Cooperation between actors, networks and institutions with regard to the sugar-
cane complex is affected by Brazilian laws and legislation. The agro-ecological
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 217

zoning for sugarcane identifies and designates suitable expansion areas for sugar-
cane cultivation and can be considered a supply-push mechanism. The cooperation
of BNDES and GRAALBIO to construct usinas capable of producing second
generation ethanol represents governmental influence in the form of a supply-
push mechanism. Additionally, the registry of employers barred from public
financing (lista suja) has an impact on the behavior of companies within the setor
sucroenergético and thereby impacts physical and social innovations such as
formalization of work or the introduction of mechanized harvest. However, a
major problem of Brazilian legislation is the lack of ability of the government to
sufficiently control and enforce an adherence to its laws and regulations

4.5.3.3 Industrial Cooperation

Looking at the code ‘industrial cooperation’, the effects occur exclusively on the
institutional level with regard to cooperation between actors, networks and institu-
tions. Especially on a regional scale, a variety of cooperation could be identified
that are beneficial for the sugarcane complex. Over the last years there has been an
improvement of the relationship between the usinas and the independent sugarcane
suppliers. Formalized contracts provide a relatively fair share of the sugar and
ethanol sales revenue to the sugarcane suppliers. The establishment of one success-
ful and expanding company has positive regional effects and can lead to industrial
clusters. Existing Know-how and expertise draws additional investments just like in
the case of HYUNDAI in Piracicaba. The APLA-ethanol cluster represents such
cooperation between actors, networks and institutions.
The industry-financed CTC research center and the publicly financed academic
network RIDESA and their success in the development of new sugarcane cultivars
demonstrate the importance of cooperation. Additionally, UNICA has a strong
influence on the national level, and in particular on the state level as the agreement
on phasing out pre-harvest burning in São Paulo state has showed. The cooperation
with CASE and JOHN DEERE to re-qualify sugarcane cutters that resulted in the
‘RenovAção’—program demonstrates the ability of innovation on the institutional
level. Nevertheless, a lack of cooperation between industry and academia, and
between public and private research institutions, has been noted by several
interviewed experts.

4.5.3.4 Concentration and Internationalization

Assessing the code on ‘concentration and internationalization’, several interdepen-

dencies and beneficial effects for the development of innovations and technologies
can be identified. Market access for the products of the sugarcane complex
increases. Furthermore, economies of scale as well as technological integration
and technology transfer can be realized by concentration processes. Transnational
companies (TNCs) have larger financial resources that might result in larger R&D
218 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

budgets and the extensive knowledge base of TNCs might imply benefits for partner
companies. Knowledge spillovers imply a positive impact on growth and effi-
ciency. But there is no guarantee that M&A, even JVs necessarily result in
knowledge exchange. Furthermore, TNCs are prone to quickly moving their invest-
ments when more lucrative options are provided.
Cooperation is reflected by the fact that between 2009 and 2012 at 13 out of
15 large-scale JVs, TNCs participated in M&A that occurred within the Brazilian
sugarcane complex. The multitude of mergers and acquisitions that occurred within
the sugarcane complex might be an indicator for second generation ethanol being
close to reaching market formation and that market maturity and economic com-
petitiveness are in sight. Securing land resources in Brazil and promising invest-
ments due to high world market prices for sugar might also be a reason for M&A
and JVs. Principally, a growing participation of private actors with regard to a new
technology implies that the market maturity increases.
Another driver for TNCs to enter the Brazilian sugarcane complex is the access
to biomass and to markets with large growth potential. Since Brazilian companies
in the sugarcane complex lack experience with the promotion and management of
high technology innovation, the participation of TNCs promises benefits regarding
technological developments. In general, TNCs are likely to be better managed than
family-owned businesses. On the down side, if revenues are taxed elsewhere little
profit is made for the Brazilian society and the increase of TNCs might exacerbate
the sellout of Brazilian resources without benefits for the Brazilian society. Fur-
thermore, being the weaker partner, the associated TNCs might strategically
exclude the Brazilian companies from knowledge transfer and international
markets.
Even though the high hopes of JVs and merges might not have been fulfilled
until today, neither for the TNCs nor for their Brazilian counterparts, the sugarcane
complex still constitutes an attractive sector for acquisitions and joint ventures as
the latest expression of interest from TNCs (for example SÜDZUCKER) make
clear.

4.5.3.5 Certification

Assessing the interdependencies within the code ‘certification’, several possible

benefits for the development of physical and social innovations can be observed.
Demanding certification of a product guarantees quality standards of the product as
well as of the production process as long as it was previously agreed upon.
Certification schemes with regard to biofuels focus on low environmental and
high social impact of the product and demand proof thereof. For instance, a
threshold for a maximum amount of chemical fertilizer might result in new tech-
nologies for vinasse applications. Premium prices for certified biofuels incentivize
the production along the demanded criteria while double-counting mechanisms
promote biofuels with a comparably lower impact than other alternatives. Sugar-
cane ethanol already fulfills most of the criteria and could join these markets.
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 219

However the certification of biofuels increases their overall costs. The control of
compliance with the criteria poses a structural problem for certification schemes
when regular monitoring and enforcement are missing.
Looking at certification, some cooperation of a wide range of actors, networks
and institutions on a national and international level can be observed. Certification
schemes can be implemented relatively fast and they pose an instrument that is
applicable beyond the domestic legislative boundaries. Brazil can use the estab-
lishment of the schemes to advocate its position towards biofuels within an inter-
national context. Furthermore, certification might promote community governance.
If stipulated in the requirements of the scheme, smallholders can benefit from
certification. However, certification can also involve time-demanding and cost-
intensive processes, in which large-scale producers and institutions are likely to
be preferred as long as small-scale participants are not mandatorily included. The
implementation of certification might have the objective to justify governmental
subsidies as is the case in Europe. Certification might be also considered as Non-
Tariffs-Barrier in international trade to protect inferior products. The misdemeanor
of non-certified institutions might increase. Presently, the multitude of schemes
with alternating criteria and requirements is confusing for the industry and the
monitoring authorities.

4.5.3.6 Markets

Interdependencies between both levels are frequent when turning to the code on
markets. The prospective scarcity and consequently higher prices of crude oil are
expected to result in positive effects on innovation and on R&D expenditures for
biofuel technology. Combined with low world market prices for sugar this scenario
would reinforce innovation and R&D efforts. Additionally, most usinas dispose
over a certain switching capacity and thus react to price changes of ethanol and
sugar. The projected market volumes for sugarcane ethanol are huge due to an
expected strong growth of domestic demand and an increasing export market for
‘advanced fuels’. Additionally, the double-counting market in Europe and the
demand for bio-kerosene, bio-pharmaceuticals and bioplastics are projected to
grow and increase the demand for sugarcane-based products. However, high
world market prices for sugar and only moderate price increases for crude oil
might occur, which would result in lower demand for sugarcane ethanol and
other biofuels. All told, there is a strong competition for the resource sugarcane
resulting from the demand for sugar, ethanol, bioplastics and to a certain degree
also for electricity.
The cooperation of actors, networks and institutions within markets is reflected
by national and international policies on energy, biofuels and agriculture. Regard-
ing export markets, sugar is by far the most important product, compared to ethanol
and therefore it is prioritized by industry and government even to the disadvantage
of ethanol. Legislation for biofuel markets in the US and EU is subject to quite
volatile and unforeseeable modifications resulting in lower or higher demand for
220 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

sugarcane ethanol imports. Considering the opportunity costs, price strategies have
until now favored the production and export of sugar and the import of gasoline as
economically more advantageous, opposed to sugarcane ethanol. But the projected
high prices for oil and the expected efficiency increases of ethanol production might
result in future preferences for the production and use of ethanol from sugarcane as
long as sugar prices stay relatively low.

4.5.4 Conclusion of the ETIS

After assessing the codes on the product/process and on the institutional level with
regard to feedback loops between technological stages and technologies, interde-
pendencies between levels and the cooperation of actors, networks and institutions,
it can be stated that the setor sucroenergético passes for an Energy Technology
Innovation System (ETIS). Each code contains important aspects which in total
makes the sugarcane complex eligible as an ETIS (an overview of the criteria can
be found in Tables A.5 and A.6 in the annex). The manifold possibilities of cascade
utilization and the resulting wide range of products that can be derived from
sugarcane are among the principal arguments when assessing technologies and
their feedback loops on the product/process level as well as the continuous potential
for efficiency increases in particular in the upstream technologies. A large variety of
technological developments and innovations has already come out of the sugarcane
complex over the last decades and more are to be expected.
On the institutional level one of the most important argument is the strong
governmental support resulting in the deployment of demand-pull and supply-
push mechanisms which provide large market volumes and substantial funding
for R&D. Besides the government-induced demand, international markets in par-
ticular promise large demand for first and second generation ethanol and also for
other sugarcane based products. In the mid- to long-term, physical and social
technologies are likely in favor of a renewable resource such as sugarcane-based
ethanol as opposed to finite fossil fuels and energies. Considering the cooperation
on the institutional level, actors, networks and institutions within industry, govern-
ment and research seem to be rather well integrated. The establishment of technol-
ogy clusters and the increased demand for knowledge transfer are elements of that
cooperation. Joint ventures, mergers and acquisitions imply a propensity towards
modernization that results in new technological and managerial inputs as well as
larger resource endowments regarding R&D processes. The appearance of certifi-
cation schemes can be understood as a regard for biofuels with low social and
environmental impacts that are further incentives for efficiency increases, techno-
logical developments and innovation towards sustainability.
The Brazilian setor sucroenergético is going through a phase of deep transfor-
mation. New markets are emerging as new production and innovations are devel-
oped such as cogeneration, cellulosic ethanol and bioplastics. Demand-oriented
innovation policies such as price premiums for low-impact fuels combined with
4.5 Interdependencies Within and Between Levels: The Sugarcane-based Energy. . . 221

supply-oriented research and development policies can be successful in the promo-

tion of innovation and technological development as the case of Brazil shows.
Nevertheless, a conclusive, overall governmental strategy which would promote
technological developments and innovations and not only react to changes is
lacking. The sugarcane complex needs to improve interaction and cooperation
between agriculture, industry, public research institutes, academia, and govern-
ment. The establishment of an institution to coordinate joint efforts is considered
necessary by many experts; a central body along the entire supply chain to develop
strategic scenarios, to organize and manage R&D efforts of biotechnology,
harvesting and planting as well as process optimization. The establishment of the
CTBE is considered a right step but the institute lacks overall legitimacy and it
seems to be too focused on scientific research and not enough on coordination and
managerial aspects.
With regard to the promotion of new technologies, the Brazilian government
started only recently to provide substantial incentives in order to stimulate the
development of second generation technology because the conventional first gen-
eration technologies were previously considered competitive enough. The sugar-
cane complex and the Brazilian government have for a long time rested on the
success of the first generation sugarcane ethanol. Now, the initiated supply-push
mechanisms might come too late because second generation technology has mostly
proceeded beyond the demonstration stage of technological development in the
US. And supply-push mechanisms are most effective within the initial stages of
innovation. A multitude of national enterprises and TNCs, already participate at
market formation and diffusion stages of second generation ethanol technology. By
now, demand-pull mechanisms might be more effective.
It should always be kept in mind that technological development and innovation
are evolutionary processes and optimal technology is not necessarily the result of
innovation, in particular with regard to sustainability or social welfare. When
assessing the sugarcane complex and in particular its energy-related products a
heavy participation of the Brazilian government can be observed. Demand-pull and
supply-push mechanisms are provided to promote production, distribution and final
use. Without these (indirect) industry subsidies the setor sucroenergético would
probably produce less ethanol and more sugar. Should sugarcane-based biofuels
become an overly protected industry, it might negatively impact the capability to
innovate. The expert from CTC states that
it is evident that the centuries of protection of over-protection by the government do not
help with development. Only when foolish subsidies are canceled a high level of compet-
itiveness can be reached.

And the expert from EVONIK adds that

innovation is primarily induced by market drivers, it is difficult to dictate innovations
by law.

After having answered the primary research question whether the sugarcane
complex can be considered an ETIS, with ‘yes’, the following Sect. 4.6 provides an
222 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

answer to the ensuing and final research question which comprises the aspects of
sustainability.

4.6 Sustainability Aspects of the Sugarcane Innovation

System

In order to conclude the research of this thesis a final assessment needs to be

conducted. Having stated that the sugarcane complex can be considered an inno-
vation system of the ETIS type, additional ecological, economic and social impacts
of the setor sucroenergético are analyzed. The final research question refers to this
assessment and states: “Do the developments and innovations within the sector
ultimately pay attention to ecological, economic and social aspects, too and as a
consequence do they promote a transition towards sustainability?”
The principal scope of the assessment consists of four codes that were derived
from the evaluation of the expert interviews and the literature review (as indicated
in Fig. 4.5). The codes ‘land effects’, ‘emissions’, ‘economic impacts’, and
‘employment’, along which the chapter is structured, refer to different aspects of
sustainability. They comprise ecological, economic and social elements and
thereby attempt to cover the multi-dimensionality of sustainability. The assessment
is complemented with sustainability aspects identified within the codes on the
product/process level and institutional level. Ecological, economic, and social
aspects that are associated with the analyzed technologies on the product/process
and institutional level, as well as impacts that are expected to occur, are discussed.
The expected outcome of this analysis will not be a final verdict on whether
sugarcane ethanol is sustainable or not, because it is rather problematic to talk about
‘sustainable’ biofuels in a categorical manner, since once the respective energy or
technology is labeled accordingly no further improvements might be considered
necessary. Furthermore, the assessment does not consider a single, isolated tech-
nology but looks at the innovation system sugarcane and evaluates whether as such
it can contribute to a transition and to the development of sustainable mobility. The
evaluation of an innovation system with reference to sustainability is important
because the effects of innovation have often been neglected with regard to aspects
of sustainability. Innovation and technological development are of high relevance
for a transition towards sustainability since human capital in the form of knowl-
edge, Know-how and expertise might be the only capital that natural capital can be
converted into which can compensate for the prospective loss and depletion of
natural capital.
4.6 Sustainability Aspects of the Sugarcane Innovation System 223

4.6.1 Land Effects: Expansion, Displacement and iLUC

One important sustainability aspect to be considered when biofuels are analyzed is

the likelihood of their wide expansion. Increased cultivation of energy crops might
have negative environmental and social effects such as deforestation, land grabbing
and displacement of competing crops and displacement of people. In the following
section, several projections for expansion in Brazil are presented and possible
displacement and land effects are discussed. Subsequently, the impacts derived
from the technologies and innovations of the sugarcane ETIS are elaborated upon.
The total agricultural area in Brazil comprises 264 million ha. Assuming that
around 8.8 million ha are cultivated with sugarcane in 2013/2014 (CONAB 2013)
this implies a cultivation of a little more than 3 % of the total agricultural area.
Center-West and South-West are the main cultivation areas, as already mentioned,
with more than 50 % of the agricultural area in the state of São Paulo being used for
sugarcane. The expansion scenarios differ widely. Although production of ethanol
might happen in the short-term, a mid- to long-term increase is expected in most
projections. The CGEE scenario of 2005 projects a worldwide substitution of 10 %
gasoline by sugarcane ethanol and requires a total of almost 44 million ha, which
implies an expansion area of 35 million ha by 2025 (CGEE 2005). The ‘National
Energy Plan’ formulated by the EPE in 2007 projects 10.6 million ha by 2020 and
almost 14 million ha of sugarcane by 2030 (EPE 2007). This corresponds to the
11.2 million ha that are projected by the MME and EPE (2013) in 2022.
Assuming that the projections by the MME and the EPE are likely to be realized,
the areas need to be identified where an expansion of sugarcane cultivation is
probable in order to assess the impact that the expansion onto new areas might
have. Within the agro-ecological zoning for sugarcane (ZAE), over 34 million ha
were identified with a high and medium aptitude for sugarcane production that are
mainly occupied by pasture (Manzatto et al. 2009). The Amazon area, the Pantanal,
the Paraguay river basin and indigenous territories were explicitly excluded and the
removal of native vegetation prohibited. Most of the areas identified for expansion
are supposed occupied by pasture for livestock or are considered degraded pas-
tures,7 according to de Andrade and Miccolis (2011).
Since cattle farming has a low cattle density in Brazil of 1.0–1.2 heads per
hectare, the pasture could be cultivated with sugarcane instead. Increasing the cattle
per hectare would release huge areas because pasture constitutes an area of almost
100 million hectare in Brazil, according to Sparovek et al. (2007). One of the
interviewed experts from ESALQ states that

7
The definition of degraded land and degraded pasture is contested and ambiguous. The definition
of the UNEP/FAO/GEF Project “Land Degradation Assessment in Drylands (LADA)” is “the
reduction in the capacity of the land to provide ecosystem goods and services and assure its
functions over a period of time for its beneficiaries” (Kellner et al. 2011). Nevertheless, degraded
land and degraded pasture can be in utilization.
224 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

with the proper pasture management the heads per cattle can be more confined to one third
of the area and then two thirds can be opened up for crops.

