Chapter 4 - Innovation Systems of Ethanol in Brazil and the United States: Making a New Fuel Competitive

Abstract

The energy sector is one of the most regulated economic sectors in the world, making innovation more difficult than in other economic sectors. Further serious challenges for biofuels are that the average consumer (1) does not place additional value to the availability of different types of fuels and (2) does not yet accept paying more for biofuel with lower levels of pollutant emission. The increased use of biofuels hinges on the confluence of a variety of policies, such as energy, agricultural, environmental and industrial policies. This chapter juxtaposes the innovation systems for ethanol in Brazil and the United States, the two major global producers, evaluating their main strengths and weaknesses. Emphasis is placed on the coordination of energy policy with industrial and agricultural policies, environmental aspects and regulation. The chapter concludes with a general comparison of the two countries regarding the development of second-generation ethanol technologies (E2G). Brazil has a better structured market for ethanol use. However, the system shows significant inertia in terms of wide-scale adoption of E2G production technology. The United States has difficulties with market formation, but has taken a well-articulated set of actions to develop technology. A large part of technological development in the United States is done by startups with technologies often found in university research laboratories. In Brazil, technology development is dominated by research institutes and large firms. The technological evolution of E2G, intercropped with a raw material of high productivity (sugarcane), has the potential to make biofuels price competitive with fossil fuels. Despite the deep differences in terms of policy systems supporting innovation between the two countries, the results in terms of industrial production are quite close and indicate that both systems present conditions to transition to E2G.