The Brazilian government provided three important initial drivers for the ethanol industry: guaranteed purchases by the state-owned oil company Petrobras, low-interest loans for agro-industrial ethanol firms, and fixed gasoline and ethanol prices where hydrous ethanol sold for 59% of the government-set gasoline price at the pump.

These pump-primers have made ethanol production competitive yet unsubsidized. In recent years, the Brazilian untaxed retail price of hydrous ethanol has been lower than that of gasoline per gallon. Approximately US$50 million has recently been allocated for research and projects focused on advancing the obtention of ethanol from sugarcane in São Paulo.

The Pró-Álcool or Programa Nacional do Álcool (National Alcohol Program) was a nation-wide program financed by the government to phase out all automobile fuels derived from fossil fuels (such as gasoline) in favour of ethanol. It began with the anhydrous alcohol to blend with the gasoline. This mixture has been used since then and is now done with 24% of alcohol and 76% gasoline (commonly known as gasohol).

The program successfully reduced by 10 million the number of cars running on gasoline in Brazil, thereby reducing the country’s dependence on oil imports. The decision to produce ethanol from fermented sugarcane was based on the low cost of sugar at the time. Other sources of fermentable carbohydrates were tested such as the manioc. Sales of alcohol-only cars tumbled after an alcohol shortage coupled with low gas prices in the late 1980s to early 1990s.

In May 2003 Volkswagen built for the first time a production flexible fuel car, the Gol 1.6 Total Flex. Chevrolet followed two months later with the Corsa 1.8 Flexpower, using an engine developed by a joint-venture with Fiat called PowerTrain. That year production of full flex-fuel reached 39.853 automobiles and 9.411 light commercial vehicles.

By 2005, popular manufacturers that build flexible fuel vehicles are Chevrolet, Fiat, Ford, Peugeot, Renault ,Volkswagen, Honda, Mitsubishi, Toyota and Citröen. Flexible fuel cars were 15,2% of the car sales in 2004, 38,6% in 2005, 59,7% for 2006 and 71.9% for 2007. By March 2008, the fleet of dual-fuel vehicles, including autos and light commercial vehicles, had reached 5 million.