Japan Boost Ethanol Production

Sources: MSNBC, The Standard, BusinessWeek

In June 2006, Japan had announced that it would fight global warming by requiring all vehicles to run on a gasoline-ethanol blend by 2030. It also required that all new cars, starting in 2010, to run on a 90-10 gasoline-ethanol blend. These ethanol blends are used widely in Brazil as well as the United States, and while Japan allows a 3% ethanol blend, there are no cars running on gasoline-ethanol.

In meeting this new created demand for ethanol, Japan has begun to increase ethanol production in southern Japan, where there is a plentiful supply of the biomass required. There is enough indigenous biomass on the southern island of Miyako to power 20,000 cars. However, this appeared to insufficient. Japan will likely require 1.8 – 6 billion liters of ethanol fuel per year. Therefore, Brazil and Japan has announced a project where Japan would purchase as much as $8 billion in Brazilian sugarcane ethanol. Japanese company Mitsui and Petrobras, the Brazilian state-run oil company, would set up a Brazil-based subsidiary to ensure supply. Currently, Brazil only exports 225.4 million liters to Japan per year. The money is to be used to purchase stakes in 40 ethanol distilleries, and investment may reach $200 million per distillery to ensure a fifteen year stable supply. Japan’s National Development Bank will provide the necessary financing for the project.

Question: What benefits do you see with the increase ethanol trade between Japan and Brazil? What benefits may the local sugarcane farmer see from this increased trade? What possible consequences do you envision?