09/14/2007 02:41 pm ET Updated May 25, 2011

Biofuel Could Eat Brazil's Savannas & Deforest the Amazon

These days, when you fill up your car with a gasoline-and-ethanol blend, you are probably burning ethyl alcohol made from American corn. A few years from now, your commute may be powered by ethanol from sugar cane grown in Brazil's cerrado, a biodiversity hotspot that is the largest savanna in South America and disappearing at a faster rate than the Amazon. You may be hastening the demise of the world's largest rain forest as well. And you won't be alone: AOL founder Steve Case, film producer Steven Bing, supermarket magnate Ron Burkle, global financier George Soros, and other well-known investors (see below) could end up playing leading roles in Brazilian deforestation. Case and his colleagues are banking on Brazilian biofuel. They may be hoping to make a green investment that will help save the world, or they may just want to get a piece of the next gold rush. But they probably don't understand the importance of the cerrado, or the possible environmental consequences of their actions.

Brazil's president Luiz Inácio Lula da Silva and some biofuel boosters claim that Brazilian ethanol production will not affect the Amazon (it will, mostly indirectly). Some also say that the Amazon's deforestation rate has slowed dramatically (true, if you've got a short attention span). Actually, the Amazon is still in grave danger.

Ethanol advocates in Brazil assert that millions of hectares are available for growing sugar cane outside of the Amazon rain forest in "grasslands," "scrublands" or "degraded pasturelands," by which they refer to land in the cerrado or in Brazil's Southeast. The cerrado is treated as a sort of under-utilized wasteland, rather than the species-rich biome that it is. Referring to it only as "grasslands" is like using that word alone to denote the famed savanna that is East Africa's Serengeti. The cerrado is important as more than just potential pasture or cane acreage, and it is under siege.

The Ethanol Explosion & Biofuel Boom

We are at the beginning of a biofuel boom that will reshape the world's energy map. The U.S. and Brazil are the world's two biggest producers of ethanol, having contributed 4.9 and 4.5 billion gallons, respectively, in 2006. Total world production was 13.5 billion gallons . A gallon of ethanol is equivalent to about two-thirds a gallon of gasoline in terms of energy content (some say 70%).

The U.S. makes its ethanol from corn, with the Bush administration providing heavy subsidies, while Brazil makes its alcohol from sugar cane. Americans currently consume more ethanol than they produce, with demand reaching 5.4 billion gallons last year; the latter was equivalent to about 3.6 billion gallons of gas, or more than 2% of annual U.S. gasoline consumption. Brazil, meanwhile, is the world's biggest exporter of ethanol, selling about 20% of its production to the U.S., Japan and India, primarily.

Making ethanol on a significant scale will use up a lot of land. President George W. Bush wants to see biofuel production of 35 billion gallons by 2017. The U.S. and other countries hope to substitute as much as 15% of domestic gasoline for ethanol over the next decade. It will take a lot of corn and cane to achieve it. America's production of ethanol used up 13% of our corn crop in 2005, and that percentage may be at 20% now. World corn, wheat, dairy and beef prices have risen as a result.

However, cane is more viable as an ethanol crop in terms of energy inputs, and most of it will have to come from Brazil. Producing an additional 27 billion gallons there would require roughly 42 million more acres devoted to sugar cane (see figures below). Brazil's Agriculture Minister Reinhold Stephanes estimates there are still 150 million hectares (370 million acres) available for agriculture in Brazil. He and Lula believe there is more than enough "unused" pasture and farmland to absorb a ten-fold increase in Brazil's ethanol production. South Africa and India are also expected to enter the biofuel business in a big way, to meet global demand.

Those are figures that fire the imaginations of investors, including green ones. Yet, there's a small problem. Brazil is already the world leader in annual deforestation, even without a huge leap in biofuel production. It is a world bread basket, number one in soybean, orange juice, coffee and sugar exports, number two in beef, and high in other agricultural products. As the world's population grows, so will Brazil's agricultural production, resulting in more pressure on the Amazon and cerrado. A lot more deforestation is on the way, even without large-scale ethanol production.

Where Brazil Grows Its Cane

Brazil currently grows sugar cane on about 6 million hectares (15 million acres), with about half that earmarked for ethanol (an acre of cane produces about 650 gallons of ethanol ). It takes fewer fossil fuels to convert sugar cane to alcohol than it does corn, and the plant waste can be used to generate heat and electricity at the distilleries. Making ethanol from sugar cane is relatively efficient and cost-competitive, and it doesn't require the tax credit and import tariff currently propping up U.S. ethanol producers.

About 60% of Brazil's sugar cane is grown in the state of São Paulo, in the Southeast. São Paulo is Brazil's wealthiest state, its manufacturing heart and a rich agricultural area. It was once covered by the Atlantic Rain Forest, an ecosystem that centuries ago occupied at least one million square kilometers of Brazil. The "Mata Atlantica," smaller than the Amazon but also rich in biodiversity, was located in the South and Southeast, ranged in a coastal strip along Brazil's Northeast, and was about 93% removed during the country's colonization (remnants of the Atlantic Rain Forest are still under threat). Cane is also grown in many other Brazilian states as well, including in the Northeast and Center-West.

