Brazil of the Midwest?

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From the moment it looked like St. Paul's Ford Ranger plant might be on the chopping block, Minnesota's pitch has boiled down to two words: alternative fuels. State officials have urged Ford to use the plant to research and manufacture hybrid vehicles, cars powered by hydrogen fuel-cells, or -- especially appropriate for Minnesota -- vehicles that run on corn-based E85, a blend of 85 percent ethanol that only certain cars can use.

The market for E85 vehicles is small, but with high gas prices eating into car sales both Ford and GM have been working hard to fuel interest.

Erik Fosheim with his flex fuel Explorer
Erik Fosheim with his Ford Explorer, which can run on E85. Fosheim says "the convenience is still terrible" when it comes to finding E85 stations in Minnesota.
MPR Photo/Jeff Horwich

Minnesota's ethanol pitch to Ford is a natural. Minnesota has 200 gas stations with E85 pumps, accounting for about one third of all E85 pumps in the U.S. Even so, 94 percent of the state's gas stations don't have one.

"The convenience is still terrible," says Erik Fosheim, stopping to fill his Ford Explorer at one of five stations in St. Paul that offer E85. "So few stations have it, when it really is a valuable resource."

The scarcity of E85 pumps, even in Minnesota, creates a Catch-22: Drivers won't buy ethanol-ready vehicles until they can easily fuel them up; gas stations won't install E85 pumps until there are drivers to use them.

Matt Kramer, Minnesota's commissioner of employment and economic development, says when officials went to Ford with their ethanol pitch, Ford came back with a challenge: If Minnesota could find a way to crack this chicken-and-egg problem, just maybe there could be an ethanol-related future for the St. Paul Ford plant.

And Kramer says Ford strongly suggested Minnesota take its research on that question in one particular direction: south. "What Ford challenged us on then was, 'Take a look at Brazil.' How did Brazil manage to make it such that literally every gas station in Brazil, no matter where you are -- Sao Paulo, Brasilia, wherever -- has gas pumps that have...E-pumps?"

DEED Commissioner Matt Kramer
Matt Kramer, Minnesota's commissioner of employment and economic development, says Ford came to Minnesota with "a challenge" to learn from Brazil.
MPR Photo/Jeff Horwich

When it comes to ethanol, no one holds a, well, sparkplug to Brazil. More than half of new cars now sold in Brazil are so-called "flexible fuel vehicles," that run on gasoline or ethanol. A hefty chunk of that market belongs to Ford; last month more than 70 percent of Ford's Brazilian sales were flex-fuel cars like the Fiesta sedan and an SUV called the Ecosport.

Thanks to an investment spanning 30 years, Brazil now boasts it is capable of complete energy independence. The rise of ethanol has also been a boon for the nation's sugar cane farmers Brazil's ethanol is derived directly from sugar rather than from corn, as it is in the Midwest.

Brazil is clearly on Governor Pawlenty's mind. This month he mentioned Brazil's ethanol success in his State of the State address. Minnesota officials are contemplating a research trip to Brazil.

And in Washington D.C. last month for a national governors' conference, Pawlenty carved out time for Brazil's U.S. ambassador. Agriculture Commissioner Gene Hugoson was there as well. "I'd say 95 percent of the conversation was talking about renewable fuels: what Brazil is doing, how they were able to do it, how might we raise that emphasis here," Hugoson says.

Two-point-three percent (of Minnesota cars) are flex-fuel vehicles. That's a great start. But what we've got to do is make sure we ratchet up consistently the fuel availability.

Hugoson traveled to Brazil two years ago to study soybean farms, but says the ethanol industry caught his attention. He says the crucial aspect of Brazil's success is choice. Wherever they go to gas up, Brazilians can choose a blend of mostly gasoline or 100 percent ethanol. "Not unlike here, at every service service station you have several different pumps. But the difference is that the pumps in Brazil each contain different types of fuel, instead of different octanes of fuel."

In other words, even Brazilians who don't have flex-fuel vehicles are well aware that if they buy one, they can fuel up just as easily with ethanol.