4.6.1.1 Displacement Effects and Land Grabbing

Looking at the previous data, it is fairly safe to assume that sugarcane cultivation
will probably not reach the Amazon biome but will more likely expand into the
Cerrado and the Center-West and South-West regions. Besides the more compatible
climate it is favorable for sugarcane production to be close to the centers of
consumption and to the infrastructure for export. Yet it would be a mistake to
expect negative environmental impacts only from an expansion into the Amazon
rain forest and the resulting deforestation. The Cerrado also has rich biodiversity
and savannah vegetation, ranging from grassland with shrubs and small trees to
almost closed woodland with a canopy height of 12 m to 15 m (Ratter et al. 1997).
The expansion of sugarcane cultivation and also of any other monocultural crop
into pasture or uncultivated land results in negative ecological effects,
e.g. impeding the migration of endemic species and compromising biodiversity,
according to Gomes et al. (2009).
Additionally, the authors warn that the ZAE has a potential risk of leaving the
general impression amongst farmers that the territorial restriction, by banning
expansion over Amazon, Pantanal und the Upper Paraguay Basin, implies that
sugarcane cultivation is allowed without restrictions everywhere else, especially
in the Cerrado, where the climate conditions are suitable (Gomes et al. 2009). The
expansion of sugarcane and its monocultural cultivation are likely to lead to a
variety of displacement effects in the expansion areas, as was experienced in the
regions where the concentration of sugarcane has been particularly high. The
increasing demand for sugarcane cultivation areas led to a sharp rise of land prices
in São Paulo state as elaborated upon in the chapter on concentration and interna-
tionalization (Sect. 4.4.4). Smallholders and other farmers were forced to either to
lease their lands or cultivate sugarcane themselves because the prices for sugarcane
were more profitable, and because their land was surrounded by sugarcane which
negatively affected their own crops (Novo et al. 2012).
The expert from REPÓRTER BRASIL states that
in São Paulo for example, you have Ribeirão Preto [. . .] which is only sugarcane. So to buy
a kilo of tomatoes it will cost you more because tomatoes need to be transported. And then
in other regions like Goiás you will have increases of food prices when you use all the
useful lands for sugarcane. And this is a concern we still have. And it is also discussed by
CONSEA (National Food and Nutrition Security Council) how this affects and impacts the
food security which is already a problem. It is a growing problem.

So, instead of beans, maize, and other food crops for individual and local trade
and consumption the farmers either favor the cultivation of sugarcane or the leasing
of the agricultural area due to long-term stable revenue. To demonstrate the
importance of smallholders and family farms for the food sector in Brazil, de
Andrade and Miccolis (2011) list their products as well as their shares. Family
4.6 Sustainability Aspects of the Sugarcane Innovation System 225

farms produce 87 % of all cassava, 70 % of beans, 46 % of corn, 38 % of coffee,

34 % of rice, 58 % of milk, 59 % of pork, 50 % of poultry, 30 % of cattle, 21 % of
wheat and 16 % of all soybeans. While they cultivate only 24 % of the total
farmland in Brazil, they account for more than 80 % of all rural properties. Their
participation is vital for the food production and supply within Brazil.
According to Ferreira Filho and Horridge (2014), the cultivation of citrus fruits
will be reduced by almost 3 % by the expansion of sugarcane by 2020 because both
cultivation types are mostly located in São Paulo. Wheat and corn are projected to
be reduced by around 2.0 % for the former and 1.3 % for the latter while the
sugarcane expansion will grow by around 8.2 % up to 2020. A recent study by
Egeskog et al. (2014) confirms the displacement effect on agricultural crops by
sugarcane expansion. The expansion of sugarcane cultivation takes place to a
significant degree on cropland contrary to the oft-formulated expectations that
sugarcane expansion mainly takes place on pasture (Egeskog et al. 2014).
Another aspect related to the expansion of sugarcane and other large-scale
monocultural crops is land-grabbing effects, in the sense of foreign companies
and individuals purchasing vast areas of rural and agricultural land in Brazil. As
already mentioned, there were no restrictions on foreign companies or individuals
purchasing land in Brazil until August 2010, according to de Andrade and Miccolis
(2011). Relatively cheap prices for rural land, resource security, and the desire for
safe investments have been among the main reasons for so-called ‘land grabs’ by
foreign actors which more than doubled from 2.6 million ha in 1992 to almost 5.6
million ha in 2008. According to Clements and Fernandes (2013), only seven
countries represent more than 50 % of the total foreign capital invested (Germany,
Italy, Japan, Lebanon, Netherlands, Portugal and Spain), while China has been
among the largest land buyers in western Bahia. The lack of control of the land
acquisitions which went unrestrained before 2010, as mentioned in Sect. 4.4.2.4,
contributed to rising land prices and purchases in border regions with vague land
titles.
In Brazil an estimated total of 10 million ha is owned either by foreign compa-
nies or by foreign individuals. The central savannahs, the Cerrado biome, which can
be found in nine states, are the main regions where large tracts of land have been
purchased by agri-businesses. According to Clements and Fernandes (2013), two-
thirds of the land purchased and owned by foreign actors is located in the Cerrado.
These areas have been converted rapidly into large-scale cotton, corn, soybean and
also sugarcane monocultural plantations (de Andrade and Miccolis 2011). Such a
magnitude of expansion and land conversion is accompanied by substantial envi-
ronmental and social impacts. Extensive deforestation, soil compaction and ero-
sion, contamination of water resources and the displacement of smallholders and
indigenous population are palpable negative effects. According to Clements and
Fernandes (2013), over 40 % of the entire biome has already been deforested while
only 2.2 % of the Cerrado is under legal protection.
The expansion of agri-businesses and large-scale monocultural plantations into
the Cerrado biome impacts the rural population whose livelihood depends on the
biodiversity within the region. For instance, the mechanized production of soybeans
226 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

and sugarcane does not create employment and rural development when the
expansion results in the displacement of smallholders and family farms, which in
return cannot be provided with sufficient work (Clements and Fernandes 2013).
And by becoming contract farmers for agri-businesses, their role alters from
providing food for personal and regional consumption to producing commodities
for national and global export markets. In this regard the expert from REDE
SOCIAL states
more expansion, more people displaced, and more environmental destruction.

4.6.1.2 Indirect Land-Use Change (iLUC—effect)

One possible effect on cattle farming in the case of sugarcane, soybeans or other
successful agricultural crops expanding is the increase of cattle per hectare and the
confinement of the livestock into an area with higher density as previously men-
tioned. The direct displacement of pasture or agricultural area by expanding
soybean or sugarcane plantations can be considered a direct Land-Use-Change
effect (LUC or dLUC). Yet another possibility indicates that the displacement of
pasture or crop cultivation in one area results in a displacement elsewhere. This
effect is called indirect Land-Use-Change or iLUC effect. Both effects are impor-
tant for calculating the overall GHG emissions that result from the production of
biofuels, elucidated upon in the subsequent section on emissions.
Figure 4.27 presents a highly simplified example to illustrate the effect by
indicating the process of iLUC. The expansion of a crop, for example sugarcane,
onto a certain area that had another use before, for example livestock farming,
results in a reduction of the area for livestock farming by the amount of land that is
now occupied with sugarcane. As a possible consequence, the area that has been
lost to sugarcane is claimed for livestock farming elsewhere, for example on
forested area that is cleared in order to provide grazing grounds for the livestock.
This forested area could even be located in another country (European Commission
2012a). The main difference between dLUC and iLUC is that dLUC occurs
immediately when a displacement takes place. Direct Land-Use-Change happens
within a known area and therefore may be observed and measured.

1 2 3

Fig. 4.27 Indirect Land-Use-Change (iLUC) effect (highly simplified). Based on illustrations by
the European Commission (2012a)
4.6 Sustainability Aspects of the Sugarcane Innovation System 227

The indirect effect takes place elsewhere if it takes place at all, as it does not
when the confinement of cattle is increased for example. The indirect displacement
effect results in an unintended consequence that is almost impossible to observe
directly or to measure and is not within the power of the sugarcane complex to
determine. The common practice in the case of livestock farming is still considered
to be expansion and the displacement of other areas instead of confinement. The
expert from IMAFLORA confirms this and elucidates that
everybody thinks that the area for cattle farming needs to be reduced. But it doesn’t happen
because there are no policies for it. It is still cheaper to expand onto forested land and clear
the area than to recover already deforested areas.

According to Azadi et al. (2012), different studies conclude that the sugarcane
production cannot directly be linked to deforestation. This implies that the majority
of sugarcane expansion takes place on pasture or agricultural land, and that the land
owners who sell or lease the pasture or agricultural land themselves invest into
expansion of their land on the agricultural frontier instead of investing in efficiency
improvements, such as increased cattle per hectare (Egeskog et al. 2014). In order to
reduce the iLUC risk of displacing livestock farming to the agricultural frontier
where land prices are low and deforestation likely, a more integrated mode of
production between the sugarcane complex and the cattle ranchers is considered a
possible approach. According to Egeskog et al. (2011), both systems can coexist
and can be integrated with mutual benefits as their study within São Paulo state
shows.
Sugarcane residues such as steam-treated bagasse, liquid yeast and molasses
qualify as high-quality feedstock for cattle. The usinas can produce sufficient
feedstock and are still able to generate enough energy for the production processes
and also to provide electricity to the grid. However, this requires that the cattle
farmers reduce their pasture by around 40 % to cultivate sugarcane on these areas.
The analyses of Egeskog et al. (2011) indicate that farmers can significantly
increase their annual income especially with dairy cattle. Higher income with a
higher cattle density per hectare might also be applicable to other regions and
thereby may reduce the iLUC effect of sugarcane expansion.

4.6.1.3 Aspects of Land Effects from the Perspective of ETIS Codes

Looking at the product/process level and institutional level codes with regard to
effects that these innovations and technological developments have on land expan-
sion, displacement and land grabbing, the following aspects can be identified.
Modern harvesters are applied more and more frequently and are even required
by law in the state of São Paulo. However, their application is limited by techno-
logical constraints, in particular the incapability to mechanically harvest any area
with an incline more than 12
. Smaller, less heavy machinery might be developed to
overcome this barrier but today usinas are looking for plain land. Since a significant
amount of sugarcane areas in São Paulo are confronted with inclinations above 12
,
228 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

cultivation on plain areas is considered desirable and leads to an expansion onto

such lands. Until 2017 when pre-harvest burning is to be ceased on all cultivation
areas in São Paulo state, the demand for plain area is likely to increase even further.
The large majority of the current expansion areas in Minas Gerais, Goiás and the
Cerrado region are plain and fully mechanizable. With regard to cogeneration, the
pressure on expansion results from high investment costs that state-of-the-art
cogeneration with a high temperature and high pressure boiler and new steam
turbines constitutes. The costs of retrofitting older, existing usinas with modern
cogeneration are often not viable and endorse ‘greenfield’ investments and there-
fore expansion onto new areas. Nevertheless, since the electricity grid that has to be
accessed should be as close as possible, areas of ‘greenfield’ projects cannot be too
remote.
Within the new technologies improvements of production processes and tech-
nological developments are likely to increase the demand for biorefinery products
based on sugarcane. Any of these products contribute by increases in demand to a
higher likelihood of expansion. The construction of the alcooldutos facilitates the
expansion at least into regions where the pipelines are located. The alcooldutos
reduce the transport costs of ethanol and as a consequence make production in more
remote areas viable. Second generation cellulosic ethanol at first might reduce the
demand for expansion of sugarcane because the additional ethanol produced from
cane trash or bagasse represents efficiency increases. Therefore, this implies more
ethanol per ton of sugarcane and per hectare. Should the future production of
second generation biofuels increasingly come from forestry and biomass residues,
the demand from biofuels for additional area might not increase significantly.
Looking at transgenic sugarcane, the expected efficiency increases might also
mitigate the demand for expansion areas. Nevertheless, the development of
draught- or moist-resistant cultivars will allow the expansion onto new territories
such as semi-arid regions or tropical rain forests.
Considering governmental institutions, strategies and policies, a renewed inter-
est in the setor sucroenergético on behalf of the government is possible, even likely.
If the large-scale hydropower projects are postponed, the need for a stable supply of
electricity might result in an increasing demand for cogeneration based on bagasse.
Furthermore, if the Pré-Sal is even harder to access than initially planned, contains
less high quality crude oil and might be depleted earlier than projected, an expan-
sion of the renewable resource sugarcane might be the result. The effects of laws,
regulation and enforcement on land effects are multi-faceted. Some regulation
already exists, such as the ZAE’s inclusion of the requirement not to cultivate
within indigenous territories. Yet the enforcement of this regulation is weak and
there are several cases where sugarcane cultivation has invaded indigenous land.
Generally, the enforcement of legislation with regard to the displacement of
smallholders, family farms and indigenous population is often poor or lacking.
Furthermore, some of the supply-push and demand-pull mechanisms might induce
expansion effects of sugarcane. The PRORENOVA program supports the renewal
of existing, and the implementation of new, sugarcane plantations. Favorable loans
4.6 Sustainability Aspects of the Sugarcane Innovation System 229

by BNDES and mandatory blending quotas are to be understood as drivers of

sugarcane expansion.
The effects of concentration and increasing internationalization of companies
within the sugarcane complex have been a high demand for, and a redistribution of,
agricultural land. Fewer usinas, but with substantially larger cultivation areas, have
been the result of a concentration and internationalization process within the
sugarcane complex. The price explosion of land prices in São Paulo favored the
agri-business models of monocultural cultivation and led to the displacement of
agricultural crops and cattle farming. The introduction of certification schemes
promises an improvement of the means of expansion, but they might have no or
even negative impacts. The certification schemes based on EU-RED require that no
expansion takes place on land with high biodiversity value and high carbon stock. If
these demands are closely respected, certification can have positive results at least,
in the area where expansion takes place. Yet if the ZAE, which has been identified
as an unready, weakly enforced instrument, would be acknowledged as an sufficient
regulatory framework for international certification schemes, the impact of certifi-
cation with regard to expansion is likely to be naught if not negative.
With regard to national and international markets, the magnitude and structure of
Brazilian agriculture often leads to the assumption that Brazil might be the principal
country that can satisfy growing international demand for first and second gener-
ation biofuels. Additionally, other sugarcane-based products, besides sugar and
ethanol, e.g. kerosene, diesel and bioplastics, have potentially gigantic volumes.
Even if the demand only within some of those markets increases palpably, the
pressure on the expansion of sugarcane cultivation will be substantial. The expected
efficiency increases contributed by improved cultivation, production processes and
new technologies, e.g. second generation, transgenic cultivars, are likely to increase
the yield per hectare and the competitiveness of sugarcane products further. This
again will result in higher demand for these products. Additionally, an increase of
crude oil prices is expected, which again might favor sugarcane products and result
in an expansion of cultivation area. If these technological developments and
projected price trends hold true, the demand for sugarcane is likely to increase
massively resulting in negative impacts from expansion as long as they are not
properly monitored and restricted. The interviewed expert from UFRJ states with
regard to the volume and variety of demand that
we will be flooded by a sea of sugarcane.

