Global Trends on Clean Technologies and New Challenges to the Brazilian Sugarcane System of Innovation

Introduction

Brazil has developed in the last decades a strong ethanol-fuel industry. Brazilian ethanol industry has pioneered clean technologies and is currently the world largest biofuel market. The country’s production is around 26 billion liters (6.86 billion gallons) and ethanol currently represents more than 40% of the domestic fuel market (UNICA, the Brazilian Sugarcane Industry Association). Today, Brazilian sugarcane ethanol production possesses a mature technology and it is more economical than in any other countries.

The country’s ethanol competitive advantages accrue from natural advantages, as well as incremental innovation and increased agricultural productivity made possible with the genetic improvements to sugarcane crops, and also the improved efficiency in ethanol industrial synthesis. Sugarcane is undoubtedly the most competitive biomass feedstock to produce ethanol, with higher yields, lower costs and positive energy and environment balances.

Sugarcane ethanol technological advances have resulted in cumulative efforts, learning trajectory, incremental innovations and diffusion throughout the ethanol value chain. A sectoral innovation system – which comprises ethanol producers and mostly public universities, public and private research institutes, equipment makers, and so on - have given rise to high increases in productivity and cost reduction that made Brazilian sugarcane ethanol production highly competitive.

Nevertheless, Brazilian leadership in sugarcane ethanol - or the so-called first generation technologies - comprises a roughly mature technology which has been seriously threatened by huge global investments in next generation ethanol-based technologies.

As a matter of fact, the worldwide emphasis on biofuels, biobased-chemicals, biorefineries as well as other cleaner technologies clearly evidence a global technological race. The US energy policy can be summarized in the four objectives mentioned in the US Department of Energy (DOE) Secretary’s speech at the 2011 Energy Innovation Summit: to create a guaranteed market for any clean technology; to give companies investment certainty; to establish market certainty; needed to generate domestic manufacturing supply lines; and to create demand certainty, in order to stimulate long-term grid investment (Chu, 2011). Most technologies under development – although none yet prevails – employ highly sophisticated scientific knowledge from a multitude of different areas, notably industrial biotechnology, in the root of a so-called third wave in biotechnology.

Huge concerns emerge from these global trends over the Brazilian ethanol industry outlook. First of all, Brazilian technological leadership in first generation ethanol has been seriously threatened by these worldwide large investments in next generation technologies. Second, once widely recognized that sugarcane advantages make it the most competitive renewable feedstock to produce ethanol, it has attracted foreign leading companies from a wide range of sectors (such as oil, energy, chemical, agribusiness, and pulp and paper companies) to invest in the Brazilian ethanol industry, pressuring the traditional structure of conventional national companies’ ownership. Third, the Brazilian well-succeeded sugarcane-based ethanol has also attracted these same foreign partners (also including biotech startups) interested in alliances with Brazilian partners, with the aim of testing promising new technological platforms using sugarcane as feedstock.

These trends and local institutional changes - such as the transformation of the country’s remarkable sugarcane research institutions in joint stock companies - have been shaping a new sector system of innovation and represent new challenges and threats to Brazilian technological leadership.

The main purpose of this paper is to analyze these recent global trends on renewable and cleaner technology which have increasingly been attracting foreign investor and R&D partners and to highlight the possible effects on the Brazilian sugarcane innovation system. These circumstances have theoretical and public policy implications. On one hand, once innovation system approach deals with national boundaries and specific learning processes, how does it cope with the trend on R&D internationalization and global collaborative networks? And to what extent international trends do violate the key assumptions under which innovation system approaches were erected? On the other hand, does this shifting landscape require different policy recommendation? Naturally, in the light of the exploratory feature of the study over a process still under development, we do not intend to exhaust the subject, but to give some contribution to innovation economics debate.