Answer:
During the 1970s, Brazil was importing over 80 percent of the oil it consumed. Large oil imports and high oil prices were damaging Brazil’s economy. In 1975 Brazil implemented the National Alcohol Program. It contained four policies to stimulate ethanol production.
1) It required Petrobras, its major oil company, to purchase a required amount of ethanol.
2) It provided $4.9 billion of low-interest loans to stimulate ethanol production.
3) It provided subsides so that ethanol’s pump price was 41 percent lower than the price of gasoline.
4) It required that all fuels be blended with a minimum of 22 percent ethanol (E22).
Although crude oil prices were low in the 1980s and 90s, Brazil kept its ethanol program alive and moving forward. In 2000, Brazil deregulated the ethanol market and removed its subsidies. The ethanol mandate was maintained. Depending on market conditions, all fuels were required to be blended with 20 to 25 percent ethanol. The current mandate is 25 percent ethanol in gasoline set June 1, 2007.
Brazil aggressively developed cars that operated only on 100 percent ethanol. In 1979 the Fiat 147 was the first modern car to run on pure ethanol. By 1988 almost 90 percent of all new cars manufactured in Brazil were E100 (alcohol only) cars. However, an ethanol shortage in early 1990 caused a major downturn in the demand for E100 cars. In 1990, only 10 percent of the new cars were E100.
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