4.6.2 Emissions

Besides strategic objectives such as the reduction of import dependence and rural
development, the reduction of GHG emissions and air pollution has been one of the
most important goals of biofuel promotion in Brazil and worldwide. The reduction
of GHG emissions is of such high importance, not only because of the actual
230 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

ecological benefit but because this is the main criterion that legitimizes govern-
mental support for biofuels. Biofuels lose the public support foremost in Europe, if
it cannot be ensured that they do not cause similar or even worse environmental
impacts than fossil fuels (Faucher and Langlois-Bertrand 2009). Therefore Life-
Cycle-Assessments (LCAs) of the different biofuels are conducted in order to
calculate whether the production and consumption of alternative fuels is preferable,
and to what extent, compared to fossil fuels. In the following sections, LCAs of
sugarcane ethanol are presented and the iLUC factor is discussed which has been
designated by the EU in order to clarify the competitiveness of sugarcane ethanol
compared to other biofuels as well as to fossil fuels. The aspects of the technologies
and innovations of the sugarcane ETIS that refer to emissions are also elaborated
upon.8

4.6.2.1 Life-Cycle Assessment

Wiloso et al. (2012) describe Life-Cycle Assessment (LCA) as a method to analyze

inputs and outputs of a specific product and its production processes along its life-
cycle with regard to the potential environmental impacts such as GHG emissions.
Even though an ISO standard (ISO 14040) has been developed for the application of
LCAs, different LCA calculations on similar products still often yield diverging
results, especially when assessing agricultural systems and products such as
biofuels, because the parameters of analyses vary significantly depending on the
respective conditions and assumptions. The system boundary, the effect of co- and
by-products and the choice of the functional unit are only some aspects that affect
the calculation of a LCA (Wiloso et al. 2012). To present the multitude and variety
of different LCAs with regard to biofuels and bioethanol would go beyond the
scope of this thesis. Yet, the substantial GHG reduction potential of sugarcane
ethanol is acknowledged by a large majority of LCA calculations.
According to Crago et al. (2010), sugarcane ethanol emits 53 % less GHG
compared to corn ethanol and 74 % less compared to gasoline. Egeskog
et al. (2014) present the largest factors for GHG emissions within the production
of sugarcane ethanol. The production and use of nitrogen (N) fertilizer, essentially
the N2O emissions, are thought to contribute 25 % of the total GHG emissions. The

8
Apart from the direct emissions, the production of sugar and ethanol often results in high water
consumption and the cultivation of large-scale sugarcane monocultures which leads to a pollution
of soil and of surface and underground water caused primarily by the application of pesticides and
fertilizer that also have a negative impact on the GHG balance of sugarcane ethanol (Azadi
et al. 2012). According to Carneiro et al. (2012), the global market for pesticides increased by
over 90 % over the last ten years while the Brazilian market grew 190 % within the same period. In
2008, Brazil surpassed the US and became the largest market for pesticides worldwide. In 2011,
over 40 % of all purchases in pesticides are coming from the soy bean sector while cotton ranks
second with 12.5 %. The sugarcane complex ranks third and buys 11.6 % of all pesticides in Brazil
according to the Instituto de Economia Agrı́cola (2012).
4.6 Sustainability Aspects of the Sugarcane Innovation System 231

Table 4.18 GHG emissions of sugarcane harvesting within four scenarios

Burn/ Burn/ Green/ Green/
mechanical manual mechanical manual
Burnt area 100 % 100 % 0% 0%
Green cane area 0% 0% 100 % 100 %
Mechanical harvesting area 100 % 0% 100 % 0%
Manual harvesting area 0% 100 % 0% 100 %
Diesel emissions (tonCO2equiv/ 0.296 0.112 0.342 0.112
ha)
Burning emissions 0.881 0.881 0.000 0.000
(tonCO2equiv/ha)
Total (tonCO2equiv/ha) 1.176 0.986 0.342 0.112
Based on data from Capaz et al. (2013)

export and transport to e.g. Europe, especially the sea transport, represents about
30 % of the total GHG emissions from sugarcane ethanol. About 40 % of the GHG
emissions derive from sugarcane cultivation, harvest, transport and conversion into
ethanol. Increasing yields of sugarcane per hectare and ethanol per ton of cane as
well as improved transport and production processes will reduce the GHG emis-
sions per liter of ethanol even further over time (Egeskog et al. 2011; Egeskog
et al. 2014). Table 4.18 illustrates an example of GHG emission reduction by
modifying one step within the life-cycle of sugarcane-based ethanol production,
in that instance the substitution of manual harvest by mechanization and the stop of
the pre-harvest burning practice.
Renouncing the pre-harvest burning reduces the GHG emissions by more than
60 % when moving from manual harvest with burning to mechanized harvest
without burning, which is the most common scenario. Once again, Table 4.18
illustrates the importance of employing mechanization to green, unburned sugar-
cane. Yet, the switch from manual to mechanized harvest increases the consump-
tion of diesel because the harvesters and the additional machinery needed are
mostly fueled with fossil diesel (Horta Nogueira and Lima Verde Leal 2012). But
there are some concepts of mitigating these additional emissions by running the
machinery on bioethanol or biodiesel. One of the experts from UNICA states that
different companies, including CASE, JOHN DEERE are developing engines that will
operate on ethanol.

Overall, Horta Nogueira and Lima Verde Leal (2012) estimate that the total
avoided emissions by the sugarcane complex between 2010 and 2030 could reach
more than 150 million tons CO2equiv compared with the low GHG emission factors
in the Brazilian electric power sector (due to large amounts hydropower with almost
‘zero’-emissions). Compared to high efficiency thermal power plants powered by
natural gas, the avoided emissions could even result in over 760 million tons
CO2equiv between 2010 and 2030. According to Galdos et al. (2013), the prospective
developments of 100 % mechanized harvest and the integration of first and second
generation ethanol will also reduce GHG emissions within the sugarcane complex.
232 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

The expected GHG emissions will close to 80 % less than fossil fuels while black
carbon as the major component of soot will be over 200 times smaller without pre-
harvest burning. Wang et al. (2012) present a reduction of GHG emissions com-
pared to gasoline of between 63 % to 118 %, reaching over 100 % by including a
credit for the electricity generation and the provision to the public grids.
Another decisive aspect for the advantageousness of sugarcane ethanol over
fossil fuels and other biofuels is the energy balance as mentioned in the first chapter.
The positive energy balance likewise has an effect on the overall GHG emitted
during the production process of the respective fuels. Most of the other biofuels
have an energy balance between 1:1.3 and 1:3 thus sometimes only marginally in
favor of the output unit, according to Goldemberg et al. (2008) and Augusto da
Costa et al. (2010). The energy balance of sugarcane ethanol and therefore the ratio
of produced to consumed energy varies between 1:8.3 and 1:10 depending on the
study and the applied research methodology (Augusto da Costa et al. 2010; Bajay
2011; Galdos et al. 2013).

4.6.2.2 Quantifying iLUC

Calculating the emissions from deforestation into the emission balance of biofuels
makes a huge difference and due to that fact the incorporation of LUC and iLUC
effects so important. For example, Indonesia only emits 10 % of its GHG from
household, industry and the transport sector while 90 % of its emissions derive from
deforestation and burning of forests and peat land according to Hees et al. (2007).
Indirect Land-Use Change is area and product independent which implies a very
complex correlation and lack of a simple causality (Knauf 2009). A mapping of
displacements occurring within the production of sugarcane ethanol is therefore
extremely difficult to validate.
Yet, there is growing scientific evidence that the iLUC effect has an impact on
the GHG emission balance of biofuels, but the magnitude of the impact is hard to
define and measure (Hennecke et al. 2013). In the existing certification schemes, the
iLUC effect is not covered at all. Therefore it is yet to be decided to what extent and
in which manner the iLUC effect is to be integrated into a regulatory context. A
multitude of studies and reports have been written and models calculated in order to
define a default value or a threshold so that iLUC effects can be integrated in LCAs
and their effect on GHG emission modelled. The European Commission (EC) has
been the most active promoter of studies and reports to calculate and model iLUC
effects of various biofuels. The model of the International Food Policy Research
Initiative (IFPRI) was recognized as having a high accuracy and complexity with
regard to calculating the iLUC effect and the substantial impact it has on the overall
GHG emissions of biofuels and therefore their calculations were adopted by the EU
as current, not yet final reference values (Hennecke et al. 2013).
In October 2012, the EC proposed a 5 % cap on the first generation, crop-based
biofuels that are used as alternative fuels and demanded the integration of iLUC
factors into overall GHG emission balances of biofuels (European Commission
4.6 Sustainability Aspects of the Sugarcane Innovation System 233

2012b). In September 2013, the European Parliament agreed on a 6 % cap of

conventional, first generation biofuels which are assumed to have a higher risk of
iLUC emissions due to the direct competition for agricultural land (European
Parliament 2013). At the time of publication the proposal had not yet been agreed
upon at either national level or within the European Commission. Yet, the
demanded prospective integration of iLUC factors into GHG emission calculations
could impede or promote the access of specific biofuels to the EU and US markets
and thus are considered to have a significant impact on international trade of first
and second generation biofuels (Goh et al. 2013).
Figure 4.28 illustrates the significance of the iLUC effects based on calculations
by the IFPRI model that were selected by the European Commission as reference
values. Therefore it is quite likely that those or at least similar figures as presented
in Fig. 4.28 will be integrated into future calculations of iLUC effects within the
EU. Nevertheless, calculations of LCAs and direct emissions for the different
biofuels and modelling complex interdependencies such as the iLUC effect remain
only approximations and prone to errors.
As illustrated in Fig. 4.28, biodiesel based on soybean and on palm oil would be
excluded as alternative fuels in case the future iLUC factor followed the assump-
tions of this IFPRI model because the GHG emissions in gCO2 per Megajoule
(MJ) exceed those of fossil fuels. The iLUC effect for corn-based and sugarcane-
based ethanol is significantly less and sugarcane-based ethanol can still reduce
GHG emissions by more than 50 % compared to the average fossil fuel, even if the
iLUC factor is included into the overall GHG emission calculations.
This section illustrates that Brazilian ethanol based on sugarcane can deliver
substantial GHG emissions savings when substituting fossil fuels. Nevertheless, the

Fig. 4.28 Reference values for direct emissions and the iLUC effect of selected biofuels. Based
on data from European Union (2009a) and Malins (2011)
234 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

amount of GHG emissions is sensitive to the design of the sugarcane complex.

Furthermore, there is room for further GHG emission reductions, in particular
considering the efficient use with cogeneration of more bagasse fiber and cane
trash which are abundantly available in mechanized harvest systems (Egeskog
et al. 2014). Ferreira Filho and Horridge (2014) state that efficiency increases
within the sugarcane and ethanol production result in lesser iLUC effects because
they assume that the higher the efficiency increases the smaller the amount of new
cultivation areas needed. Policies to promote agricultural research can not only be
regarded as important in the general context of food security but likewise of
reducing iLUC effects of sugarcane expansion. But, as mentioned in the previous
section on expansion, the possibility needs to be considered that the higher the yield
of sugarcane per hectare as well as of sugar and ethanol per ton of cane, the more
likely the general production costs will be reduced which would induce demand
increases for sugarcane and its products. Efficiency gains might result in rebounds
and in increased iLUC effects.

4.6.2.3 Emission Effects from the Perspective of ETIS Codes

The effects that innovations within the setor sucroenergético have on GHG emis-
sions are elaborated upon below. The technologies on the product/process level are
discussed first, followed by the developments on the institutional level.
In Sect. 4.6.2.1, the volume of GHG emissions that were reduced by the phasing
out of pre-harvest burning was illustrated. So, as long as mechanized harvesters are
employed only in fields that are not burned prior to the harvest reduced emissions of
soot, other particles, and GHG are the result. Mechanized harvest has a substan-
tially higher demand for fossil diesel than a comparable manual harvest because
most of the machineries run on fossil fuel. But the emissions from the diesel
combustion are more than compensated for by avoiding emission from pre-harvest
burning. Additionally, the cane trash left on the field increases humidity in the soil
and reduces the application of fertilizer and the emission of nitrogen and
N2O. Phasing out burning also has positive social effects for the individual house-
holds and the national health system shown by fewer respiratory problems in
inhabitants, especially children and elders, adjacent to sugarcane cultivation areas
The cane trash and the bagasse which are burned within the boiler of the
cogeneration unit also release GHG emissions as they would in case of pre-harvest
burning of sugarcane. Yet, contrary to the open field burning, energy is produced
within the boilers, the combustion process is a lot more complete and emissions are
filtered. The reduction potential of especially high pressure and high temperature
cogeneration units is very significant for the Brazilian energy matrix, producing
decentral electricity, steam and heat, also in the dry season and the off-season. The
provision of electricity to the national grid reduces the demand for other energy
carriers that might have produced significantly higher emissions especially when
fossil energy carriers such as fossil diesel are deployed.
4.6 Sustainability Aspects of the Sugarcane Innovation System 235

