The State of Rio de Janeiro's Biodiesel Program

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000084

SIPDIS

SIPDIS

STATE FOR WHA/BSC AND WHA/AND
NSC FOR CRONIN
DOE FOR SLADISLAW, GWARD
STATE PASS OPIC FOR RGREENBERG, DMORONESE
STATE PASS EXIM FOR NATALIE WEISS, COCONNER
STATE PASS USTR - MSULLIVAN
USDOC FOR 3134/USFCS/OIO/WH/EOLSON
USDOC FOR 4332/ITA/MAC/WH/OLAC/MWARD


E.O. 12958: N/A
TAGS: EPET ENRG BR
SUBJECT: The State of Rio de Janeiro's Biodiesel Program



1. Summary. In terms of monetary support for biodiesel, the
state of Rio de Janeiro is out in front of the Brazilian federal
government. The Rio State program includes research, tax breaks,
and production support, combined with more ambitious targets in
terms of the percentage of biodiesel mixed into regular diesel
than that required by federal authorities. Mission believes that
joint activities on biodiesel might be a possible subject of
bilateral cooperation between Brazilian government entities (both
state and federal) and USDOE. End Summary.

State Support for Biodiesel
--------------

2. The conventional thinking here is that biodiesel, which can
cost upwards of double the price of petroleum diesel (this would
depend on the vegetable oil used as well as the current price of
petroleum),will only be widely used if the Brazilian government
subsidizes its price. The Rio state government has an active
biodiesel effort "RioBiodiesel." In 2003, the German government
made a comparative analysis between Rio's and Germany's
biodiesel, Rio's biodiesel coming out on top, having fewer
tryglicerides in the mix than the German biodiesel (the German's
have since addressed this issue). The state is not only involved
in research on biodiesel, but will also play an important role in
its production. The State's Agricultural Secretariat has set
aside 500 hectares in the northern part of the state for growing
castor oil plants, along with sunflowers, to be used in producing
biodiesel. The goal for 2008 is to set aside 20,000 hectares.
The State of Rio has already invested approximately USD 60,000 in
the construction of two semi-pilot castor oil facilities for the
production of vegetable oil for biodiesel in the municipalities
of Itaocara and Campos.


3. Comment. The choice of Itaocara and Campos for semi-pilot
castor oil facilities does not appear to have been based on
agronomic suitability. Castor bean and sunflower production can
be expected to be marginal on the humid tropical lowland soils of
the northern part of Rio State where sugar cane cultivation
predominates. The State Agricultural Secretariat faces the
daunting challenge of developing producer incentives and
introducing new crop technologies to poor farmers in this region,
prior to state and federal science officials being able to go to
scale with ambitious plans for biodiesel production. End
Comment.


4. Meanwhile, Rio State reportedly will invest R$6 million
(approximately USD 2.7 million) in infrastructure to implement
production units of Biodiesel in the cities of Campos, Resende,
Duque de Caxias and in the city of Rio. This money will come
from Brazil's Ministry of Science and Technology (MCT) and the
Rio State Secretariat for Science and Technology. For the past
three years, Rio state has invested R$ 1.4 billion (approximately
USD 636 million) in the RioBiodiesel Program.

Tax Breaks
--------------

5. The State of Rio de Janeiro will soon announce a state tax
exemption for the biodiesel production chain. According to the
Coordinator of the RioBiodiesel Program, Eduardo Cavalcanti, the
goal behind this measure is to make business related to the
production of biofuels in the state more attractive. The Rio
State Secretariat for Science and Technology is currently working
with the State Secretariat for Finance and with the National
Treasury Council to obtain approval for the approval tax
exemption.

Consumption and Production
--------------

6. On January 25, 2006, the Rio State launched the first
biodiesel public transportation bus in Brazil. It will be tested
for about 60 kilometers with a 5% mixture of biodiesel produced
by the Federal Engineering Post Graduate University (COPPE) and
compared with regular diesel supplied by Shell. In contrast to

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other states in Brazil that have abundant sources of castor oil
and other oil seeds, the Rio biodiesel developed by COPPE is a
biofuel produced out of raw materials such as bovine fat, sewage
scum/foam, residual cooking oil, and vegetable oil.


7. Federal Law 11.097/2005 establishes minimum percentages for
the use of biodiesel in diesel fuel. This ranges from 2 percent
from 2006 to 2007 (optional),2 percent from 2008 to 2012
(mandatory),and from 2013 on, the minimum percentage would be 5
percent (mandatory). However, the State of Rio de Janeiro has
decided to take a more ambitious approach, and plans to mix 5
percent of biodiesel to petroleum diesel by 2008.


8. The state of Rio consumes 2 billion/liters of petroleum
diesel per year or 160 million/liters per month, which represents
5 percent of all diesel consumed in Brazil. The Rio state
government alone consumes 6.5 million/liters per year. Rio state
government preliminary estimates indicate that Rio state will
produce 4 million liters/per month of biodiesel in 2007, and 8
million liters/per month in 2008.

Benefits for Rio
--------------

9. Biodiesel production actively promotes job creation in Rio
state as it is three times more labor intensive per unit of
production than fossil fuel. The state believes that during the
period 2006-2008, 5,000 jobs will be created in the interior of
the state as a result of biodiesel production.


10. This cable was coordinated with AmEmbassy Brasilia.

ATKINS