Brazil, U.S. see progress in cooperation of ethanol production

By Marc Hequet | March 10, 2008
Web exclusive posted March 28, 2008 at 4:26 p.m. CST

The long shadow of Brazilian ethanol fell over North American producers when Brazil announced a $10 million campaign to promote exports of its sugarcane-based ethanol in February. Meanwhile rumblings continue over the future of the U.S. tariff.

Notwithstanding the trade conflict, officials observed some progress at a March meeting in Washington between Brazilian and United State officials trying to extend cooperation between the world's two largest ethanol producers.

Joel Velasco, chief representative in the United States for Unica, Brazil's sugarcane trade association, noted in an e-mail to Ethanol Producer Magazine that ethanol producers now are "near consensus" on global standards for ethanol as a result of cooperation between Brazil, the United States, European Union, China, India and South Africa.

U.S. and Brazilian producers also share the challenge of countering "the myths and misperceptions regarding biofuels – whether they are produced in Iowa or São Paulo," Velasco added. Ethanol from sugarcane which is grown on just 1 percent of Brazil's arable land, displaces 50 percent of the nation's gasoline consumption, reduces greenhouse gas emissions by 90 percent, and costs half as much as gasoline, he said.

Brazil's criticism of the 54-cents-per-gallon U.S. tariff on imported ethanol remains pointed, however. Unica contends that the tariff keeps ethanol prices artificially high, encourages fossil-fuel consumption and "sends the wrong message to the rest of the world," Velasco said. With the U.S. fighting terrorists who threaten Mideast oil fields, "it seems the height of hypocrisy to tax our friends and allies that are providing an alternative," he added. Brazilian producers have paid more than $400 million in U.S. duties since the Iraq war began, Velasco said.

Room for compromise?

U.S. ethanol supporters counter that if the tariff was removed, U.S. taxpayers would subsidize foreign production. The tariff offsets the 51-cent-per-gallon tax incentive that petroleum refiners receive for ethanol they blend, "regardless of whether it is made in Iowa or Brazil," said Renewable Fuels Assocation spokesman Matt Hartwig in an e-mail to EPM. Without the tariff, he added, American taxpayers would in effect pay Brazilian ethanol producers 51 cents for each gallon of ethanol the United States imports from Brazil.

"Admirably, Brazil has built a strong, robust ethanol industry of its own through a wide variety of government supports," said Hartwig. "We simply believe American taxpayers ought not to have to further subsidize Brazil's or any other nation's ethanol industry when we are trying to build one in this nation. The tariff is there to protect the taxpayer, not the ethanol producer."

There may be room for compromise. RFA President Bob Dinneen has said the influential group might be open to reducing the import tariff along with a reduction in the blenders' tax credit. "Should the tax credit be altered, he would support harmonizing the two," said Hartwig. "He is not advocating for either."

In any case, North American producers knew that competition would eventually arrive, said Rahul Iyer, executive vice president at Primafuel Inc. of Long Beach, Calif.,–"though some in the industry believed that the competition would be confined within U.S. borders."