With respect to new technologies, it can be stated that the alcooldutos in

planning are expected to reduce the traffic on roads and highways substantially.
The substitution of over 80,000 trucks per year by pipelines has beneficial effects on
the reduction of GHG emissions. The substantial increases in ethanol yields per
hectare to almost twice the volume that are promised by applying second generation
additionally will help to reduce the GHG emissions per liter or Megajoule (MJ) of
ethanol. Yet if the cane trash is removed from the field for conversion purposes,
higher amounts of fertilizer are a probable result. Regarding the GHG emissions of
transgenic sugarcane cultivars, the expected yield increases are also considered to
have substantial reduction potentials. Increased resistance against drought and pests
additionally reduce the need for fertilizer and are expected to reduce GHG
emissions.
The strategies and politics of governmental institutions in Brazil with regard to
the sugarcane complex rather pursue energy security and energy independence as
the most crucial objectives. Environmental effects such as the reduction of GHG
emissions are not necessarily deemed desirable without additional positive eco-
nomic impacts such as premium prices for the advanced fuel sugarcane-based
ethanol. Concerns for climate change or other environmental issues are not at the
core of the Brazilian energy policy agenda. Laws, regulation and enforcement are
following similar objectives. Increased competitiveness and the development of
innovations are promoted more than ecological requirements. Legislation rather
favors the loosening of strict environmental laws and standards such as the new
‘codigo florestal’. Regarding industrial cooperation, UNICA promotes the econom-
ically advantageous characteristics of sugarcane ethanol and asks their members to
emphasize the ecological benefits in particular with regard to foreign customers and
consumers.
With respect to internationalization it has been mentioned that TNCs are enter-
prises more likely to be professionally managed, which might include the adherence
to international codes of conduct as corporate social responsibility (CSR) and
certification requirements. TNCs can be caught in the spotlight of international
media and NGOs so they might be prone to public attention which implies that the
adherence to certification schemes and ecological issues such as the GHG reduction
potential might be of more importance for TNCs. Certification schemes, in partic-
ular those registered within the EU and the RED, are considered to be in favor of
sugarcane ethanol from Brazil. The required minimum GHG reduction from
biofuels of 35 %, the required reduction of 50 % by 2017 and of 60 % by 2018
pose no problem for sugarcane ethanol whereas no other commercial scale first
generation biofuel is able to fulfill these requirements for 2017 and 2018. Even
when the iLUC effect is included in the GHG reduction calculations, ethanol based
on sugarcane fulfills the requirements for 2017. The stricter the certification
schemes are set up regarding GHG emissions and energy balances ratios the more
sugarcane ethanol is promoted. Looking at national and international markets and
the demand for sugar, ethanol and other cane-based products, it can be assumed that
a further reduction of GHG emissions along the value chain is likely to result in
additional demand for sugarcane-based products.
236 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.6.3 Economic Impacts

Except for very special cases, all biofuels produced worldwide are either directly or
indirectly subject to subsidies. Industrialized countries such as the US, Germany or
France are heavily subsidizing their agriculture and furthermore promoting biofuels
with additional mechanisms such as mandatory blending quota or reduced taxes.
Brazil, although not directly subsidizing its agriculture, also applies these demand-
pull mechanisms to promote and stabilize the sugarcane complex and the ethanol
production. Looking at the production costs for biofuels and fossil fuels, the
economic viability is largely in favor of the latter. The costs for biofuels differ
widely and depend on aspects such as feedstock prices, conversion processes,
transport costs, and scale of production (Demirbas 2009). The production costs of
biofuels are highest in Europe but also corn-based ethanol is generally more costly
than sugarcane ethanol (Crago et al. 2010).
Economic impacts of sugarcane ethanol promotion and production are presented
below. First, the economic viability of gasoline, ethanol and sugar is discussed,
referring to the outcomes of Sect. 4.4.6. Second, tax losses due to tax advantages for
hydrated ethanol and FFVs are presented as well as the savings from substituting oil
imports. Third, possible direct and indirect economic effects that result out of the
physical and social technologies within the innovation system of the sugarcane
complex are discussed.

4.6.3.1 Economic Advantageousness of Sugar, Ethanol or Fossil Oil

As illustrated in Fig. 4.16 of Sect. 4.4.1, hydrated ethanol prices have been
favorable to gasoline in Brazil only in three out of 27 state and federal capitals in
2012. Sugarcane is among the dominant cultivation crop in all those three states.
And even if the prices for Brazilian ethanol have been competitive with the prices
for imported gasoline over the last decade as Goldemberg et al. (2014b) argue, it
should be considered that the reference price of hydrated ethanol should not
necessarily be the price for a liter of gasoline in Brazil but the world market price
for the corresponding amount of sugar. At the petrol stations in Brazil hydrated
ethanol from Brazil can compete with the gasoline but it should be noted that the
competitiveness of ethanol might only occur at the centers of sugarcane production.
As the comparison of the prices for gasoline and the opportunity costs for
ethanol and sugar showed in Sect. 4.4.6, gasoline would have been the more
favorable fuel for the final consumer the majority of times between 2003 and
2013. The direct comparison illustrated in Fig. 4.25 indicated higher prices for
gasoline during the time of record world market prices for crude oil in the first two
quarters of 2008 and thrice during short intervals prior to 2008. This figure showed
that the price for sugarcane ethanol has been most of the time higher than the price
for gasoline which implies that by substituting gasoline, a higher priced and thus
less favorable alternative has been chosen. The economic advantageousness, in
4.6 Sustainability Aspects of the Sugarcane Innovation System 237

particular throughout the last years, speaks largely in favor of gasoline. Yet, it
should be added that the Brazilian government put a cap on the gasoline prices to
prevent inflation so petrol prices are also controlled and subsidized.
Goldemberg et al. (2014b) argue that the more important comparison of oppor-
tunity costs is that of the costs for sugarcane-based ethanol with the world market
prices for sugar. Due to the direct competition of feedstock between sugar and
ethanol, this comparison is considered crucial. When comparing the prices for sugar
with the prices for ethanol, the prices for the former product have often been higher
than the prices for the latter. Ever since early 2009, the price differences have been
substantial, favoring sugar instead of ethanol. The higher prices for sugar imply that
for the sugarcane complex production, export and sale of sugar at world market
prices have been economically advantageous. The opportunity costs for the pro-
duction of ethanol were higher than for sugar. With regard to these prices, the
conversion of the entire sugarcane into sugar would have been the more viable
alternative the majority of times, assuming that the additional sugar would not have
ruined the world market prices.
From a purely economic point of view, the purchase of gasoline and the supply
of the petrol stations with only fossil gasoline would have been economically more
advantageous to the final consumer and the Brazilian government.9 Selling sugar at
favorable world market prices instead of converting sugarcane to ethanol would
have been the economically more viable option. This already held true in one of the
first assessments of the Pro-Álcool program, which also analyzed opportunity costs
conducted more than 30 years ago by scholars from the same institution where this
thesis has now been written (Borges et al. 1988, 1984).
Assuming that the projections from the EIA hold true and that record oil prices
can be expected from 2035 on, the prices for gasoline will increase up to 60 %
within the coming decades. In contrast an economic advantageousness of ethanol
over fossil oil might be reached when GHG emission reduction will be remuner-
ated, yield increases of sugarcane are realized, production processes are optimized
and new technologies are integrated while prices for crude oil remain at current
levels or increase. Yet sugar also benefits from efficiency increases of sugarcane
cultivation, harvest and processing. Therefore it is likely that most of the times it
will continue to be economically preferable to process sugar from sugarcane and
sell that sugar than to produce ethanol. However, according to MME and EPE
(2013), the prospective demand for sugar is not expected to increase as strong as the
demand for sugarcane-ethanol. Should that increasing demand for ethanol coincide
with lower world market prices for sugar an economic preference for ethanol might
be the consequence. The same applies for kerosene or other sugarcane-based
products that might become economically viable in the coming years and decades.

9
Nevertheless, according to Pacini and Silveira (2011), consumers in Brazil do not react as
strongly as in other countries to price increases and are more likely to buy ethanol instead of
gasoline even when gasoline prices are more favorable. A possible explanation might be that
historically ethanol has often been the more advantageous fuel for them.
238 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

4.6.3.2 Tax Advantages, Tax Losses and Savings from Import

Substitutions

Other issues that need to be considered when discussing the economic impacts of
sugarcane-based ethanol are demand-pull mechanisms such as direct and indirect
tax advantages and tax exemptions in order to promote ethanol. Favorable taxes for
FFVs compared to gasoline-powered cars and less tax levies on hydrated ethanol
illustrate a preferential tax treatment of sugarcane ethanol in order to promote the
sugarcane complex and its alternative fuel.
Giersdorf (2012) showed in his thesis the fiscal impacts that follow the prefer-
ential taxes for hydrated ethanol and for FFVs. In 2008, the federal and state taxes
on gasoline amounted to US$ 0.39 per liter in São Paulo state whereas the overall
tax burden on the equivalent hydrated ethanol amounted to US$ 0.16 per liter so
that on a gasoline-equivalent basis the tax advantage of hydrated ethanol
represented US$ 0.23 per liter. Thus, the federal treasury of Brazil and state treasury
of São Paulo waived substantial amounts of taxes. Had hydrated ethanol been taxed
just like gasoline, US$ 0.76 billion in 2006, US$ 1.31 billion in 2007 and US$ 1.65
billion in 2008 could have been collected which represented 16 % (2006), 23 %
(2007) and 26 % (2008) of the total theoretical tax revenues on fuels for private
transportation for São Paulo state (Giersdorf 2012).
Tax increases on hydrated ethanol in São Paulo and other Brazilian states are
unlikely due to the capped prices on gasoline and a resulting reduction of compet-
itiveness of ethanol which might shift the economic advantageousness in the
remaining three federal states (Goiás, Mato Grosso and São Paulo) towards gaso-
line as well. FFVs that represent the vast majority of car sales in Brazil since 2006
(see Fig. 4.11) have enjoyed preferential tax treatment since their launch in the
Brazilian market compared to gasoline powered cars. According to Giersdorf
(2012), the federal treasury waived tax incomes of US$ 294 million resulting
from a reduced taxation of FFVs compared to gasoline powered cars.
In June 2012, the CIDE tax rate for both ethanol and gasoline was reduced to
zero and therefore no preferential treatment for ethanol exists regarding CIDE as it
did before when the tax amounted to US$ 0.06 per liter of gasoline (Barros 2013).
As indicated previously (see Table 4.10), IPI taxation is favorable for FFVs for
vehicles that have a higher engine displacement than 1,000 cc. The ICMS tax that is
levied by the federal states instead of the national government varies from 12 to
27 % for ethanol depending on the federal state, while for gasoline it varies between
27 and 31 % according to Barros (2013). In May 2013, the PIS/COFIN taxation was
reduced from 12 % for ethanol to almost zero which constitutes another preferential
tax treatment compared to gasoline. According to Soto and Ewing (2013), the tax
cuts are assumed to cause an additional demand of 1.6 billion liters of hydrated
ethanol. The tax reduction of PIS/COFIN represents a loss of US$ 480 million tax
revenues for the Brazilian government in 2013 alone. Furthermore, the setor
sucroenergético enjoys favorable credit lines. The interest rates for the credits
4.6 Sustainability Aspects of the Sugarcane Innovation System 239

within the PRORENOVA program, issued by BNDES, were dropped from 8.5 to
9.5 % in 2012 to 5.5 % in 2013 (Barros 2013).
Solomon (2010) mentions that the large-scale Brazilian ethanol program has
often been justified as economically reasonable due to the reduction of external debt
and savings by substituting oil imports with domestically produced ethanol. With
regard to crude oil this argument might hold true because Brazil’s foreign depen-
dence on crude oil has been close to zero, even negative, which implies more
exports than imports, throughout the last 10 years, according to the National
Agency of Petroleum, Natural Gas and Biofuels (ANP). Yet with regard to gasoline,
the import volumes increased massively within the last 2 years (2.2 million m3 in
2011 and 3.8 million m3 in 2012) while 309,000 m3 of gasoline were exported in
2011 and 122,000 m3 in 2012 (ANP 2013b). The long-term scenarios of Pré-Sal do
not promise much alleviation because the majority of the new refining capacities
are supposed to be directed towards the production of fossil diesel according to
INTL FC Stone (2013), a financial services firm specialized in commodities. Thus
to what extent the tax losses can be calculated against the substitution of (imported)
gasoline has not yet been assessed to the knowledge of the author and would go
beyond the scope of this thesis. Nevertheless, some positive economic impacts can
be identified and secondary economic benefits are realized as elaborated upon
below.

4.6.3.3 Economic Effect from the Perspective of ETIS Codes

In the following section the economic effects of the physical and social technolo-
gies are assessed. From the ETIS perspective the product/process level and institu-
tional level codes are looked at regarding their positive and negative economic
effects.
Positive economic effects of mechanization are felt indirectly. Reduced emis-
sions of soot and other particles from phasing out pre-harvest burning have less
impact on the environment and lead to reduced respiratory problems within com-
munities nearby sugarcane cultivation areas. Improved health has beneficial effects
for the individual households and alleviates burdens on the national health system.
Mechanized harvest requires skilled labor because harvester-production plants and
the operation of harvesters themselves require skilled employees. The construction
of factories to produce mechanized harvesters also leads to new employment and
induces positive secondary economic effects. The production costs are already
partially reduced by deploying mechanization and are likely to decrease further
when cultivation is entirely switched to mechanized harvesting.
Mass unemployment caused by the substitution of manual labor constitutes
negative economic impacts for individual households, the communities adjacent
to sugarcane cultivation and the social systems. Further negative economic impacts
are the compaction of soil due to the higher weight of the haulers (higher density of
sugarcane pieces) and of the harvesters as well as less precise and blunt cuts to the
cane plant which result in the reduction of harvest cycles from five to four. More
240 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

soil is brought to the usina with mechanized harvest which might damage produc-
tion processes and in particular the cogeneration. The exclusion of companies and
individual farmers that are not well-enough endowed financially to finance mech-
anized harvesters leads to further concentration processes within the sugarcane
complex with all its negative and positive economic impacts.
Looking at cogeneration, the production of electricity, steam and heat from
thermal incineration of bagasse constitutes an additional revenue stream for the
usineiros besides ethanol, sugar and other products. One of the usinas of the JV
between PETROBRAS and SAO ~ MARTHINO GROUP could, and probably
would, realize its viability only by current and forthcoming sales of electricity
according to an article in Valor Econômico (2014). Cogeneration can provide stable
revenues for the usina less dependent on world market prices. Furthermore, cogen-
eration allows the usina to generate income even in the dry and in the off-seasons
when no sugar and ethanol is being produced. Producing the electricity close to
densely populated regions is also economically beneficial because it reduces the
need for long and expensive high-voltage transmission lines.
With regard to new technologies the production of fertilizer out of vinasse and
application onto the fields reduces the volume of fertilizer that needs to be pur-
chased. The possibilities of new markets that a biorefinery can supply is constituted
by the huge array of products such as sucro-pharmaceuticals, sucro-cosmetics, and
sucro-plastics. The potential demand volumes and the product varieties are
immense and promise substantial additional revenues if realized—depending on
increases of crude oil prices. Beneficial economic impacts by the alcooldutos are
expected to be lower transport costs of ethanol while the pipelines are also projected
to reduce traffic on roads and highways. The integration of a huge resource base is
considered to be one of the most important economic benefits of second generation
bioethanol. In coming years, the resource base might be expanded from bagasse and
cane trash to other biomass or even forestry residues and, with further technological
innovation, even municipal solid waste. Besides the benefit for the usinas, the
extended resource base might lead to reduced prices for consumers. Additionally
the possible competition of ‘Food versus Non-Food’ products is mitigated and the
prices and the dependency on individual crops is reduced. Solomon (2010) states
that the production of second generation ethanol might even be cost competitive
without subsidies, when low feedstock costs and high but arguably achievable
biomass conversion efficiencies in the near future are realized.
Looking at governmental institutions, strategies and politics it can be argued that
inflation targeting is currently prioritized with regard to economic impacts. This
implies a price cap for gasoline at the petrol stations which impedes the demand for
hydrated ethanol. Furthermore, the future energy matrix is considered to lack a
clear and long-term strategy for biomass-based energies while the exploration and
exploitation of the Pré-Sal reserves draws means and attention of government
politics and strategies. To sustain economic benefits of such finite resources as
crude oil some scholars recommend investments into reproducible capital such as
renewable energy resources. Regarding laws, regulation and enforcement, the
4.6 Sustainability Aspects of the Sugarcane Innovation System 241