So what's the problem? And who cares about grasslands?

The Cerrado: A Biodiversity Hotspot

The cerrado is located south of the Amazon, on the central Brazilian plateau in the Center-West region of the country. The vast savanna is one of the richest biological regions in the world, in terms of bird, reptile, fish and insect species. It is home to more than 400 tree species, 10,000 plant species, and 800 bird species. Parrots, jaguars, giant anteaters, capybaras, marsupials, and many monkey species live there. It is the world's most biologically diverse savanna, home to at least 5% of Earth's flora.

The cerrado region covers about 23% of Brazil, some two million square kilometers, roughly the size of Western Europe. It varies in form, ranging from dense grassland with shrubs and small trees to almost closed woodlands. The cerrado is a vegetation formation of great antiquity, that may have existed in "prototypic form in the Cretaceous, before the final separation of the South American and African continents."

While the cerrado is not as famous as the Amazon, it is in just as much ecological peril. In fact, it is disappearing at a faster rate in proportion to its size. More than 50% of its original vegetation has been destroyed due to ranching and agriculture, and half of the remaining areas have been seriously impacted. It is being deforested at a rate of about 1.5% per year. Agriculture and ranching have dramatically increased in the cerrado region over the last three decades, and Brazil's Center-West now accounts for more than 40% of Brazil's soybean production (Brazil is the world's leader), 23% of its corn, and 20% of rice, coffee and beans, in addition to heavy beef and pork production. Conservation International believes that the cerrado may disappear almost entirely by the year 2030.

Further deforestation of the cerrado will have a major impact outside its own region. The cerrado is important as a watershed area for various large rivers that run through the Amazon rain forest. Some 700,000 sq. km. of the cerrado is located within the Amazon basin (the total area that drains into the Amazon River system; not to be confused with the Amazon rain forest).

The cerrado's fate also concerns the famed Pantanal, the world's largest contiguous wetland, with 140,000 square kilometers in Brazilian territory. It borders the cerrado in Mato Grosso and Mato Grosso do Sul states, and has 650 species of birds, 80 species of mammals, 360 fish species and 50 reptile species. The Pantanal is under environmental threat as well.

Biofuel, Celebrity Investors & the Cerrado

To increase its ethanol production, Brazil is growing more sugar cane in São Paulo and Paraná states in the South. It is also ramping up production in the Center-West states of Mato Grosso, Mato Grosso do Sul and Goiás. A large part of those three states is covered by cerrado vegetation.

Celebrity investors are putting money into Center-West biofuel production. AOL founder Steve Case, venture capitalist Vinod Khosla, supermarket magnate Ron Burkle, film producer Steve Bing and former World Bank president James Wolfensohn are among the investors in Bermuda-based Brenco (Brazilian Renewable Energy Co.), which plans to produce 3.8 billion liters of ethanol in Brazil by 2015, it was announced Aug. 24. Brenco will produce its ethanol in the cerrado region, in Mato Grosso, Mato Grosso do Sul and Goiás states.

George Soros is also making ethanol in the cerrado region. Soros is the main shareholder in Adeco Agropecuaria Brasil Ltda, and is investing $900 million in three sugar and ethanol plants in Mato Grosso do Sul. They will have a joint processing capacity of 11 million tons of cane per year and produce 1 billion liters of ethanol annually.

Google founders Larry Page and Sergey Brin are two other famous investors who recently visited Brazil to research possible ethanol investments.

Other major investments are underway in the cerrado region. ADM (Archer Daniels Midland) is building a biodiesel production plant, utilizing soybeans, near Rondonópolis, Mato Grosso. It is expected to have an annual capacity of 180,000 metric tons.

Biofuel production will directly impact the cerrado as sugar cane and soybeans replace native vegetation. It will indirectly affect it as cattle ranching and soybean farming (for food) moves there, after being displaced in São Paulo by today's highly lucrative ethanol business.

The Amazon's Deforestation Rate

The Amazon rain forest's annual rate of deforestation showed a decline the last two years as compared to 2005, but that's not saying much. Since 1988, the rate has fluctuated between a low of 11,030 square kilometers (1991) and a high of 29,059 sq. km. (1995) lost per year. The year 2004 saw 27,379 sq. km. destroyed, while 2006 was down to 14,039 sq. km., according to data from Brazil's INPE (National Institute of Space). No one should get too excited: the rate also dropped to 13,227 sq. km. in 1997 and then climbed up to the '04 level. One year does not make a trend, and the rate needs to keep dropping for many burning seasons to come.

