As South American farmers begin planting, both Brazil and Argentina plan to have laws in place to provide incentives for the production of biodiesel.

The Brazilian government plans to permit an up-to-2% blend of biodiesel with petroleum-based diesel, without allowing vehicle manufacturers to void warranties for those using biodiesel blends. That mixture will rise to 5% in 2005. In addition, the Brazilian government has invested between $2-3 million in biodiesel research.

Antônio Carlos Mendes Thame, a Brazilian congressman, is a key backer of the biodiesel legislation. Mendes Thame says that although there is a lot of talk about using castor beans and palm as source materials for biodiesel, soybeans, along with sunflowers, will likely become the prime source. Soybeans, he says, are the most abundant material for biodiesel production.

Mendes Thame originally offered a biodiesel bill in 2002, proposing a mandatory 4% biodiesel blend nationwide. This year he has submitted a new version of the bill, seeking a voluntary 2% blend, and supplying tax credits to make it happen.

Meanwhile, one official at the Ministry of Mines and Energy says, “there is a lot of pressure” to turn the voluntary use of biodiesel mandatory.

Diesel fuel is a commodity with national security implications in Brazil, where 18-wheelers transport about 90% of inter-city goods.

Brazil has a pretty impressive track record when it comes to setting up alternative fuels. After the oil crises of the 1970s, Brazil instituted two programs — Proalcool to convert automobiles to burn 100% ethanol, and Proóleo to convert diesel engines to biodiesel. The biodiesel program ran out of steam because diesel fuel remained relatively cheap, but the alcohol program took off.

At one point, Brazil had some 4 million automobiles burning pure sugarcane alcohol on the roads. Today, gasoline bought at the pump typically is blended with 25% sugarcane alcohol.

Meanwhile, the Federal University of Paraná has been conducting tests with a VW Rabbit turbo, using soy-based biodiesel. McDonald's has also supplied 6,600 gallons of used frying oil to the engineering post-graduate program and the school of chemistry at the Federal University of Rio de Janeiro. Tests are done with cars donated by Volkswagen.

With the new left-of-center government in place, biodiesel appears to be back. It can be made from any number of oil-producing crops, from soy to castor to palm, some of which can grow in the drought and poverty-stricken Northeast region of the country where annual incomes approach those of central African countries.

The government estimates biodiesel production will generate about 150,000 new jobs in 2005. And according to government plans, producers' oilseeds destined for biodiesel will be eligible for “social certificates” if they adopt policies favorable to small farmers. Holders of these certificates will be eligible for tax breaks.

Meanwhile, the federal government here has invested about $2.5 million to test biodiesel in several cities using sugarcane-based ethanol as a catalyst rather than the toxic methanol predominantly used in the U.S. Up to $4 million (in U.S. currency) will be invested in biodiesel research from several regional development funds.

Brazil uses between 9 and 10.5 million gallons of diesel fuel annually, and would need about ½ million gallons of transesterified oil to make up the 5% blend projected for 2005.

But despite the government's focus on helping hard scrabble farmers in Brazil's Northeast, the greatest value of biodiesel may accrue to soybean farmers in the expansion areas, where transportation costs are high to get inputs in and soybeans out. If growers in states like Mato Grosso, Tocantins and Bahia — a long way from ports — could export soymeal instead of soybeans, and use at least some of the oil for fuel, they could, in theory, save money.

And saving money is what it's all about. An inter-ministerial working group assigned to develop Brazilian biodiesel policy said that, with a 5% biodiesel blend used nationally, the country could save up to $350 million (U.S. dollars) annually on diesel fuel imports.