negative economic impacts of preferential tax treatments have been discussed

above in detail. Large financial supply-push packages to promote innovation and
technological development might be deployed more precisely than ample mecha-
nisms such as preferential tax treatments, ultimately providing more favorable
economic benefits.
Positive economic impacts of industrial cooperation are widely acknowledged
by the sugarcane complex, be it either in cultivation and processing related research
or in joint political lobbying. The formation of industrial clusters and cooperation
results in a stronger negotiation position with regard to purchases and sales and
enables a stronger, more international appearance of the sugarcane complex. The
relationship between usinas and sugarcane suppliers has been improved by a closer
cooperation. Furthermore, high investment costs and financing of state-of-the-art
technology can be more easily realized by the establishment of industry clusters.
Concentrated Know-how and joint expertise might draw additional competences
and investments as well, as was the case with the establishment of the HYUNDAI
automobile production plant in Piracicaba. Industrial cooperation enables the setor
sucroenergético to (re)qualify and train the skilled workers that they require for the
deployment of new machinery, for example within the RenovAção- program.
Additionally, establishing a joint association as the representative of the major
players within the industry such as UNICA promises political influence which is
likely to result in economic benefits for the usineiros.
The most obvious economic impacts are economies of scale that are realized
when it comes to concentration and internationalization. While the average usina
covered around 20,000 ha of sugarcane cultivation area 20 years ago there are sugar
mills today that have 70,000 ha under cultivation. Concentration and internation-
alization often brings in the capital, which is needed for investments into new
technologies and innovations. Furthermore, TNCs often bring along the ability and
capacity for innovation which otherwise cannot be created due to the lack of capital,
knowledge or other resources. Securing the supply of natural resources, broader
access to markets as well as knowledge and technology transfer are benefits for
TNCs. The exit of family-run businesses is considered economically beneficial
because it is assumed that companies are run better by professional management.
Increasing land prices can be considered beneficial for the land owners but are
likely to lead to the displacement of less profitable crops and smaller farmers.
Looking at economic impacts resulting from certification, access to new markets
for those willing to adhere to the required certification criteria can be counted as a
potential benefit. Premiums paid for the ‘Michelin Star’ are a positive impact which
can be considered an incentive to produce biofuels with higher GHG emission
reduction and lower environmental and better social impacts. Opponents emphasize
the negative impacts of certification and describe the enforcement of criteria as an
obstacle to international trade and a Non-Tariff-Barrier. Furthermore, the costs of
certification are high, in particular in the initial stages of the supply chain, and
therefore impede smaller farmers from participating. The more diligent certification
schemes are supposed to be, the costlier they become.
242 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

An increasing world market price for sugar is beneficial for the sugarcane
complex but not for the production of ethanol. Currently, sugar exports lead to
massive revenues for the sector that are ten times the export revenues of ethanol.
Yet stronger growth is expected to occur with ethanol and other products (see
Fig. 4.23). The prices for crude oil are expected to rise and the substitution of
gasoline through ethanol is likely but higher oil prices result also in higher costs for
fertilizer and fuel for agricultural machinery. The economic impact of the Pré-Sal
reserves is not considered very detrimental but the competition with the sugarcane
complex for governmental attention and funding is considered to be palpable.
Increasing prices for energy and in particular electricity would push further
retrofitting and the development of cogeneration. As mentioned above, the oppor-
tunity costs speak for the import of gasoline and the export of sugar most of the
time, which is expected by many to change in the future. The Brazilian government
loses money with the preferential tax treatment for hydrate ethanol and FFVs.
Overall, the projected demand for sugarcane products is very promising for the
sector.

4.6.4 Employment and Rural Development

The working conditions within the sugarcane complex in Brazil and elsewhere, in
particular with respect to the process of manual cane harvest, have historically been
subject to national and international outcries and interventions and are still respon-
sible for heated discussions between academia, civil society, government, industry,
and trade unions. Within recent years, as elaborated upon in the section on mech-
anization, technological developments such as mechanized harvesters changed the
design of agricultural labor and had massive impacts on the amount of employment
and the requirements needed by the sugarcane producers. In the following section
working conditions within the sugarcane complex and employment effects of
mechanization are discussed and alternatives to the large-scale monocultural culti-
vation of sugarcane are presented. Finally, the innovations on the product/process
and institutional level are presented with regard to employment effects induced by
the respective innovations and technologies.

4.6.4.1 Employment Within the Sugarcane Complex

La Rovere et al. (2011) state that ethanol production in Brazil accounts for more
than 700,000 direct jobs and more than 200,000 indirect employments. According
to de Moraes (2010), sugarcane production employs around 630,000 people in
agriculture followed by coffee with 480,000 jobs and corn with 220,000 jobs.
Depending on the scope of analysis—for example what counts as indirect employ-
ment—these figures can vary quite significantly (Della-Bianca et al. 2013).
According to Bajay (2011), the large bulk of equipment used for the construction
4.6 Sustainability Aspects of the Sugarcane Innovation System 243

of the usinas and which is applied at the production processes, is developed and
fabricated by Brazilian companies, just as the constructions and installations of the
mills themselves are by Brazilian firms. Thus local industries such as metal-
working companies and other equipment manufacturing industries are deeply
rooted in traditional sugarcane cultivation regions in São Paulo state and have
close ties to the setor sucroenergético.
The working conditions for cutting sugarcane manually have repeatedly given
rise to criticism as mentioned above. According to Hees et al. (2007), life expec-
tancy of a sugarcane cutter is 12 years lower than the average Brazilian and the
piece-work rates result in serious health problems of the cane cutters at the spinal
column, knees and the articulated joints. Repetitive movements and exposure to
extreme climate conditions can cause diseases, result in heavy accidents and even
lead to death (de Andrade and Miccolis 2011). The expert from UFMG states that
even the protection gear is questionable. The brain temperatures of cane cutters that were
exposed to solar radiation on the field increased to 44
C and the workers almost collapsed.

Yet even if the manual harvest of sugarcane is physically very demanding there
have been significant advances in working conditions throughout the last decades,
as de Almeida Souza (2013) is writing about the improvement of the cane cutter
contracts, the employment conditions, working hours, and remuneration etc. A
drastic reduction of child and forced labor and a formalization of employment
could be identified. According to de Moraes (2009b), formalized work increased
between 2000 and 2006 by more than 150 % in ethanol distilleries, around 120 % in
sugar mills and 29 % within agriculture which constitutes a significantly lower
percentage. The lower number for agricultural workers might originate from only
the most basic education, no professional qualification and occasionally illiteracy,
which makes these workers more prone to exploitation. Being formally employed
makes the workers of the sugarcane complex eligible for labor rights such as
unemployment insurance, annual vacations, and a 13th salary (de Moraes 2009).
Compared to labor conditions of similar work in other agricultural and even
industrial sectors and industries, the employees of the sugarcane complex are
paid higher wages, looking at data for workers in São Paulo state, according to
La Rovere et al. (2011).
Yet during the harvest period of sugarcane, oranges and café, more than 200,000
of the workers are migrants. Since they are located only temporarily at the harvest
regions for a couple of months and are mostly employed short-term, often they are
not registered in the official statistics, according to Aparecida de Moraes Silva and
Constante Martins (2010). Duarte et al. (2013) argue that with the expansion of
sugarcane cultivation, inequality has increased in the countryside. Poor working
conditions such as low wages, temporary and seasonal labor, even child and forced
labor have been a result of outsourcing and third-party contracts which is a common
practice among sugarcane suppliers (Aparecida de Moraes Silva and Constante
Martins 2010). By 2008, the Ministry of Labor (MPT) created two programs to
promote decent work and eradicate slave labor in the sugarcane complex.
244 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

The introduction of mechanization and the phasing-out of pre-harvest burning

will result in the abolishment of most manual cane cutting. Estimations of the
interviewed experts range from 50,000 to 200,000 jobs in the agricultural sugarcane
cultivation and processing being lost due to mechanization. Moreira de Oliveira
et al. (2010) estimate that between 2006/2007 and 2020/2021, mechanization and
the retirement of manual harvest will cost almost 190,000 jobs in the sugarcane
complex, only in the state of São Paulo, while the switch to mechanized harvest will
create employment for 45,000 people. Yet the likelihood is low for sugarcane
cutters, who often are the most vulnerable actors because they have low qualifica-
tion, are often illiterate and lack a driver’s license, to be retrained (Duarte
et al. 2013).
Moreover, during the transition from manual to mechanized harvest productivity
targets that need to be met by sugarcane cutters have increased significantly. These
piece-work rate contracts that pay according to output massively heighten the
physical strain of the cane cutters and additionally result in higher rates of accidents
in the fields. According to de Andrade and Miccolis (2011), the setor sucroenergé
tico is responsible for more work-related accidents than any other agricultural
activity. Duarte et al. (2013) argue that the responsibility for the provision of new
employment opportunities and trainings should be widely shared and involve also
local and national government.
Regarding employment and other social impacts of sugarcane cultivation there
are some aspects that should be considered. According to Martinelli et al. (2011),
value added components of sugarcane production such as the refining of sugar and
ethanol production have a beneficial impact on local development compared to
primarily agricultural production activities and other land uses such as cattle
farming. The results imply that the production of sugar, ethanol and other higher
value products stimulate rural development (Martinelli et al. 2011).

4.6.4.2 Alternatives to Large-Scale Monocultural Cultivation Designs

In some cases, villages adjacent to industrial crop cultivation become surrounded

by the expansion of monocultures which apply large quantities of pesticides and
fertilizer and thereby often contaminating soil and water. Environmental imbal-
ances are a consequence and combined with the prospect of high prices for leasing
or selling land the results are the displacement of smallholders. Additionally, the
displacement often provides the sugarcane producers with the workforce needed in
the plantations (Mendonça et al. 2013).
Employment generation and rural development are often used as arguments to
justify the promotion of biofuels. Solomon (2010), for example, mentions socio-
economic effects such as economic development, employment generation and
health and gender implications as associated with the expanded biofuel develop-
ment. Yet when the expansion of sugarcane cultivation results in land grabbing and
the displacement of smallholders and smaller farmers this argument might be
rendered incorrect because smallholders such as ‘agriculturas familiares’ constitute
4.6 Sustainability Aspects of the Sugarcane Innovation System 245

an extremely high rate of employment per hectare and often are even more efficient
than industrial agriculture, according to Sparovek et al. (2007). In 2006, there were
more than four million smallholders in Brazil representing over 80 % of all farms.
Therefore smallholder settlements were the largest employer in Brazilian agricul-
ture (Berdegué and Fuentealba 2011).
The majority of direct employment opportunities are not created by mechanized
or even manual production of soybeans and sugarcane or by any other agricultural
commodity. Often these industrially cultivated crops cannot even provide sufficient
jobs for the smallholders and other people who have been displaced by the
expansion of monocultures. According to Clements and Fernandes (2013), family
farming in tropical regions employs up to 35 people per 100 ha while oil palm and
sugarcane plantations employ around ten people. The cultivation of eucalyptus
generates employment for two persons per 100 ha while the fully-mechanized
cultivation and processing of soybeans generates only half a job per 100 ha.
Furthermore, as mentioned in Sect. 4.6.1, family farming is crucial for food
production and the local supply of goods with a broad variety of agricultural and
animal products (de Andrade and Miccolis 2011). Displacement and the loss of
employment affect the variety and availability of food products and ultimately food
security.
With regard to the cultivation of sugarcane and the industrial, monocultural
design of production, the expert from REDE SOCIAL states that
a lot of the discussion sometimes is between, comparing soy with sugar, with maize, but the
problem is always not the plant—but the mode of production. Sugarcane is a beautiful,
wonderful plant! We are not against the production of ethanol, the problem is the mode of
production.

The cultivation and processing of sugarcane is not only possible in large-scale

monocultural designs but can also be cultivated by smallholders. A recent analysis
by Maroun and La Rovere (2014) showed that decentral cultivation of sugarcane
and production of cane-based ethanol in micro-distilleries integrated with food
production seems promising. In Rio Grande do Sul, the main objective of
COOPERBIO, an initiative of small and medium-sized farmers, is the production
of feedstock to produce and market biofuel products as well as the setup of nine
micro-distilleries and one central production unit. The initiative is owed to the fact
that Rio Grande do Sul only produces two percent of the ethanol needed and
therefore imports almost all ethanol from São Paulo state. Around 32,700 smaller
farmers are calculated to participate. If each famer cultivates sugarcane on two
hectares of its land (from the average of 12 ha in total) with a productivity of 4,200 l
per hectare more than 270 million liters could be produced, which is almost double
the consumption of hydrated ethanol of Rio Grande do Sul in 2011 (Maroun and La
Rovere 2014). Such an integrated food and energy system promises multiple
ecological, economic and social benefits according to the authors.
According to Deininger and Byerlee (2012), large-scale farms or agri-businesses
often show a limited ability to productively employ labor. Therefore well-
structured partnerships between agri-businesses and smallholders as well as
246 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

medium farmers promise mutual benefits. By combining the advantages of the

former, such as access to markets, infrastructure and technologies, with the local
knowledge and the flexibility of the latter, significant social benefits such as
employment and local food security might be reached. Local communities would
need to be strengthened to ensure the enforcement of contractual arrangements.
Therefore a participation of public institutions would be vital even though much
can be initiated by the private sector. The authors state that a wide range of farm
sizes could be operational and competitive on a global scale (Deininger and Byerlee
2012).
Yet it needs to be questioned to what extent these ideas of smallholder initia-
tives, decentral ethanol production by micro-distilleries and partnerships between
agri-business and family farmers are based on hard facts and realistic implementa-
tion plans or if it is ‘wishful thinking’ that drives these promising ideas. Economies
of scale and the variety of revenues streams that can be realized by state-of-the-art
usinas with modern cogeneration units and sugar as well as ethanol production lines
will be extremely hard to match with micro-distilleries. Furthermore, mechanized
cultivation and harvest as well as transport and logistics of monocultural sugarcane
production designs are very likely to be significantly more viable and efficient than
within integrated cultivation systems. Within that respect concepts that put small-
holders in direct competition with agri-businesses because they are expected to
cultivate and process exactly the same products should be reconsidered.