The Amazon has lost 17-20% of its forest . Scientists are worried that another twenty percent will disappear during the next three decades, which will seriously impact the region's ecology and rainfall patterns (the Amazon produces half its own rainfall through moisture its plants release into the atmosphere). A tipping point may be reached where remaining trees will dry out; some scientists fear the Amazon rain forest will largely disappear by the end of this century. Global warming could exacerbate the problem, and Amazonian deforestation will worsen global warming.

Biofuel's Threat To The Amazon

The Amazon will be affected by the biofuel boom both directly and indirectly. Biofuel crops such as soybeans and palm oil (both used to make biodiesel) are grown on a large scale there. And, contrary to what President Lula and some others have claimed, cane is indeed cultivated there. In July, Brazilian authorities raided an Amazon sugar cane plantation, in which 1,000 laborers were found working in horrendous debt-slavery conditions. The company, Para Pastoril e Agricola SA, grows cane for ethanol on a 10,000-hectare (24,700 acre) plantation in Pará state, in the Amazon. Global bank HSBC Holdings PLC got unwelcome publicity for loans it had made to the firm, as did Lula - who had been calling ethanol producers "national heroes." Many sugar-cane cutters in Brazil work in miserable conditions.

Brazil's Agriculture Minister Reinhold Stephanes has announced that Brazil will restrict the planting of sugar cane in the Amazon and Pantanal in the next few years. Yet he also has been quoted that "Cane does not exist in Amazonia." Stephanes should perhaps visit the Para Pastoril e Agricola plantation. It would be a miracle if Stephanes actually restricts anything at all. The Lula administration does not have a noteworthy environmental record.

Meanwhile, Lula suspects that European competitors are trying to undermine Brazil's biofuel production by raising environmental concerns. "We have adversaries that will make up any kind of slander against the quality of ethanol and biodiesel."

So, sugar cane is grown on a small scale in the Amazon, and more of it will be planted there in the near future, even if the bulk of production occurs in the Southeast and Center-West. In addition, climactic alterations wrought by deforestation could change the Amazon's climate, making it more suitable for large-scale sugar-cane production.

Biofuel will affect the Amazon rain forest in four ways. First, there will be increased biofuel production in some form. Secondly, since 700 sq. km. of the cerrado lie in the Amazon river basin, deforestation and irrigation in the cerrado will affect the rain-forest areas to the North. Thirdly, much soybean production and ranching will move into the Amazon as farmers in Brazil's South and Center-West invest further in sugarcane. And, fourthly, the massive allocation of corn in the U.S. for ethanol production, and its effect on the planting of soy and other U.S. food crops, will create a greater global demand for Brazilian soy and corn, which in turn will cause more agricultural expansion into the Amazon.

A Brazilian Forestry code limits the deforestation allowable on Amazon rain forest or cerrado land, and require large "legal reserves" of protected natural vegetation. However, Brazil is a country with an ineffective judicial system, and little enforcement. The law won't make much difference, not in the near future.

In terms of biodiversity, the outlook isn't pretty. Brazil will lose out because of species loss, should the cerrado be further devastated. The cerrado, like the Amazon, can be a source of important new medicines and chemicals derived from the vast variety of plant and insect species there, many not yet discovered. In addition, further deforestation will cause soil erosion, damage watershed, and cause climactic change in Brazil. It would make sense if soy and cane growers developed biofuel only on already degraded land in the cerrado, or in São Paulo state, as promised in speeches by politicians, but it's unlikely to happen.

Conservation, Alternative Energy & Cellulosic Ethanol

So, where your ethanol comes from is important. Making ethanol from food crops is not a wise strategy for various reasons (see my blog Gas, Grass or Corn...Nobody Rides for Free).
Neither is producing it from crops grown in biodiversity hotspots, nor creating biofuel through agriculture that shifts other crops into environmentally threatened zones.

The best approach is investing in cellulosic ethanol production, which will make ethyl alcohol from the cellulose in trees and grasses (including the "switchgrass" often referred to by President Bush). Cellulosic ethanol has a high net energy balance, and can be grown on degraded land or areas that are less important in terms of biodiversity. It is a few years away from being viable.

What make the most sense of all is energy conservation and alternative energy (as in wind and solar power). Shouldn't we be investing in these instead of giving pork-barrel subsidies to American farmers to make ethanol out of corn, which can't even compete with Brazil's ethanol? Why can't we spend billions on a "Manhattan Project" for conservation and efficiency, and have it run by an energy genius like the Rocky Mountain Institute's Amory Lovins?

And wouldn't it be great if Steve Case, Vinod Khosla, Ron Burkle, Steve Bing, James Wolfensohn, George Soros, Larry Page and Sergey Brin invested in environmentally enlightened energy companies that dealt with solar power, wind power, cellulosic ethanol, or energy management and conservation?

In conclusion, Brazil is already on a perilous path of deforestation. A dramatic increase in its biofuel production is not the best answer to global energy woes, nor the best strategy for the country's future, in terms of the environment. Foreign investment in ethanol and biodiesel will help accelerate the disappearance of the cerrado and the Amazon. Both could be gone in a few decades.