Ethanol Partnerships Would Boost America's Energy Security and Promote Free Trade

By Jorge L. Arrizurieta | October 02, 2006
While much of the trade world is consumed by efforts to revive the Doha round of World Trade Organization talks, an opportunity exists for nations in our hemisphere to build long-lasting and beneficial partnerships around a commodity that's exploding in demand: ethanol. With or without Doha, the vast potential for ethanol production and development has created an unparalleled opportunity to boost tradebenefiting the transportation and agricultural segments now tied in knots over Dohastrengthen hemispheric partnerships, encourage a broader free trade movement and address America's energy security. The development of a "Hemispheric Energy Security Initiative" through a Western Hemisphere Ethanol Partnership would have a tremendous economic, energy and trade impact in the United States and beyond its borders.

The fact that America's importation of foreign oil places both the economy and our security in jeopardy is well documented. With two-thirds of our nation's oil consumption needs being met through imported oil, America is in a precarious position as oil prices reach record levels, and oil-supplying regions face increasing turmoil and threats of unrest and sabotage from terrorists.

Each day, America consumes 15.36 million gallons of crude; between 70 percent and 74 percent of that total is dedicated to transportation. In 2004, gasoline and diesel accounted for 98 percent of the transportation fuels sold in the United States. Since September 2003, the per-barrel price of crude oil has tripled, with the recent highs reaching the $78-plus mark.

The U.S. Energy Information Administration's most recent forecasts predict that oil consumption will increase in annual increments of 270,719 barrels per day through 2015. Allowing such present use of oil to continue unchecked would exacerbate the already dangerous constraints it places on America's security and economy. Yet, current trade policies haven't adjusted to the new energy realities. Oil is imported tariff free, while imported ethanol is heavily taxed. As ethanol demand rises, pressure will undoubtedly mount to correct this imbalance. "We don't put a tariff on crude imported from a country like Venezuela, but yet we put a tariff on ethanol, which is a renewable source of energy that provides a clean alternative," Florida Gov. Jeb Bush said to Brazilian officials and others at a conference in June sponsored by the Florida Free Trade Area of the Americas. "We're at a point now where we need to develop strategies to begin that process."

Federal Energy Strategy,
Investor Interest Spur Expansion

Domestically, ethanol has played a key role in President George W. Bush's energy strategies. Government incentive programs are encouraging the continued expansion of the U.S. ethanol production infrastructure, which could double current production levels by 2012.

Private investors are putting significant dollars behind ethanol, betting on its promise for the future. Even billionaire Microsoft founder Bill Gates has reportedly invested $80 million in the California start-up Pacific Ethanol, a company which reportedly can adapt its plants to the many different ethanol producing formats of the future, while Morgan Stanley has seen a $66 million ethanol investment grow to $750 million in three years.

According to a recent article in The Los Angeles Times, a Los Angeles-based alternative energy company, Altra Inc., has raised more than $250 million in venture capital in less than six months and plans to build a network of ethanol and biodiesel plants that will ultimately produce a collective 500 MMgy. "Venture capital experts say clean technology, particularly in energy, has become the fastest-growing sector in the private funding business. Recently, it surpassed semiconductors as the nation's fifth-largest sector for venture capital, after biotech, software, medical and telecommunications," reported The Los Angeles Times, citing a source who tracks venture capital funding.

Demand for ethanol will undoubtedly rise as flexible fuel vehicles (FFV) become more available to American motorists who long for petroleum alternatives. Production of FFVs is expected to double by 2010, based on a pledge by U.S. automakers.
To increase market availability of domestic ethanol, production is moving beyond the Corn Belt states and into coastal states like Florida, for instance. U.S. EnviroFuels recently announced plans to build an $80 million facility at the Port of Tampa to produce about 40 MMgy with a target of making ethanol available to consumers in October 2007. A second plant is also planned. Gate Petroleum has announced that it intends to build an ethanol facility in north Florida.