4.6.4.3 Employment Effects from the Perspective of ETIS Codes

The effects that innovations and technological developments of the product/process

and institutional level have on employment within the sugarcane complex are
discussed below.
The agreement of phasing-out pre-harvest burning between the sugarcane com-
plex and the government led to the introduction of mechanized harvest. Mecha-
nized harvest again substituted the requirement for manual harvest by sugarcane
cutters. On the one hand, the introduction of mechanized harvest on areas is
projected to cause massive job losses, in particular of the most vulnerable workers
who are unskilled and will find it difficult to become employed elsewhere. On the
other hand, inhumane and horrible working conditions are abandoned while new
employment for skilled labor is created because the introduction of mechanized
harvesters increases the demand for skilled labor. Harvester production plants and
the operation of harvesters require skilled employees. Secondary economic effects
and the creation of employment indirectly linked to the sugarcane complex are
created. However, the number of new jobs created is much smaller and the skill
profiles very different. The mass unemployment of cane cutters has negative effects
on single households and constitutes a burden on the social systems of the com-
munities and the national government. Furthermore, the substitution of manual
labor increases the pressure on the remaining cane cutters, reduces their influence
4.6 Sustainability Aspects of the Sugarcane Innovation System 247

and leverage as well as creating highly physical strains by pay according to output
volumes.
The introduction of cogeneration and the prospective increase in demand for
retrofitted and modern state-of-the-art units probably has only marginal direct
employment effects within the sugarcane complex itself but is very likely to induce
indirect employment effects in the metalworking sector and plant construction
industries. Looking at new technologies the further development of biorefineries
and genetically modified organisms such as transgenic sugarcane cultivars will
significantly increase the demand for highly skilled and qualified experts over the
coming years. Significant investments into education and training in Brazil are the
prerequisites to meet that demand for expertise. Another indirect effect which is
likely to result in the loss of employment will be from the completion of the ethanol
pipelines that are supposed to annually replace 80,000 tanker truck journeys.
With regard to the employment effects of governmental institutions, strategies
and politics, the promotion of the sugarcane complex lead to the creation of
research institutions such as CTBE, EPE and EMBRAPA Agroenergia. Therefore
jobs which demanded high qualifications especially were created by the support
from governmental institutions, strategies and politics while strategies such as
inflation targeting have rather indirect and more negative employment effects on
the sugarcane sector. Looking at laws, regulations and enforcement, the promotion
of the sugarcane complex by direct financial support and indirect subsidies is the
single most important reason for the setor sucroenergético being more or less
robust to changes of prices and demand. The promotion of research programs
such as the PAISS plan of promoting second generation technology increases
demand for highly skilled labor. Furthermore, the adoption of stricter norms and
the adherence to labor laws and its enforcement by the state constitute positive
effects on employment. The National Program to promote decent work in the sugar
and alcohol sector and the National Plan to eradicate slave labor of 2008 are
exemplary. The lista suja and the penalization of employers reported with labor
violations is considered to be a very effective instrument of enforcing labor laws.
With regard to industrial cooperation it can be argued that public and private
research institutions, industry clusters and business associations are promoting the
sector and thus indirectly maintaining employment in the sugarcane complex, by
developing new sugarcane varieties or reducing production costs by purchase
cooperation and strong political lobbying for example. Employment effects of
concentration and internationalization of the sugarcane complex are ambiguous.
On the one hand concentration and consolidation of companies within an industry
most likely comes along with reductions of redundant administration structures and
a leaner staff. On the other hand large companies and TNCs are more openly
exposed to international markets which can be considered a reason to adopt stricter
norms and be more concerned with social issues. The adherence to corporate social
responsibility (CSR) or other codes of conduct might be of higher importance to a
professional management within TNCs than for a family-owned business.
Looking at biofuel certification schemes low environmental and social impacts
of the product and the demand for proof thereof are mechanisms of international
248 4 Empirical Research—setor sucroenergético in Brazil—From the Experts’ Mouths

certification. For instance, the reduction potential of GHG emissions is the principal
characteristic for most certification schemes whereas social issues are only some-
times included as criteria of compliance because they are less easy to monitor and
enforce. Proponents of certification argue that certification schemes are instruments
that can be implemented relatively fast and beyond domestic legislative boundaries
while providing a framework that can guarantee positive environmental and social
impacts induced by the promotion of biofuels. Premium prices for sugarcane
products with distinct characteristics, be it exceptionally low GHG emissions or
formal employment of all workers according to international labor standards, might
be an instrument to realize beneficial employment effects within the sugarcane
complex relatively fast although these might be rather niche market products. With
regard to markets, it can be argued that the international demand for sugarcane
products could have a huge influence on the Brazilian sugarcane complex and
therefore on employment within the industry. Should the demand for first and
especially second generation of ethanol increase according to the various projec-
tions an increasing demand for highly qualified and skilled labor will be one of the
consequences.
Having analyzed several aspects of sustainability that the sugarcane complex
touches it can be stated that even an innovation system with technologies on
product/process and institutional level that promise efficiency and yield increases,
cascade utilization and a huge array of modern products does not automatically
induce beneficial ecological, economic and social effects. Expansion of sugarcane
cultivation area and an accompanying displacement are considered to be among the
most problematic effects induced by the sugarcane complex just as the loss of
employment resulting from the deployment of modern technologies. A concluding
evaluation of the impacts induced by the innovation system on aspects of sustain-
ability will be given in the following section.

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Chapter 5
Conclusions

Abstract In this last chapter the initial research puzzle and the resulting questions
are recapitulated and ultimately answered. The mechanisms and reasons for the
success of the Brazilian sugarcane complex are being illustrated. ‘Agricultural
Processes’ followed by ‘Geopolitics of Energy’ and ‘Markets’ are identified as
the areas that are considered most dynamic within the sector in order to answer the
first research question. With respect to the second research question, the most
important one regarding the depth of empirical analysis, it can be concluded that
the sugarcane complex passes for an innovation system. The assessment of the
physical technologies and innovations identified feedback loops between different
technological stages and technologies and the resulting possibilities of cascade
utilization as the most important arguments for an innovative and progress promot-
ing industry. The varieties of products that are likely to be realized and a huge
potential (inter)national market demand which can be expected also speak for the
sugarcane complex. The strong support of governmental institutions in Brazil
mirrored in the deployment of demand-pull and supply-push mechanisms addition-
ally strengthens the innovation system. Answering the final research question: it can
be stated that the sugarcane complex as an innovation system does not automati-
cally promote a transition towards sustainability. The response towards expansion
and increasing demand for sugarcane-based products is crucial. Unrestrained
expansion would result in palpable negative effects. Nevertheless, the benefits of
providing biofuels, electricity and other products and thereby reducing GHG
emissions are significant.

When considering the production of biofuels to compete with and substitute fossil
fuels, sugarcane-based ethanol from Brazil is considered the most promising
alternative by a multitude of actors, networks and institutions from industry,
government and civil society. The cultivation of sugarcane and the production of
ethanol are quoted as successful agricultural and energy policies promoting coop-
eration within the sector and the application of innovative technologies and con-
cepts. This research has been conducted in order to assess if these theories hold true
and to fathom the mechanisms that are the basis for such success of the sugarcane
complex. Semi-structured interviews and a literature analysis have been starting
points for an analysis applying the ETIS-concept of innovation systems in order to
identify the characteristics that designate the setor sucroenergético as exceptional.

© Springer International Publishing Switzerland 2015 261

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7_5
262 5 Conclusions

Because other countries in Latin America and Africa are also endowed with
climate, soil and topography similar to the conditions in Brazil it was of importance
to identify the aspects that are different in Brazil. Physical innovations on the
product/process level and social ones on the institutional level were analyzed to
fathom what promotes the developments and induces change in the Brazilian
sugarcane complex and its associated actors, networks and institutions. Further-
more, possible mechanisms that might be improved or adapted in order to help
continue the success story with regard to state-of-the-art and future technologies
were discussed. The multitude of possible changes and advances are owed to the
fact that innovations and new developments within the sugarcane complex were
technologically driven (the product/process level) as well as organizationally (insti-
tutional level).
The empirical approach was based on a qualitative data analysis of transcribed
semi-structured expert interviews, complemented by an extensive literature review
to validate the findings. After the introduction, Chap. 2 provided the theoretical
framework for the analysis. Aspects of a transition towards sustainability and
concepts on innovation derived from ideas, assumptions of evolutionary economics
were discussed and the Energy Technology Innovation System (ETIS) approach
was selected as the primary theoretical construct. Chapter 3 elaborated upon the
research design. Qualitative research concepts tend to be applied when evaluating
research subjects related to dynamic environments and innovation. The design that
has been applied within this thesis has integrated qualitative data analysis with
descriptive statistical and other numerical data and therefore is to be understood as
an approach of methodological pluralism. The combination of different research
approaches is often designated as triangulation of methods where the application of
different data and methodologies is possible.
The empirical research, hence the analysis of qualitative data and the literature
review constituted the content of Chap. 4. Initially, the selection of the ‘codes’ for
the analysis of the sugarcane complex as an ETIS was conducted and explained in
detail. These codes were derived from the analysis of the transcribed expert
interviews realized with the application of the QDA-software ATLAS ti. Having
assigned the codes to the product/process level and the institutional level of the
ETIS, a detailed analysis based on the expert interviews and the literature review
followed. Thereafter feedback loops, interdependencies and cooperation within and
between the different ETIS levels were analyzed and the setor sucroenergético was
finally designated as an Energy Technology Innovation System. Furthermore,
aspects of sustainability also identified by ATLAS ti software-based codes, which
are affected by the cultivation of sugarcane and production of sugar, ethanol and
other products, were evaluated.
Concluding, the three research questions formulated in Sect. 1.2 are answered by
means of the analyses realized in Chap. 4. The conclusions comprise the three
objectives of the research which are: The identification of the dynamics of the
sector, the capability of the sugarcane complex to function as an innovation systems
and the extent to which the developments and innovations might contribute to a
transition towards sustainability. Afterwards potentially favorable developments,
5 Conclusions 263

policies and strategies are presented and an outlook of the sugarcane complex is
given.
The initial research question referred to the areas within the sugarcane complex
that were identified as particularly dynamic. Looking at physical and social tech-
nologies and developments the identification of dynamic areas was essential in
order to determine where the scope of analysis had to be applied. Innovations are
unlikely to occur in areas that are static. Within this research, dynamics were
understood as developments that induce change within the sector and affect rela-
tions between actors, networks and institutions associated to the sugarcane com-
plex. When evaluating the transcribed expert interviews codes were created, which
classified developments within the setor sucroenergético. These codes, which were
generated by means of a qualitative content analysis, are indicators for the dynam-
ics of the sugarcane complex and thus refer to the first of the research questions. A
total of 61 codes were created assigned to higher-ranking categories which
corresponded to the product/process and the institutional level of analysis as well
as to sustainability aspects. These codes represent the dynamic areas within the
sugarcane complex according to the analyzed interviews. A numerical figure was
assigned to each of the 61 codes representing the frequency of appearance within
the transcribed interviews which implied that the higher the number of the code the
more often the appearance within the interviews.
The dynamic areas of the sugarcane complex were thus identified by the coding
of the transcribed interviews with the ATLAS ti software. The codes were not
selected and designated randomly but by applying the qualitative content analysis
which has been developed to structure, combine and summarize qualitative data
and content of the transcribed documents. The developed codes were revised and
discussed in feedback-meetings with other researchers familiar with qualitative
analysis and thereby condensed.
As presented in Sect. 4.1.4 when the selection of codes was elaborated upon and
illustrated in Fig. 4.5, it can be stated that the higher-ranking category ‘Agricultural
Processes’, with a total of 656 references and 11 codes, represents the area where
most of the dynamic developments seem to occur. Most of the 11 codes designated
to this higher-ranking category refer to developments within the cultivation,
harvesting and processing of sugarcane, thereby confirming statements of experts
and findings within literature that the innovation and development potential of the
sugarcane complex is highest in the agricultural area. The higher-ranking categories
‘Geopolitics of Energy’ (517 references and 10 codes) and ‘Markets’ (503 refer-
ences and 10 codes) follow as areas ranking second and third with regard to the
dynamics within the setor sucroenergético. When considering the rising impor-
tance of certification and the demands of international markets for sugarcane
ethanol, which are expected to increase, the ranking of these areas as second and
third is understandable.
Out of each of the seven higher-ranking categories, the two most frequent codes
were selected because numerical frequency was considered a suitable indicator, as a
higher number of mentions promises richer data and a larger variety of insights
from the interviewed experts. With regard to ‘Geopolitics of Energy’ only one code
264 5 Conclusions

(Certification) was selected since the primary scope of this research was Brazil and
its sugarcane complex and no other countries. A third code (second & third
generation ethanol) was selected within the category ‘Research and Technology’
because the physical technologies were considered especially interesting to analyze
due to the research efforts already undertaken to promote these technologies and
their future potential. Within the higher-ranking category ‘Sustainability Aspects’ a
third code (Emissions/Energy Balance) was chosen because GHG emissions
resulting from sugarcane ethanol and comparable biofuels are understood as vital
for evaluating aspects of sustainability. Overall 15 codes were selected because of
their closeness to technological developments and to scientific, political, social and
environmental aspects that relate to the sugarcane complex and its aspects of
innovation and sustainability.
The identified dynamic areas within the product/process level represent those
physical innovations that have the highest impact on the sugarcane complex today
and likely also in the mid- to long-term. Today’s technologies with regard to
cultivation, harvest and processing, such as mechanized harvest and cogeneration,
induce the strongest effects on the sugarcane complex and therefore are the most
dynamic ones, just as the prospective technologies such as second generation and
GMO are likely to be in the future. Dynamic areas with regard to the social
innovations and technologies are strategies, legislation and policies of governmen-
tal institutions considered crucial for the setor sucroenergético. Concentration and
internationalization of the industry, the influence of various market demands and of
actors, networks and institutions demanding certification of biofuels were also
identified as dynamic areas.
For the following objective, evaluating the possibility of the sugarcane complex
to function as an Energy Technology Innovation System (ETIS), the identification
of the most dynamic areas and the 15 codes was crucial. Within the second research
question, which addresses innovation and is considered the most important one
regarding the depth of empirical analysis, the identified dynamics were conflated
with the concept of ETIS. Apart from the codes on sustainability aspects and the
code ‘Employment’, the remaining codes were assigned to the product/process
level of the ETIS concept, representing the physical technologies, and to the
institutional level constituting the social technologies. Important actors, networks
and institutions as well as policies, markets and innovations were assessed. The
support that the sugarcane complex experiences from governmental and private
actors, networks and institutions was analyzed as well as the effects that markets
and modern technologies such as mechanization have on competitiveness, effi-
ciency and the supply and demand of the various sugarcane products.
Having analyzed the sugarcane complex along the criteria of an ETIS it can be
concluded that the setor sucroenergético passes for an Energy Technology Inno-
vation System. Feedback loops between different technological stages and technol-
ogies and the resulting possibilities of cascade utilization, as well as the enormous
range of products that have recently shown to be derived from sugarcane, speak for
an ETIS on the product/process level. A variety of physical innovations can be
expected. Regarding the interdependencies between the product/process and the
5 Conclusions 265

institutional level, one of the most important arguments is the strong support by the
Brazilian government which is mirrored in the deployment of demand-pull and
supply-push mechanisms. Large market volumes and substantial funding for R&D
are provided. Additionally, large demand for first and second generation of sugar-
cane ethanol and other cane-based products by international markets is expected
and the internationalization of the sector promotes transfer of knowledge and
expertise as well as additional investments in R&D. In particular in the mid- to
long-term, developments are likely to be in favor of renewable resources such as
sugarcane-based ethanol as opposed to finite fossil fuels and energies. Looking at
the institutional level, the cooperation between actors, networks and institutions
within industry, government and research, represented by the establishment of
technology clusters and research networks is considered to be rather well
established.
A detailed analysis on the question of why the sugarcane complex can be
considered an ETIS can be found in Sect. 4.5. The issue had already been discussed
because it was necessary to evaluate Sects. 4.3 and 4.4 and thereby complete the
second research question before turning to the assessment of the final research
question on sustainability aspects. Only by analyzing specific features attributed to
an Energy Technology Innovation System could the distinct impacts on a variety of
sustainability aspects be evaluated. With regard to evolutionary economics and
innovation theory, mechanization, second generation ethanol and transgenic culti-
vars can be considered more radical elements of innovation as opposed to incre-
mental ones due to the expected ecological, economic and social impacts of these
technologies. A high amount of radical innovation is considered an indication for
the likelihood of a transition towards sustainable mobility by some scholars
(Contestabile 2009; Freeman 1996).
Reflecting on ETIS as a concept of innovation systems, which generally have a
strong institutional perspective according to modern evolutionary economic theory,
it is believed that the contribution of this thesis to a further elaboration of the ETIS
concept refers to a clearer distinction between the product/process level and the
institutional level. This distinction between physical technologies on the product/
process level and social technologies on the institutional level was demonstrated by
the elaboration of feedback loops on the process level, interdependencies between
levels and cooperation on the institutional level. The elaboration of this perspective
on the different levels might facilitate the future evaluation of an industry or
industrial sector as an Energy Technology Innovation System. Furthermore, by
applying a research approach based on the triangulation of qualitative and numer-
ical data such as descriptive statistics, the usability of the ETIS concept within
ample research objectives and dynamic environments has been demonstrated.
Further developments of the ETIS concept with regard to qualitative research
might be provided by additional research on industrial complexes and sectors in
order to enable a comparison of this research and its results with similar approaches.
The findings on the ‘sugarcane complex’ as an innovation system presented within
this research might be developed further and comprise research on the economic
advantages and secondary effects when substituting crude oil, and promoting an
266 5 Conclusions