Compare that with Minnesota. Back at that St. Paul SuperAmerica, the solitary E85 pump sits isolated and unused for an hour during peak drive-time. Eventually Tom Johnson pulls up and pops the gas cap on a Ford Taurus. "It'd be nice if they put the ethanol with the regular pumps," he says. "I suppose there's not much of a demand for it. It'd just be more convenient." Because E85 pumps are usually separate, Johnson suspects many Minnesotans who already have flex-fuel vehicles probably just pull up to the pumps they're used to, and keep using regular gas.

While Brazil's success in establishing an ethanol infrastructure is undeniable, there are many aspects of it Minnesota cannot duplicate. For one thing, Brazil's ethanol push began under a military dictatorship that for more than a decade had the power to impose a strong ethanol policy, even when it seemed to many like a waste of money. Brazil also controls its own oil company, Petrobras. The government could force it to sell ethanol at its stations around the country.

Tom Johnson fills up his Taurus with E85
Tom Johnson of St. Paul fills up his Taurus with E85. The Taurus is one of a small but growing number of vehicles by U.S. automakers that have been available in flex-fuel models.
MPR Photo/Jeff Horwich

Another important difference: It's cheaper to make ethanol from sugar than from corn because you have to turn corn into sugar first. By using sugar in the first place, Brazil saves a step. And in the 1980s Brazil did something that would seem political suicide in the U.S. It eliminated many farm subsidies, partly because it could no longer afford them. It was a painful move, but over the long term it is credited with lowering the price of sugar and thus the cost of producing ethanol.

It's a long list of reasons Minnesota can't exactly duplicate the Brazilian formula. But Ford's director of state government affairs, Curt Magleby, says Minnesota can forge its own way by learning from Brazil. "Of all the vehicles in Minnesota, about 2.3 percent right now are flex-fuel vehicles," Magleby says. "That's a great start. But what we've got to do is make sure we ratchet up consistently the fuel availability to support that."

Magleby says Ford likes the idea of a public policy laboratory in the Midwest, where strong ethanol incentives lead the way for other states. "Policy avenues (could include) tax incentives, grant money to help stations convert -- there's a lot that can be done to help this transition. As we look to produce more flexible fuel vehicles, we've got to make sure that's matched with infrastructure," Magleby says.

Critics wince at the notion of yet more government intervention to support ethanol. They point out that E85 is cheaper than gas only thanks to subsidies on the farm, at the processing plant, and at the pump. Calculations vary, but state officials say the direct state and federal subsidy behind E85 amounts to 70 cents a gallon. Ethanol's many skeptics worry about throwing even more money at a product that cannot compete on its own.

Minnesota Agriculture Commissioner Gene Hugoson
Minnesota Agriculture Commissioner Gene Hugoson, in his office in St. Paul, has been to Brazil and may travel there again to learn more about the country's ethanol infrastructure.
MPR Photo/Jeff Horwich

Brazil has seen that problem fade. A 2004 report by a Brazilian academic estimated that in Brazil, ethanol is now more cost-effective to produce than gasoline as long as the price of oil remains above $30-a-barrel -- a comfortable margin in the age of $60-a-barrel oil.

Ethanol supporters say by establishing the market for ethanol and protecting the industry, the Brazilian government created the time and the incentive for major leaps in technology. The resulting improvements in the production of ethanol, and in the engines that burn it helped make ethanol economically viable.

Minnesota Agriculture Commissioner Gene Hugoson believes that like Brazil, the state's decision to require a 10 percent ethanol mix in all gasoline has already spurred improvements in producing corn-based ethanol. Pending EPA approval, the mix will increase to 20 percent in 2013.

And while there's no military dictatorship in the offing, as in Brazil, Hugoson doesn't shy away from a continued hands-on approach. "I make no apologies at all for the fact that Minnesota took the leadership in mandating some of these things some time ago, because it resulted in some new thinking that would not have happened otherwise," he says.

What state officials do next will depend on what they learn from Brazil. The goal is to convince Ford Minnesota has a plan to create the nation's first true ethanol economy: a Brazil of the Midwest. If so, then maybe -- as the automaker has hinted -- Ford can imagine an ethanol-based future for its threatened St. Paul auto plant.

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