Gov. Bush has taken up the cause recently, signing into law comprehensive energy legislation that will encourage and promote the development of alternative energy. In addition, a new state law legalizes the sale of E85 to the public. The governor is also playing a role in pressing ethanol beyond the state's borders by encouraging the federal government to establish a bold "15 by 15" initiative that would set a consumption goal of 15 billion gallons of ethanol annually in the United States by 2015, nearly tripling current usage. Gov. Bush recognizes that even with increased domestic production, supply may fall well short of demand, creating the need to import ethanol. "To accomplish this ambitious goal (of "15 by '15), the United States will need to increase the domestic supply as well as promote importation of ethanol from our neighbors in the hemisphere," the governor wrote in a letter to President George W. Bush in April.

The governor went on say, "Ethanol made from sugar in countries in the Americas is less expensive, takes less energy to produce and has a tremendous potential for growth in production. This is an ideal time to consider negotiating ethanol imports with Brazil and other hemispheric neighbors that can produce ethanol. Such actions could reduce our dependence on foreign oil, improve the environment and jump-start our negotiations with Brazil and other hemispheric neighbors on the Free Trade Area of the Americas."

Brazil: An Ideal Ethanol Partner
Brazil is a logical ethanol partner, given the country's laudable achievement of energy self-sufficiency, with ethanol playing a vital role. Brazil's President Luiz Inacio Lula da Silva wrote in a July 14 op-ed in The Wall Street Journal of his nation's accomplishment, citing statistics that gasoline in Brazil now contains at least 20 percent ethanol; he went on to say 40 percent of the fuel consumed by passenger vehicles is ethanol and 4 billion gallons of ethanol are produced annually in his country.

When President Bush visited Brazil last November, ethanol was a key topic of discussion, and a door was opened for what could become an important partnership to benefit both nations, as well as other countries.

With expanding ethanol demand in the United States and worldwide, the market will inevitably grow beyond what U.S. farmers and Brazil's industry can supply, allowing other nations with foresight to fill the void. Colombia, Guatemala and the Dominican Republic are but a few nations that have taken steps toward an ethanol industry.

"Both Brazil and the United States have a lot to gain if we can work together to promote a global market for ethanol, with other countries involved in its production. " President Lula wrote in The Wall Street Journal, stressing the importance of a true partnership to nurture ethanol industries in other countries. "In poor countries, production of ethanol and biodiesel can have an extremely positive impact. It assists in dealing with the energy deficit, influencing internal consumption and exports" in addition to creating jobs.

To embrace Lula's vision, the United States must lead by example. As Gov. Bush cited, the federal government should re-examine the 54-cent-per-gallon tariff that exists on Brazilian ethanol imported into the United States. If that were to occur, Florida's economy would stand to greatly benefit, with its ports a logical recipient of Brazilian ethanol.

A Hemispheric Energy Security Initiative would also serve to reinforce the value of broader trading partnerships, such as the Free Trade Area of the Americas (FTAA), a hemisphere-wide trade bloc of free nations envisioned in 1994 among the hemisphere's leaders meeting in Miami. Uncertainty over the Doha round was the reason Brazil placed talks over the implementation of the FTAA on the back burner. However, steps toward an ethanol partnership would strengthen trust between countries in the hemisphere and promote a healthy environment of cooperation. In the past few years, bilateral and multilateral trade agreements between the United States and Latin American nations have, in effect, led to trading partnerships with about two-thirds of the hemisphere. FTAA, in spirit, is very much alive through these new communities of trade, and its goals are still supported by all but a handful of leaders in the hemisphere.

Even as contentious trade issues consume time and energy, the growing demand for ethanol in response to energy needs, economic realities and national security should prompt leaders to take advantage of the opportunity to forge critical alliances around the commodity. An ethanol initiative would bridge our interests in a true partnership, unlike any we've seen, to benefit generations to come, encourage hemispheric partnerships, boost free trade and strengthen security for the future.

Jorge L. Arrizurieta is the chair of Akerman Senterfitt's International Policy Group, a former president of Florida FTAA Inc. and former United States alternate executive director of the Inter-American Development Bank. Reach him at jorge.arrizurieta@akerman.com or at (305) 374-5600.