industry that requires highly skilled experts and is likely to develop a variety of
innovations in the coming years.
Besides the above mentioned results, the applicability and necessity of the
qualitative research approach can be considered vital to the results obtained within
this research. The expert interviews provided very distinct and important insights,
in particular regarding motivations and objectives of actors, networks and institu-
tions, which would have been a lot more difficult or even impossible to encounter
and identify with a purely quantitative research approach. For example, the set-up
of the APLA ethanol cluster, the motivation of biotech companies to introduce
transgenic sugarcane in order to control the cultivar’s origin or the effectiveness of
the lista suja as an instrument to penalize misconduct with regard to labor condi-
tions would have been very difficult to identify without qualitative expert inter-
views and their content analysis. The value that qualitative approaches constitute
with regard to research on innovation and other subjects where historical data are
often missing or are non-existent can be confirmed by this thesis.
The third research question referred to sustainability, namely the ecological,
economic and social impacts that the technological developments and innovations
cause. The objective was to assess to what extent the identified and analyzed
technological and institutional developments and innovations contributed to a
transition towards sustainability. Research on innovation often focuses on eco-
nomic growth, increases in competitiveness and on the stimulus provided for
technological and even social change, but often does not include additional dimen-
sions which refer to aspects of sustainability (Stamm et al. 2009). Economic
benefits are necessary but cannot constitute the sole purpose of innovations sys-
tems. Therefore it is important when looking at ETIS that the analyses of the
technologies include aspects of sustainability. Innovations can indicate a willing-
ness and capability to induce change that results in positive impacts with regard to
sustainability. This is of importance because biofuel production depends on gov-
ernmental promotion, worldwide and also in Brazil, and these government inter-
ventions are often justified by referring to the sustainability effects of biofuels.
In the following section the results of the analyses conducted in Sect. 4.6 with
regard to sustainability aspects of the sugarcane innovation system are summarized.
Hereby the main objectives of biofuel policies from the IEA study (IEA 2004),
presented in Chap. 2 and from the paper on Energy-Technology Innovation by
Gallagher et al. (2006), presented in Sect. 2.1.2 are taken as a reference. Security of
energy supplies and the reduction of fossil oil dependence are demands within both
documents that point in a similar direction. Brazil constitutes the only country
worldwide that can substitute more than 50 % of its gasoline consumption by the
production of hydrated and anhydrous sugarcane ethanol produced domestically.
Therefore a significant reduction of dependence on crude oil can be acknowledged.
Nevertheless, the import of gasoline was substantial, reaching 2.2 billion liters in
2011 and almost 3.8 billion liters in 2012 according to ANP (2013). Yet the
production potential of ethanol is enormous when looking for example at the
34 million hectares designated by the ZAE as possible expansion areas and the
potential yield and efficiency increases of sugarcane per hectare. Between 2013 and
5 Conclusions 267

2022, MME and EPE (2013) project an increase of more than 80 % of sugarcane
cultivated for ethanol production. It is highly likely that these increases in volume
will not only be realized by yield and efficiency increases but will be accompanied
by area expansion.
However, the expansion of sugarcane onto pasture and agricultural area might
have several negative impacts that detriment other objectives formulated within the
IEA (2004) study and by Gallagher et al. (2006). If sugarcane cultivation is
expanded onto pasture negative impacts might be mitigated and even turned into
positive effects as long as the heads of cattle per hectare are increased and no
displacement of cattle farming onto forested land or elsewhere close to the agri-
cultural frontier occurs. If the expansion of sugarcane results into the displacement
of cattle farming or agricultural crops, iLUC effects are probable. However, even if
iLUC effects from sugarcane expansion occur and are calculated into the GHG
emitted by sugarcane ethanol, based on the calculations by the European Union
(2009), the avoided emissions from sugarcane are still substantially higher than
from any other first generation biofuel as elaborated upon in Sect. 4.6.2. Thus, with
regard to the reduction of GHG emissions, explicitly demanded by the IEA, a
positive ecological effect of sugarcane ethanol impact is identifiable. Mechanized
harvest also has a positive effect on soot and particle emissions and results into
reduced GHG emissions and reduced respiratory problems as long as pre-harvest
burning is stopped.
Negative effects on the promotion of rural development (IEA) or environmental
and social degradation (Gallagher) are likely, in particular when the expansion of
sugarcane results in the displacement of agricultural areas with other uses. If
smallholders and family farmers are displaced the negative effects are mostly
twofold. First, the displacement of smallholders and family farmers results in an
increase of unemployment in case they cannot preside over land for cultivation
anymore and thus are excluded from primary sector agriculture. Often the
industrially-cultivated crops cannot provide employment for the smallholders and
family farmers displaced by the expansion. Family farming employs thrice as many
people per 100 ha as the cultivation of sugarcane does. Furthermore, the application
of modern technology often substitutes manual labor for mechanized harvest
machinery. Although the final figures are not yet available, a substantial amount
of employment will be lost due to the mechanized harvest. The second impact of
displacing family farmers is a reduced availability and variety of food products
offered locally. Smallholders in Brazil produce the majority of cassava, beans, milk
and pork as well as substantial amounts of corn, rice, wheat, poultry and cattle,
while they cultivate only a quarter of the total farmland. If family farming is
displaced so is the local provision of food, and in the end even food security
might be jeopardized.
Other effects of monocultural expansion and cultivation of sugarcane are likely
to be ecologically negative such as high fresh-water consumption, soil degradation,
air and water pollution from sugarcane cultivation and the production of sugar,
ethanol and other products as well as the loss of diversity. Yet there are alternatives
to large-scale monocultural designs and modes of production. For example
268 5 Conclusions

sugarcane cultivation and cattle farming can coexist and is considered to have a
variety of benefits such as the provision of high-quality feedstock for cattle, while
the area of cattle farming is reduced to provide additional area for sugarcane
cultivation. Decentral cultivation of sugarcane and food production by family
farmers and the production of sugarcane ethanol in micro-distilleries seems prom-
ising as elaborated upon by some authors. The design for the integration of different
crops and the involvement of small and medium-sized farmers in the production of
energy and food implies the decentral provision of food, fuel and electricity. This
corresponds to the objective formulated by Gallagher et al. (2006) to provide
decentralized energy services to the world’s poor in remote areas. To what extent
these designs and concepts are implemented and realized is yet unclear.
Another objective is to increase and sustain prosperity by the provision of
energy. Looking at Sect. 4.6.3 it can be stated that the purchase and supply of
crude oil and gasoline instead of the production and provision of sugarcane ethanol
usually would have been economically advantageous in most of Brazil for the last
10 years and before. The international sale of sugar instead of the production of
ethanol would have brought additional economic benefits when comparing world
market prices of sugar, ethanol and gasoline. Furthermore, mass unemployment
caused by the introduction of mechanized harvest technology puts a burden on the
social systems in Brazil and does not provide prosperity to the most vulnerable
people. Brazil waives substantial amounts of taxes by the preferential tax treatment
for hydrated ethanol and FFVs. These tax losses are compensated to a certain extent
by the substitution of crude oil and gasoline imports and by secondary economic
effects such as the construction of production plants for harvesters but these effects
cannot be accurately assessed. Additionally, efficiency increases and technological
innovation are likely to lead to higher yields per hectare and cost reductions of
sugarcane ethanol while the majority of experts expect considerable price increases
for crude oil and gasoline within the coming years and decades. The potential
demand volumes for a wide array of other sugarcane-based products are promising
and might increase the ability and capacity of the sugarcane complex to respond to
the demand by selecting the products that promise the highest prices. However,
these expectations are partially based on rising crude oil prices.
It can be said that an innovation system such as the sugarcane complex does not
automatically induce effects by the application of modern technologies and inno-
vations that promote a transition towards sustainability. Within that context one of
the crucial factors is the future response towards increasing demand for sugarcane-
based products. If the supply is increased to meet the growing demand, an expan-
sion of sugarcane cultivation areas is considered to be very likely. Yet unrestrained
expansion would result in palpable negative effects, in particular social ones, as
elaborated upon previously. Despite of all the defects of the sugarcane innovation
system in Brazil the benefits of substituting fossil fuels, providing biofuels, elec-
tricity and other products and thereby significantly reducing GHG emissions are
widely seen to justify the support by the Brazilian government as long as the
presented critical sustainability aspects are considered. If the above-mentioned
5 Conclusions 269

negative aspects of sustainability can be avoided the innovation system sugarcane

might help to promote a transition towards sustainability.
Out of these results certain recommendations follow. They concern primarily
strategies as to how the sugarcane complex might be able to mitigate and avoid
negative effects but also recommendations for the promotion of individual tech-
nologies. First of all, it should be considered to develop the agro-ecological zoning
(ZAE) for sugarcane into an instrument that has more functions than to designate
areas that are apt or unapt for cultivation. It should be established as an enforceable
law instead of just a technical guideline according to the expert from REPÓRTER
BRASIL. Furthermore, agricultural areas cultivated by family farmers should be
considered. These areas should be designated as areas prohibited for expansion with
monocultural modes of production in order to reduce land grabbing and protect
smallholders and their vital functions for rural areas from expansion. Decentral
concepts for sugarcane ethanol production and consumption in remote areas should
to be developed in order to promote local added-value via micro-distilleries for
example. Expansion of monocultural sugarcane cultivation should be restricted to
pasture and the displacement of extensive cattle farming onto other areas and
thereby the creation of iLUC effects should be mitigated by a twofold strategy.
First, coexistence between cattle and sugarcane should be promoted where cattle
farmers provide cultivation area for sugarcane in return for high-quality animal
fodder based on cane bagasse. Secondly, the heads per hectare are to be increased
and the area for cattle decreased as one of the experts from ESALQ stated before in
Sect. 4.6.1. A regulation for a minimum head per hectare could be introduced which
would result in the opening up of huge areas that can be designated for agricultural
cultivation and other purposes.
Regarding the application of individual physical technologies, the establishment
of strict regulation for the application of mechanized harvesters is recommended.
Most important are penalties to prevent pre-harvest burning in combination with
mechanized harvest as demanded previously by the experts from UFMG and
IMAFLORA. In reality this action seems fairly widespread for example when the
usina has no use for additional biomass from cane trash and the cane stalks.
Furthermore, unemployment of low-skilled workers associated with the phasing-
out of pre-harvest burning and manual harvest should be complemented with pro-
grams of agrarian reforms. Offering some areas with an inclination too high to be
harvested mechanically by 2017 to unskilled workers that lost their employment
due to mechanization should be considered.
The governmental promotion of retrofitting older cogeneration units and the
support of investments into state-of-the-art boilers and turbines is another recom-
mendation for an individual technology and would be desirable according to the
experts form CASA CIVIL and EMBRAPA Agroenergia. Modern cogeneration
units exist and are ready for application, not only in an unforeseeable future. Using
the bagasse to provide the energy for the usinas and additionally feed-in electricity
surpluses into the national grid demonstrates cascade utilization beautifully. There
are several other reasons in favor of cogeneration. Highly efficient boilers and
turbines can provide substantial amounts of electricity to the national grid to
270 5 Conclusions

prevent major blackouts in Brazil. The raw material bagasse is already available
and no additional power plant, hydro or gas-powered, needs to be constructed aside
from the connection between national grid and usinas. Cogeneration has become an
important stream of revenue for those usinas that have invested in this technology.
The remaining cane trash might still be used for second generation ethanol produc-
tion and even parts of bagasse should this technology emerge as the more
favorable one.
Another recommendation considered crucial by the expert from EMBRAPA
Agroenergia would be the formulation of a strategy and corresponding objectives
by the Brazilian government regarding the future design of the energy matrix in
Brazil and the role of the setor sucroenergético within it. The lack of clear and
predictable policies might be responsible for technologies, even if endowed with a
high potential, to become stuck between different stages of development. The
discovery and exploitation of the Pré-Sal reserves has shifted the focus of the
Brazilian energy policy towards fossil energy carriers even though the sugarcane
complex might be of similar importance for the Brazilian energy matrix. A more
diverse energy matrix in Brazil, in particular with regard to electricity, is considered
desirable according to the expert from GREENPEACE. Lack of rainfalls coinciding
with other climate extremes might weaken the hydropower production capacity
while a stable supply of electricity is of high importance for the Brazilian economy
and infrastructure.
Looking at certification schemes for ethanol, the central question refers to the
strictness of the criteria, their compliance and monitoring. The divergence between
an effective scheme with positive ecological, economic and social effects and a
scheme employed for ‘greenwashing’ can be huge. The diligence of implementa-
tion and compliance as well as the enforcement capability are hereby decisive. The
establishment of a strict scheme, originated in Brazil, would be a final recommen-
dation and is addressed by IMAFLORA according to the interviewed expert. In the
future, the development of certification schemes for agricultural products with a
multitude of purposes is probable. Having previously gained experience with the
set-up and the management of certification schemes will be valuable. A certification
scheme created in Brazil can be modeled according to the requirements of agri-
businesses or smallholders depending on the intention of the scheme. Premium
prices for biofuels with outstanding characteristics might be demanded and paid
justified by criteria that promote additional aspects of sustainability. Designating
any certified biofuel as sustainable is misleading because as the expert from REDE
SOCIAL states:
How can you make an extensive monoculture system sustainable?

A recent survey at the request of the European Commission showed that the
environmental impact of a product ranks third (84 %) behind the price of a product
(87 %) and the quality (97 %) as one of the most important considerations of EU
citizens when buying products. Since 2009 there has been a significant increase
(25 %) in the number of respondents that consider the environmental impact of a
product more important than the price in a purchasing decision (TNS Global 2013).
References 271

This survey illustrates that the final consumer in Europe is willing to base the
purchasing decision not only on the quality and the price of a product but also on the
expected environmental impact, which is becoming a more important characteristic
of everyday products. This might encourage companies to develop new products
and processes with regard to these findings.
Some sceptics argue that biofuels cannot be considered part of a long-term
strategy for reaching sustainable mobility and energy because they are still associ-
ated with the conventional, crude oil-based mobility system. Biofuels only extend
the life of the combustion engine and prolong the transition to a petroleum-free
mobility system (Faucher and Langlois-Bertrand 2009). They see the rise of electric
vehicles and therefore expect Brazil to lag behind with its investments into ethanol
technology. If biodiesel from various sources and ethanol from corn or sugar beet is
considered those arguments might hold true in the future. But with regard to
sugarcane-based ethanol in Brazil, an increasing competitiveness compared to
gasoline is expected which might imply that if vehicles with combustion engines
are substituted by electric ones, the remaining vehicles might in the future drive on
sugarcane ethanol rather than on gasoline. Even if such competitiveness will not
become reality, the multitude of other products and appliances that can be derived
from sugarcane, especially sugar, will uphold the demand confirming sugarcane as
one of the most productive and efficient plant species known. In this regard the
expert from AMYRIS points out that
the plant sugarcane has not yet reached its maximum production capacity.

