Back in the 1970s, when OPEC shut off the spigot, Brazil invested heavily in alcohol to replace gasoline. The U.S. did not.

It may be time to rethink that decision, because today Brazilian government subsidies to fuel alcohol have dropped substantially and private industry is stepping in. As a result, Brazil is in a leadership position with alternative fuels.

Sugarcane producers (they make alcohol here from sugarcane because it's more abundant) are benefiting and the country is less dependent on foreign petroleum than it used to be.

After a period of neglect and malaise in the Brazilian fuel alcohol industry, things are beginning to look up. Luiz Carlos Correa Carvalho, for one, is optimistic. Carvalho, representative in Brazil for the Governors' Ethanol Coalition, says agri-industries and farmers from Argentina to Canada stand to benefit from upcoming increases in fuel alcohol use.

“I believe we will soon see the day ethanol becomes a commodity traded in Chicago, regardless of the agricultural source,” he says. “We are sending delegations to Mexico, Colombia and other countries that may produce alternative fuels from vegetable sources, to help them see the light.”

Things started with a bang for ethanol in Brazil. By the mid-'80s, most cars coming off the production line ran on pure ethanol. From the 1970s to the late '90s, ethanol yields per acre had risen from 242 to 593 gallons.

But ethanol's outlook took a downward turn in 1990 when a poor cane harvest and higher sugar prices led to a shortage. Car owners were furious, and soon migrated back to gas-powered cars.

Ethanol-only cars are, let's face it, a little testy when it comes to starting on cooler mornings. But as long as ethanol remained substantially cheaper than gasoline, this (and the more frequent refueling) was a minor inconvenience. Today, alcohol-only cars represent about one-fifth of the nation's overall fleet, while regular gasoline is sold as a 25% ethanol blend.

But there's plenty of reason for optimism. Now that gas prices are soaring again, alcohol looks more and more attractive. And new “flexible fuel” technologies mean consumers no longer have to lock themselves into one or the other fuel, and can put whatever's cheaper in the tank.

Year Number of Cars Sold Ethanol Share (%)
Ethanol Total
1979 3,328 912,018 0.4
1980 239,251 933,152 25.6
1986 619,854 815,152 76.0
1990 71,523 663,084 10.8
1998 1,188 1,254,016 0.1
2002 48,022 1,521,431 3.2
SOURCE: BRAZILIAN AUTOMAKERS ASSOCIATION. (ANFAVEA)

Earlier this year in Brazil, Volkswagen launched the fuel-flex Golf, which can operate on either gasoline or ethanol, or any blend of the two fuels. GM, Ford and Italian carmaker Fiat quickly joined the party. More importantly, engine performance of the new flexible fuel vehicles (FFVs) is similar with either fuel, and some owners of the new Ford Fiesta claim it runs better on ethanol.

Meanwhile, representatives from carmakers worldwide are visiting Brazil to learn about large-scale production of FFVs. Sales in the first nine months of 2004 had already reached 220,000 cars. This represents almost a quarter of new car sales and is expected to jump to 40% in 2005. Meanwhile, it's estimated Brazil can produce up to 4.8 billion gallons of ethanol a year for those cars.

It's also estimated that Brazil saved up to $55 billion (U.S. dollars) on oil imports from 1975 to 2003 as a result of the national ethanol program.

Alternative fuels are so important here that there is even an alcohol-powered crop duster, manufactured by Brazil's Embraer, a state airplane company. Brazil seems to be flying high with ethanol.