U.S. Seeks Partnership With Brazil on Ethanol

Sugar cane arrives at a plant belonging to Cosan SA Industria e Comercio, the largest sugar and ethanol producer in Brazil. Most of Brazil's ethanol comes from sugar cane. (JC Franca -- Bloomberg News)

The tariff is unlikely to be lifted during the current talks. It expires in 2009, and many in the industry believe the government is unlikely to address the issue before a presidential election year.

"The administration has indicated it would support lifting the tariff, but I think the current inclination is to allow it to expire and have that discussion at a later date," said Brian Dean, head of the private Interamerican Ethanol Commission, which was created in December by then-Florida Gov. Jeb Bush (R) to encourage U.S. ethanol partnerships with Brazil and other Latin American nations.

Brazilian industry leaders say the expanding demand for ethanol has resulted in a new understanding that Brazilian sugar growers and American corn growers are not competitors.

"Up to yesterday, we considered the U.S. corn growers our enemies, and they considered us their enemies," said Eduardo Pereira de Carvalho, president of Brazil's sugar cane growers union. "But we aren't enemies -- we're allies, independent of the tariff issue that has divided us. My government has said to me, 'Aren't you creating competition for us?' I say no."

If an agreement between the two countries is signed, both will likely share some of the technological advances each has been pursuing independently. The U.S. Energy Department last year opened two research centers to study how to better derive ethanol from cellulose material -- a development that could turn a wide variety of plants into fuel sources. Brazil, meanwhile, has been conducting similar research, and some in the industry believe pooling sources could lead to quicker breakthroughs.

But U.S. officials said the most valuable result of an alliance would be that it would encourage more countries to get involved in production and use of ethanol. This would create an internationally tradable commodity, much like oil is today, Burns said. That would lessen the power that oil has over the region, he said.

"If you boil down all the issues causing political instability in the region, many of them do come down to energy -- the expropriation of a petroleum company in Ecuador, Venezuela and its oil dominance, the nationalization of natural gas and other energy sources in Bolivia," said Dean, of the Interamerican Ethanol Commission. "So there clearly is a compelling need for an energy security regime."

According to Carvalho, the Brazilians are aware that such concerns -- particularly about Venezuela's oil influence -- have spurred talks of the ethanol partnership.

"Of that I have absolutely no doubt," he said.