What I Learned about the World’s Energy Future in Brazil’s “Big Field”

I’m in Campo Grande in the southwestern Brazilian state of Mato Grosso do Sul. The state borders Bolivia to the west and Paraguay to the south.

Campo Grande literally means “big field” in Portuguese. And it lives up to its reputation. Everything is big here.

The T-bone steak I had for lunch was a good foot long and an inch thick. Sugarcane towers up from the fields that run alongside the highways. And big trucks haul cattle in two-story trailers to big slaughterhouses. The biggest in Brazil is here: 3,000 cattle pass through it every day.

Roberto Hollanda Filho doesn’t disappoint. I’m six foot two. Roberto is a good four inches taller than me. He even talks big. During my meeting with him he takes calls from the state secretary of the environment and Brazil’s minister of agriculture.

Filho – deeply tanned and impeccably turned out in leather loafers and a pinstriped shirt – is a man with a mission: to show people what Mato Grosso do Sul’s bio-ethanol producers can do to help solve the world’s energy problems.

First things first. As president of BioSul, the state’s bio-ethanol producers association, Filho is at pains to point out the difference between bio-ethanol (made from sugarcane) and bio-ethanol (made from corn).

Corn-based bio-fuels, he says, compete for a critical source of food. Not so with sugarcane-based bio-ethanol. Corn-based bio-fuels are also puny in comparison.

For every unit of energy that goes into corn-based bio-fuels, you get about 1.8 units of energy back. For every one unit of energy that goes into sugarcane-based bio-ethanol, you get 8.3 units of energy back. (These are conservative figures.)

Filho can see I’m impressed.

“We also produce our own electricity,” he says, clearly hitting his stride. “Bio-electricity powers 20% of Mato Grosso do Sul’s electricity needs.”

This really is impressive. Brazil is the only country in the world where bio-ethanol plants are hooked up to the electricity grid. The power comes from one of the byproducts of the bio-ethanol process – the energy-dense biomass that’s left behind after the liquid sugar is extracted from the sugarcane.

All the new ethanol plants in Mato Grosso do Sul are able to produce bio-electricity as well as bio-ethanol. The technology has been around for decades. But it has only recently been exploited by the bio-ethanol industry here on a large scale.

Of course, electricity production is still a sideshow to the main event of the bio-ethanol industry in Brazil: powering over 50% of Brazil’s cars.

More than half of Brazil’s cars are so-called “flex fuel” – meaning they run on either ordinary gasoline or bio-ethanol…or a mixture of both. And today about 90% of new cars sold here are flex fuel.

This is a big deal in a place like Brazil, with a population of about 190 million and a rapidly growing middle class. Anyone who’s been to Sao Paulo – Brazil’s daunting megacity – knows that Brazilians love their cars. Running so many of them on bio-ethanol is a giant step toward maintaining Brazil’s energy independence.

This week, the U.S. Congress voted to extend import duties on bio-ethanol for another year. This means members of Filho’s association have to pay $0.54 a gallon just to get their fuel into the country – an obvious barrier to growth.

But Filho is optimistic. He points out the extension was slated for five years. So a one-year extension is good news, not bad.

“Someday, bio-ethanol will be an international commodity. It has to be. And then we’ll really grow,” he says.

Whatever happens in the future, one thing is clear: Brazil is an exciting frontier in the world of energy innovation. Just like everything here, the potential is big.

I’m here scouting new investing ideas. It’s tricky to invest directly in the bio-ethanol industry here as a U.S. retail investor. But it’s not impossible. I’ll have more for you in a special report I’m putting together for International Living Investor readers.

Meantime, I’ll be hunting these opportunities down over the course of my trip.

Watch this space…