The future of oil and bioethanol in Brazil Jose R. Moreira a , Sergio A. Pacca b,n , Virginia Parente c a CENBIO—Brazilian Reference Center on Biomass, Institute of Energy and Environment, University of Sao Paulo, Sao Paulo, Brazil b School of Arts, Sciences and Humanities, University of Sao Paulo, Avenida Arlindo Bettio, 1000, São Paulo, SP 03828-000, Brazil c Institute of Energy and Environment, University of Sao Paulo, Sao Paulo, Brazil HIGHLIGHTS  Cost-benefit analyses of pre-salt and biofuels in Brazil.  Hubbert model applied to pre-salt oil reserves.  Sustainable energy scenarios.  Carbon mitigation accounting based on biofuel scenarios.  Enhanced oil recovery effect on pre-salt oil reserves. article info Article history: Received 15 September 2012 Received in revised form 10 September 2013 Accepted 14 September 2013 Available online 14 October 2013 Keywords: Biofuels Ethanol Pre-salt oil Brazil abstract This work compares the return on investments (ROI) of oil versus biofuels in Brazil. Although several renewable energy sources might displace oil, the country's forte is sugarcane biofuels. In our analysis we carry out simplified benefit–cost analyses of producing oil fields, pre-salt oil fields (without and with enhanced oil recovery), a business as the usual ethanol scenario, and a high ethanol scenario. Excluding the ROI from existing oil fields, which is the highest, when the discount rate is 4% or more, the ROI of the high ethanol scenario is greater than that of the ROI of pre-salt oil. Considering a US$40/t CO 2 tax, the high ethanol scenario's ROI is greater than the pre-salt oil's ROI if a discount rate of 2% or more is adopted. Moreover, the high ethanol scenario throughput up to 2070 compares to 97% of the pre-salt oil reserve without EOR, and demands 78% of its investment. Pre-salt oil production declines beyond 2042 when the country might become a net oil importer. In contrast, ethanol production reaches 2.1 million - boe per day, and another 0.9 million boe of fossil demand is displaced through bioelectricity, yielding a total of 3 million boe (62% of the country's oil demand). Crown Copyright & 2013 Published by Elsevier Ltd. All rights reserved. 1. Introduction Although some recent new oil discoveries are noteworthy, the concern that global oil peak production has already been reached is also proclaimed (Murray and King, 2012). In contrast, the potential for renewable energy sources is certainly greater than the present global energy demand (Helena et al., 2011). Currently, the renewable energy source that is responsible for the largest share of primary energy supply is biomass, whereas solar energy presents the greatest technical potential (Edenhofer et al., 2011). Until 2002, Brazil was able to fulfill its oil demand relying mostly on its internal production. In 2006, the country became self-sufficient, but not yet fully sufficient regarding some oil products (ANP, 2011a, 2011b). Nevertheless, over the last decade, expenses of crude oil and oil products imports have declined substantially and have not been of economic concern. The 2010 production of oil and gas condensates in Brazil achieved 2.2 mil- lion bbl/day (Petrobras, 2011a). Since 2009 the perspective for future oil production in the country has substantially changed due to the discovery of potential huge off-shore reserves in the so- called “pre-salt” area (below the thick salt layer and more than 4 km below the sea bed, under a series of layers of rock and salt). On the other hand, Brazil has shown an important potential for developing modern biomass energy carriers, whose participation in the domestic energy mix is already significant (EPE, 2011a). There is no doubt that biofuels are relevant alternatives to fossil fuels and have significant greenhouse gas mitigation potential. On an energy basis, the substitution of sugarcane ethanol for oil displaces 56 gCO 2 per MJ. Furthermore, if the substitution of bioelectricity for oil is accounted for, 84 gCO 2 per MJ is displaced (EPA, 2010). The displacement of fossil fuels and its CO 2 emissions may be translated into economic value. In our assessment we have Contents lists available at ScienceDirect journal homepage: www.elsevier.com/locate/enpol Energy Policy 0301-4215/$ - see front matter Crown Copyright & 2013 Published by Elsevier Ltd. All rights reserved. http://dx.doi.org/10.1016/j.enpol.2013.09.055 n Corresponding author. Tel.: þ55 11 3091 8173. E-mail address: spacca@usp.br (S.A. Pacca). Energy Policy 65 (2014) 7–15