U.S. Seeks Partnership With Brazil on Ethanol
Countering Oil-Rich Venezuela Is Part of Aim

By Monte Reel
Washington Post Foreign Service
Thursday, February 8, 2007

SAO PAULO, Brazil, Feb. 7 -- The United States and Brazil, the two largest biofuel producers in the world, are meeting this week to discuss a new energy partnership that they hope will encourage ethanol use throughout Latin America and that U.S. officials hope will diminish the regional influence of oil-rich Venezuela.

U.S. officials said they expect to sign accords within a year that would promote technology-sharing with Brazil and encourage more Latin American neighbors to become biofuel producers and consumers.

The United States and Brazil together produce about 70 percent of the world's ethanol, a fuel that President Bush has called a cornerstone in reducing U.S. dependence on oil.

"It's clearly in our interests -- Brazil's and the United States's -- that we expand the global market for biofuels, particularly ethanol, and that it become a global commodity of sorts," said R. Nicholas Burns, the U.S. undersecretary of state, who led discussions with Brazilian government officials on Wednesday.

For the United States, the initiative is more than purely economic. Venezuelan President Hugo Chávez has exploited regional frustrations with the market-driven economic prescriptions that the United States has promoted throughout the region for years, and he has used oil revenue to promote several regional economic alliances.

Burns declared that biofuel is now the "symbolic centerpiece" of U.S. relations with Brazil, a country that U.S. officials have long hoped could counteract Venezuela's regional anti-American influence.

"Energy has tended to distort the power of some of the states we find to be negative in the world -- Venezuela, Iran -- and so the more we can diversify our energy sources and depend less on oil, the better off we will be," Burns said at a news conference in Sao Paulo.

Brazil, the world's largest exporter of ethanol, has been a leader in biofuel technology after its government invested heavily in the ethanol industry in the 1970s. Its sugar cane-based ethanol is more efficient to produce than the corn-based fuel made in the United States. To date, ethanol has replaced about 40 percent of Brazil's non-diesel gasoline consumption. More than 70 percent of the vehicles now sold in Brazil are flex-fuel models that run on either ethanol or gas, and the number continues to increase.

Although the United States has surpassed Brazil in the total amount of ethanol produced, its producers cannot keep up with surging demand. Last year, the United States produced about 4.9 billion gallons and imported an additional 1.7 billion gallons, mostly from Brazil.

U.S. production is expected to sharply increase as new production facilities are finished this year, but demand is expected to surge as well. Bush has called for a 20 percent reduction in gasoline consumption by 2017, which would require an estimated 35 billion gallons of alternative fuels to bridge the gap.

The United States currently places a 54-cent-a-gallon tariff on most imported ethanol. Brazilian producers have long labeled the tariff hypocritical, saying that it is exactly the kind of trade barrier that U.S. officials oppose in other countries.

"It's not about free trade, but fair trade," said Matt Hartwig, spokesman for the Renewable Fuels Association, a Washington-based lobbying group that says lifting the tariff would amount to the United States supporting Brazilian producers. "The tariff has never served as a barrier to entry. More than 400 million gallons of ethanol came in from Brazil alone last year -- straight from Sao Paulo to New York Harbor."

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.

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