Furthermore, technological optimism is displayed within the conclusions of this

thesis by stating the conviction that, under certain and necessary constraints such as
remuneration for GHG emission reduction, the realized and future technological
developments and innovations present sugarcane-based ethanol as a biofuel that not
only might compete economically with gasoline but can also avoid negative
ecological, economic and social effects and at times even provide beneficial effects
with regard to ecological and social issues. Within that context the expert from
Greenpeace states that
biofuels can be part of the solution (substituting fossil energy carriers) but they can just as
easily augment the problem. Without biofuels an alternative is lacking and that fatally
increases the consumption of fossil fuels. But these biofuels need to be endowed with
minimum sustainable criteria in order not to increase the problem.

References

ANP. (2013). Oil, natural gas and biofuels: Statistical yearbook 2013. Rio de Janeiro: National
Agency of Petroleum, Natural Gas and Biofuels – ANP.
Contestabile, M. (2009). Transition towards sustainable energy systems: The case of hydrogen and
fuel cells. In S. Pogutz, A. Russo, & P. Migliavacca (Eds.), Innovation, markets and sustain-
able energy: The challenge of hydrogen and fuel cells (pp. 20–33). Cheltenham: Edward Elgar.
272 5 Conclusions

European Union. (2009). European Parliament: Directive 2009/28/EC of the European Parliament
and of the Council of 23 April 2009 on the promotion of the use of energy from renewable
sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC. L
140. Official Journal of the European Union Brussels.
Faucher, P., & Langlois-Bertrand, S. (2009). Will politics kill biofuels? In M. A. B. Regitano
d’Arce, T. M. Ferreira de Souza Vieira, & T. L. Romanelli (Eds.), Agroenergy and sustain-
ability (pp. 83–95). São Paulo: Edusp.
Freeman, C. (1996). The greening of technology and models of innovation. Technological
Forecasting and Social Change, 53(1), 27–39.
Gallagher, K. S., Holdren, J. P., & Sagar, A. D. (2006). Energy-technology innovation. Annual
Review of Environment and Resources, 31, 193–237.
IEA. (2004). Biofuels for transport: An international perspective. Paris: International Energy
Agency – IEA.
MME, & EPE. (2013). Plano Decenal de Expansão de Energia 2022. Brası́lia: Ministério de
Minas e Energia – MME/Empresa de Pesquisa Energética – EPE.
Stamm, A., Dantas, E., Fischer, D., Ganguly, S., & Rennkamp, B. (2009). Sustainability-oriented
innovation systems. Towards decoupling growth from environmental pressures?. Discussion
Paper 20/2009. Deutsches Institut für Entwicklungspolitik – DIE, Bonn.
TNS Global. (2013). Attitudes of Europeans towards the building the single market for green
products. Flash Eurobarometer 367. TNS Political & Social, Brussels.
Annex

Table A.1 New product families and applications of sugarcane-based material

Family Feedstock Products
Biotechnology: materials based on Molasses a) Citric acid
biological functions of organisms b) Amino acids, lysin
c) Agrochemicals (pesticides)
Chemical: products resulting from Molasses, bagasse, a) Industrial inputs
chemical reaction vinasse b) Plastics
c) Inputs for pulp and paper
industry
Veterinary-drugs: chemical, biological Molasses and bagasse a) Anti-diarrheic syrup
substances, directly fed to treat animal b) Ferrous-dextran complex
diseases c) Probiotic
Food Molasses, bagasse, a) Yeast
vinasse b) Fructose and glycose
by-products
c) Inverted syrups
d) Edible mushrooms
Biologics Bagasse a) Fertilizing compound
Structural: materials applied in struc- Bagasse a) Bagasse/cement pellets
ture, b) MDF pellets
machines or consumable products
Based on data from BNDES (2008)

© Springer International Publishing Switzerland 2015 273

F. Kaup, The Sugarcane Complex in Brazil, Contributions to Economics,
DOI 10.1007/978-3-319-16583-7
274 Annex

Table A.2 Frequency of occurrence of institutions mentioned within the 48 interviews

Frequency of occurrence within the
expert interviews (48 interviews) Name of the institution
10+ NC—Cosan (18
), Petrobras (17
), UNICA (15
),
CTC (11
)
IC—Shell (13
)
6–10 NC—IAC (9
), BNDES (7
), MAPA (7
),
EMBRAPA (6
)
IC—Bunge (8
), AMYRIS (7
), BP (7
), Cargill
(6
), Monsanto (6
)
3–5 NC—ANP (5
), Dedini (5
), Braskem (4
),
ESALQ (4
), Grupo São Marthino (4
), INMETRO
(4
), UNICAMP (4
), Coplacana (3
), Raizen
(3
), Ridesa (3
), Vale do Rio Doce (3
)
IC—ADM (5
), Dreyfuss (5
), Syngenta (5
),
Canavialis (4
), Case (4
), Coca-Cola (4
), FAO
(4
), Greenpeace(4
), Bayer (3
), Esso (3
), ISCC
(3
), Scania (3
)
2 13
NC
9
IC
1 39
NC
20
IC
“
” denotes frequency of occurrence
NC National Institution, IC International Institution

Table A.3 Registered institutions at the SNPC and the number of cultivars registered
Number of cultivars registered at the
National System of Cultivar Protection
Name of the institution (SNPC)
Copersucar 24
Cosan 1
CTC (founded by Copersucar) 29
IAC 11
Monsanto 9
RIDESA—network of seven universities 36
Universidade Federal de Alagoas 12
Universidade Federal de Paraná 3
Universidade Rural de Pernambuco 2
Universidade Federal de São Carlos 16
Universidade Federal de Viçosa 3
Vignis Pesquisa e Comércio de cana-de-açúcar 2
LTDA
Total 112 (58 % registered by the private sector;
42 % registered by public institutions)
http://extranet.agricultura.gov.br/php/snpc/cultivarweb/cultivares_protegidas.php
Annex 275

Table A.4 Global Innovation Index (GII) ranking (total of 142 countries)
Country Ranking—GII Income Region
Switzerland 1 High income Europe
Sweden 2 High income Europe
United Kingdom 3 High income Europe
Netherlands 4 High income Europe
USA 5 High income North-America
Finland 6 High income Europe
Hong Kong (China) 7 High income South-East Asia
Singapore 8 High income South-East Asia
Denmark 9 High income Europe
Ireland 10 High income Europe
Germany 15 High income Europe
Japan 22 High income South-East Asia
China 35 Upper middle income South-East Asia
Argentina 56 Upper middle income Latin America
Russia 62 Upper middle income Europe
Mexico 63 Upper middle income Latin America
Brazil 64 Upper middle income Latin America
Based on information from Cornell University, INSEAD, WIPO (2013)

Table A.5 ETIS aspects of the ‘setor sucroenergético’—product/process level

Product/ Feedback loops—
process level between stages Interdependencies Cooperation
Mechanization + More biomass ! cas- + Stop burning + International and
cade utilization by demanded by communi- national societal pres-
cogeneration and second ties close to sugarcane sure
generation fields + Cooperation of
+ Ethanol engines + NGOs, international UNICA and the Min-
+ Development of community and Brazilian istry of Environment,
mechanized planting government against hor- São Paulo
+ Development of rible working conditions
machinery for on-field + Higher sal ario mı́nimo
supply and maintenance ! Agro-environmental
protocol (demand pull
for harvesters)
+ Secondary economic
benefits
 Mass unemployment
 Still subhuman work-
ing conditions for cane
cutters
 Exclusion of finan-
cially weaker actors
Cogeneration + Providing energy to + Framework of auctions
the usina and reduced transmission
+ Cascade utilization of charges provided by the
(continued)
276 Annex

Table A.5 (continued)

Product/ Feedback loops—
process level between stages Interdependencies Cooperation
bagasse and cane trash government (demand
+ Incentives to retrofit pull)
boilers and turbines + Electricity for the Bra-
+ Mature technology and zilian energy matrix
relatively fast applica- (dry/off-season)
tion + Local and decentral
+ Reduces demand for energy
large hydropower + Stable revenues for the
 Resource competition usina
to second generation and  Exclusion of finan-
bioplastics cially weaker actors
 Retrofit costs favor
‘greenfield’ projects
New + Biorefinery cascade + Government supports
technologies utilization (e.g. PET, alcooldutos as part of
resins) their accelerated growth
+ Wide range of prod- program (PAC) (supply
ucts push)
+ High aggregated value + Alcooldutos reduce
product transport costs and road
+ Vinasse for cascade traffic of heavy vehicles
utilization as input for
biogas and fertilizer
 Resource competition
with other sugarcane
products
Second + Large resource base + JV, M&A with foreign  Second generation
generation (cascade utilization) companies ! provision initiatives from indus-
+ Higher energy conver- of second generation trialized countries
sion rate/efficiency technology without sugarcane
+ Science-based tech- + PAISS program by the ethanol
nology. Might induce Brazilian government  Brazil ranks fifth
additional innovation (supply-push) with regard to global
 Competition with + First generation as ventures into biofuels
cogeneration transition technology + Foundation of the
 High process costs towards second genera- CTBE to provide
 Immature technology tion ! bridging strategy technological
+ Large resource base ! innovation
no competition to food
production ! reduces
dependency on individ-
ual crops
 High investment costs
and long developmental
periods
 Needed expertise in
chemical and biotechno-
logical R&D
(continued)
Annex 277

Table A.5 (continued)

Product/ Feedback loops—
process level between stages Interdependencies Cooperation
GMO + Increased efficiency + Transgenic cultivars
(higher fiber and TRS) easily traced by compa-
! impact on first and nies ! royalties secured
second generation,  International market
cogeneration demand for sugar refuses
+ Higher resistance ! sugar made form trans-
lower need fertilizer, genic cane as food prod-
pesticides uct
+ Replacement of slow  Lack of support by
growing conventional Brazilian government !
cane prohibits commercial
 Unidentified threats of cultivation
transgenic crops
 Cross pollination with
conventional cane possi-
ble
 Reliance on GMO
results in herbicide
resistant weed

Table A.6 ETIS aspects of the ‘setor sucroenergético’—institutional level

Feedback
Institutional level loops Interdependencies Cooperation
Institutions, strate- + MAPA most important + Establishment of EPE,
gies, politics governmental body ! bio- EMBRAPA Agroenergia
fuel policies related to agri- and the CTBE as institutions
culture ! agri-business no promoting energy and
smallholder sugarcane-based energy
+ MME ! bioenergy just research
another source for Brazilian + CNPE, CEIB, CIMA and
energy matrix CSAA as cooperating polit-
+ CASA CIVIL not formally ical institutions
represented, but actively par-  Few interaction between
ticipating industry and government
+ PETROBRAS might invest  Lack of a central institu-
future oil rents into renew- tion
able energies  Pré-Sal oil is dominating
 PETROBRAS strategy is government policies
dictated by government !
capped petrol prices ! less
demand for ethanol !
reduced investor interests
 In only 3 out of 27 states
ethanol is viable
Laws, regulation + Mandatory Blending and + Agro-ecological zoning !
and enforcement reduced taxes for ethanol ! supply-push
demand-pull + BNDES participates at
(continued)
278 Annex

Table A.6 (continued)

Feedback
Institutional level loops Interdependencies Cooperation
+ PAISS plan (innovation in GraalBio venture (second
the sugarcane complex) ! generation) ! supply-push
supply-push + Lista Suja to penalize
+ PRORENOVA program social misconduct !
(renewal/cultivation of plan- improves formalization of
tations) ! supply-push labor
+ Sugarcane cultivar registry  Lack of control and
(SNPC) enforcement
+ Reduced transmission
charges for renewable ener-
gies ! demand pull
Industrial + Improved cooperation
cooperation between usinas and sup-
pliers
+ Successful companies !
draw more industry !
HYUNDAI
+ Establishment of APLA-
ethanol cluster
+ Successful research net-
works CTC and RIDESA
+ Strong business associa-
tion UNICA ! RenovAção
 Lack of cooperation
between industry and
academia
Concentration and + JV, M&A increase market + M&A indicator for near
internationalization access and national/interna- market maturity of second
tional demand generation
+ Economies of scale + Brazilian companies lack
+ Larger financial endow- experience with high tech-
ments of TNCs ! larger nology innovation ! TNCs
R&D budgets promise improvements
+ Knowledge transfer and + TNCs often managed
knowledge spillover more professionally than
 M&A, JV not necessarily family businesses
result in knowledge  Revenues taxed elsewhere
exchange  Sell out of Brazilian
 TNCs quickly withdraw resources
investments  Smaller partner excluded
from knowledge transfer and
international markets
Certification + Certification can guarantee + Cooperation of a wide
quality of product and pro- range of actors, networks
duction processes and institutions
+ Certification of biofuels ! + Relatively fast to imple-
criteria demand low social ment ! applicable beyond
and environmental impacts legislative boundaries
(continued)
Annex 279

Table A.6 (continued)

Feedback
Institutional level loops Interdependencies Cooperation
+ Premium prices and + Brazil can advocate its
double-counting incentivize position within an interna-
biofuel certification tional context
 Certification increases + Certification can promote
costs community governance
 Monitoring and enforce- + Smallholders can benefit
ment not always guaranteed from certification if
demanded
 Preference for large-scale
producers
 Past and future actions
legitimized
 NTB in international trade
 Misdemeanor of non-
certified institutions
increases
 Variety of schemes is
confusing (from fig-leave to
hard criteria schemes)
Markets + Prospective scarcity of + High prices of crude oil !
crude oil ! higher prices ! high demand for ethanol !
positive effects on innovation increased participation of
and R&D of biofuel technol- international actors/institu-
ogy tions
+ Switching capacity reacts + Promising markets for
to market prices of sugar and bioplastics/sugarcane-based
ethanol products ! cooperation of
+ Huge market volume companies to reduce costs
projected for ‘advanced and risks of R&D
fuels’  Sugar main export prod-
+ Increase in demand from uct ! priority even to dis-
bioplastic, pharmaceutical advantage of ethanol
and chemical markets and  Legislation in the US and
+ Demand increase due to EU still subject to opaque
double-counting in certifica- modifications
tion schemes  Considering opportunity
 High prices fur sugar and costs, price strategies might
moderate price increases for favor export of sugar and the
crude oil is also a possible import of gasoline as
scenario advantageous ! future high
 Strong competition for the prices for crude oil and effi-
resource sugarcane ciencies for ethanol might
favor production of sugar-
cane ethanol
Source: Own composition
280 Annex

References

BNDES. (2008). Sugarcane-based bioethanol: Energy for sustainable development. Rio de

Janeiro: Banco Nacional de Desenvolvimento Econômico e Social—BNDES.
Cornell University, INSEAD, & WIPO. (2013). The Global Innovation Index 2013: The local
dynamics of innovation. Geneva: Cornell University, INSEAD, World Intellectual Property
Organization - WIPO.