Brazilians Switch to Gas as Ethanol Prices Climb: A Dark Sign of Things to Come?

Liquid fuel is a commodity, it turns out.

Brazilian drivers in many states are switching from ethanol made from sugar cane to gas as higher sugar prices are pushing ethanol prices up, says Reuters.

When ethanol costs about 70 percent as much or more than gas, drivers switch. Ethanol only provides about two-thirds of the energy content that gas does; as a result, when it passes the 70 percent mark, it effectively becomes more expensive. In big cities like São Paolo and Rio, ethanol costs 60 percent to 67 percent of the price of gas, so drivers still pick it up. After taxes, it's still economical.

Flex-fuel cars allow drivers to swap from one type of fuel to another. Most of the flex-fuel vehicles GM and Ford have sold in the U.S. have never guzzled a drop of E85 fuel, which consists of 85 percent ethanol, in large part because the stations don't exist in large numbers. In Brazil, stations are everywhere. The Brazilian experience is something that biofuel makers should keep in mind.

But does this mean that all alternative energy will be subject to commodity pricing? Probably not. Liquid fuel may be an exception because the switching costs with flex fuel cars in Brazil is nominal. If someone buys solar panels and the cost of conventional electricity goes down, they likely aren't going to unplug the panels and resell them to the neighbor. Conversely, if power goes up, no one will voluntarily plunge themselves into darkness and wait for the solar installer to arrive.