29/09/06 (Detroit News) PORTO NACIONAL, Brazil -- For the better part of his 64 years, Sebastian Luis de Sousa has scratched a meager living in the paprika-red soil of central Brazil.

So when offered a chance to grow castor beans to produce an alternative fuel called biodiesel, the rawboned father of nine reckoned he had nothing to lose. The $200 he earned this summer from his tiny harvest wasn't much. But rising demand for renewable fuels has de Sousa wanting to expand his 7 1/2 acre farm.

"I want to buy more land,'' he said, rolling a prickly castor bean seed pod in his calloused hand. "This is an important thing that Brazil is doing.''

Already the world's largest producer of ethanol, Brazil is now betting on biodiesel, with an eye to helping small farmers such as de Sousa capitalize on what some see as the next big thing in green energy. Derived from animal fats or vegetable oils, this substitute for petroleum diesel is generating ten of millions of dollars from investors.

Major companies, including U.S. agri-business behemoth Archer Daniels Midland Co., are building production plants, encouraged by a federal mandate requiring every liter of diesel fuel sold in Brazil to contain 2 percent biodiesel by 2008, rising to 5 percent by 2013.

Brazil's state-owned petroleum giant Petrobras is already selling a fuel blend with 2 percent biodiesel at hundreds of its retail gas stations. The company is investing in manufacturing facilities. It is also patenting a new fuel known as H-Bio that it says will save million of barrels of oil by using vegetable oil in the refining process to create a low polluting petroleum diesel.

Even McDonald's has collaborated with Brazilian researchers looking to power vehicles with recycled grease from its restaurants.

The involvement of big players is crucial if Brazil hopes to reach its goal of embracing biodiesel on a massive scale. Current production is modest, but is projected to jump to 840 million liters by 2008, which would put Brazil among the worlds' large producers. Still, officials are looking to involve more subsistence farmers such as de Sousa, who have yet to profit from the nation's biofuels bonanza.

No country on the planet has been more successful at displacing fossil fuels with green energy than Brazil. Hammered by the oil shocks of the 1970s, the nation committed itself to developing a domestic ethanol industry to reduce its dependence on imported petroleum.

Today, 40 percent of the fuel that powers passenger cars here is made from homegrown sugar cane. That's been a boon for Brazilian agriculture. But the economic fruits have been reaped by a small number of large farmers growing a single crop.

With biodiesel, officials see a chance to spread the wealth from a fast growing fuel whose demand in Brazil could top that of ethanol.

At present, petroleum diesel accounts for more than half of all the vehicle fuel consumed in Brazil, about 42 billion liters a year, thanks to its heavy dependence on truck and bus transport.

By promoting a cleaner-burning alternative made from Brazilian-grown castor beans, soybeans, palm oil and other crops, the government is looking to slash diesel imports and improve air quality in its cities, as well as to generate rural income and employment.

President Luis Inacio Lula da Silva, who is currently running for re-election, has touted biodiesel production as a way to spark development in some of the poorest regions of the country, particularly the rural northeast.

Biodiesel producers who want to qualify for hefty federal tax breaks must purchase anywhere from 10 percent to 50 percent of their raw materials from small growers, depending on the region.

That requirement is how farmer de Sousa got connected with a company called Brasil Ecodiesel, which provided him with seed and technical advice in addition to purchasing his crop of castor beans.

Rodrigo Augusto Rodrigues, the federal government's biodiesel coordinator, said the effort could eventually involve 360,000 family farms nationwide, up from about 2,500 at present. He said the varied crops provided by small growers would keep small farmers on the land and provide them a reliable stream of income.

"We don't want to repeat the same mistakes we made with ethanol,'' Rodrigues said. "The social aspect is critical.''

But some energy experts are dubious that peasant farmers toiling on tiny plots will be more than bit players. Large-scale cultivation and ruthless efficiency were crucial to the nation's success with ethanol. Mass produced soybeans, while not the most efficient feedstock, are fast emerging as the crop with the greatest potential to help producers achieve economies of scale.

"There is a lack of focus in this biodiesel program,'' said Luiz Augusto Horta Nogueira, former director of the Brazil's National Agency of Petroleum, National Gas and Biofuels. "One group of stakeholders is looking to substitute large amounts of diesel. Others want rural development. ... It's a real problem.''

Some observers doubt the fuel can be cost competitive without fat government subsidies such as those that propped up Brazil's ethanol market for years. Others say the environmental benefits may be overblown.

Biofuels emit fewer greenhouse gases than fossil fuels when burned in combustion engines. But other factors must be considered when making the comparison, such as how much petroleum was needed to plant, harvest, produce and transport the renewable fuels, and how many native trees and plants were plowed under in the process.

Soybean farming has already destroyed large swaths of Brazil's Amazon forest. The long standing agricultural practice of burning sugar cane fields prior to harvest is a major pollutant.

Renewable fuels such as ethanol and biodiesel are "not as green as we like to think they are,'' said Joe Ryan, who manages air-quality projects in Brazil for the Menlo Park, Calif.-based William and Flora Hewlett Foundation.

Still, with the government projecting more than three dozen manufacturing plants to be on line by 2008 with a capacity of 1.7 billion liters, producers here, and across the globe, are bullish on biodiesel.

Worldwide production is surging, led by the European Union, which has adopted a goal of substituting 5.75 percent of petroleum diesel with biodiesel by 2010 as part of its commitments under the Kyoto Protocol to reduce greenhouse gas emissions. The world's top producer is Germany, where biodiesel made from rapeseed is widely available in gas stations.

Asia is fast becoming a major player, with the cultivation of palm oil for use in biodiesel growing rapidly in Malaysia and Indonesia. In the United States, where soybeans are the primary feedstock, production is projected to more than triple this year to around 250 million gallons or almost 950 million liters. The U.S. already boasts 86 biodiesel plants, with another 62 under construction, according to the National Biodiesel Board.

Just like in the U.S. Midwest, soybeans are the principle feedstock for biodiesel refineries in Brazil's heartland. On a recent afternoon, near the city of Anapolis about two hours west of the nation's capital Brasilia, workers with hardhats and torches welded seams on the gleaming steel storage tanks of a $20 million biodiesel plant.

The plant, which will be produce up to 100 million liters of biodiesel annually, is one of three production facilities that Brazilian soybean processor Granol plans to have running by next year. Company executives see biodiesel as a lucrative new outlet for its soybeans, with domestic sales of its cooking oil and animal feed stagnating, and exports hurt by Brazil's strong currency, .

"Renewable fuels are the future,'' said manager Paulo Donato, explaining his employer's $45 million bet on biodiesel.

Hours to the north in Porto Nacional, farmer de Sousa said that he hoped that future would include small farmers like him.

"I'm just one man,'' he said, poking at the soil with his sandal. "But I'm proud to play a part in this.''