Brazil-US ethanol tariff discussions pick up as expiration nears

By Kris Bevill | September 27, 2011

As the U.S ethanol industry confronts the reality that the 45-cent-per-gallon Volumetric Ethanol Excise Tax Credit and 54-cent ethanol import tariff will end on Dec. 31, some industry representatives are ramping up efforts to extend the tariff beyond 2011. In remarks delivered at an ethanol industry event held in New Orleans on Sept. 22, Ed Hubbard, legal counsel for the Renewable Fuels Association, said that while the import tariff was designed to offset VEETC, there could be a need to maintain it, despite VEETC’s elimination, because of its usefulness as a bargaining tool in other trade negotiations. “There is a growing effort to ask Congress not to eliminate it immediately but to hand over a decision on what to do to the USTR (Office of the U.S. Trade Representative) so that they’re able to negotiate,” he said. According to Hubbard, RFA representatives were meeting with White House officials on Sept. 23 to discuss the possibility of a tariff extension.

Very little Brazilian ethanol has made its way into the U.S. this year, as the country has struggled just to meet its own demands for the fuel. However, calls for increased amounts of advanced biofuel through policies including California’s Low Carbon Fuel Standard and the national renewable fuel standard are expected to drive demand for cane-based ethanol, which meets the policy requirements for that type of fuel. That could also be a driver in the move to extend the U.S. import tariff, as domestic companies hurry to ramp up advanced biofuel capabilities. Adhemar Altieri, communications director for UNICA, the Brazilian Sugarcane Industry Association, said it would be unfortunate if the U.S. decides to extend its tariff, considering it was established as a means of offsetting VEETC. “If they’re going to lose the subsidy, then what is it offsetting?” he said. “We all talk about ethanol becoming a globally tradable commodity. It can’t happen if the U.S. sticks to that detail. The U.S. today is the biggest ethanol producer in the world; it has to set a little better example than that.”

The U.S. ethanol industry has been exporting significant quantities of corn-based ethanol to Brazil for much of 2011 due to a shortage of domestic supply there and Hubbard also expressed concern over the possiblity that Brazil could reinstate its own ethanol import tariff beginning Jan. 1. However, Altieri said there is no plan for Brazil to bring back its tariff. “This would be a bad time to reinstate the tariff considering that  [Brazil is] importing ethanol,” he said. “Why would they make it more expensive to bring it in?”

Brazil eliminated its 20 percent import tariff on ethanol in early 2010 as part of a larger agreement to eliminate tariffs on 100 products. At the time, Brazil’s government said the ethanol tariff elimination was temporary and would be re-evaluated at the end of 2011. It was presumed then that Brazil would reinstate its tariff in 2012 if the U.S. did not eliminate its own tariff, but Altieri said there have been no discussions in Brazil regarding that issue. “It’s basically been settled and left alone ever since it’s been implemented,” he said. “There’s been no talk that I’ve heard of bringing it back.” In fact, UNICA lobbied for the removal of the tariff in 2010 and would lobby against bringing it back if the issue comes up when Brazil revises its tariff list at the end of the year, he said.

Brazil did recently reclassify ethanol on its list of tariff exclusions and put into effect a 20 percent tariff on hydrous ethanol imports, which Altieri speculated could have led some U.S. ethanol industry representatives to misinterpret as a sign that Brazil is considering bringing back its general ethanol import tariff. However, he noted that a tariff on hydrous ethanol has no impact on imports and was little more than bureaucratic paperwork. “Nobody imports hydrated ethanol because it contains 5 percent water,” he said. “You’re not going to ship water around. What matters right now is anhydrous ethanol is zero, and it’s going to stay zero.”