Latin America -- the 'Persian Gulf' of Biofuels?
Friday, February 23, 2007; 12:00 AM
WASHINGTON -- Today there is a lot of excitement among current and former U.S. and Latin American officials, regional think tanks and multilateral institutions over this thesis: The U.S. pursuit of oil alternatives may lead to unprecedented levels of cooperation in the Western Hemisphere, bringing with it the strategic, social and environmental benefits long promised by trade integration advocates.
As outlined in his State of the Union address last month, President Bush wants to reduce gas consumption by 20 percent in 10 years, requiring 35 billion gallons of alternative fuels annually by 2017. Fuel experts agree that in order to meet such a goal, the United States will need foreign suppliers of biofuels, particularly ethanol, the most widely used biofuel.
Latin America is uniquely positioned to be a top supplier of ethanol. Despite a 50-cent per gallon U.S. subsidy for its producers and a 54-cent per gallon tariff on imported ethanol, Latin American and Caribbean suppliers delivered enough ethanol to meet nearly 10 percent of U.S. consumption last year. The Americas account for 80 percent of biofuel production in the world.
Most of the ethanol imported by the U.S. comes from Brazil, the world's largest exporter and biofuel industry leader. With more than 30 years of experience in sugar cane ethanol, Brazil has achieved the highest level of oil independence of any country, having replaced 40 percent of its gasoline consumption with ethanol.
But like the U.S., Brazil may soon find itself straining to satisfy its own growing appetite for biofuels. In addition, worldwide demand is on the rise, with at least two dozen other countries pursuing biofuel mandates.
Because demand will outpace their ability to produce, the United States and Brazil are about to officially launch a new energy partnership. The same two countries that in recent years have been at loggerheads over economic and trade priorities, stalling regionwide trade integration, now see their biofuel industries growing as partners rather than competitors, according to Marcos Jank, president of the Brazilian Institute for International Trade Negotiations. In the words of Luis Alberto Moreno, president of the Inter-American Development Bank (IDB), biofuel energy is becoming a "great point of convergence for the Americas."
Part of their common interests will be to motivate other countries to pick up the slack in production. In this regard, Guatemala, Peru and Colombia, large sugar cane growers in the region, stand to benefit from the new boom in ethanol demand. These three are considered to be very efficient producers, yielding more sugar per acre than Brazil, which in turn is eight times more efficient than U.S. corn-based ethanol producers. Colombia too, as the fifth-largest exporter of palm oil, could become a source for biodiesel.
"To the extent that there is a global demand, Latin America will be the Persian Gulf of biofuels, except that of course Latin America is much more stable as a source of energy," said David Rothkopf, a senior trade official during the Clinton administration and author of the soon to be released new report commissioned by the IDB "Blueprint for Green Energy in the Americas." The study finds that in order for biofuels to account for 5 percent of all fuel consumption by 2020, there will need to be $200 billion in new investment worldwide.
It is still open to question how much the United States and Brazil will do to share technology, set common standards for production, develop infrastructure and eliminate tariff barriers throughout the region. The Bush administration has scheduled two meetings next month with Brazilian President Luiz Inacio Lula da Silva, including a session at Camp David where both leaders are expected to officially launch their new energy partnership.
Historically, interest in alternative fuels has waned as soon as oil prices dropped. This time around, experts say, last year's spike in global oil prices, plus a general fatigue with unstable oil suppliers and growing concern with global warming, will keep public and private investors committed for the long haul. Brazil is ahead of other countries today because it stayed with its biofuels program despite fluctuating oil prices.
It must be said that alternative fuels are not a risk-free venture, nor are they a magic bullet for oil independence and environmental protection. Last year, for instance, ethanol production in the U.S. shot up the price of corn 80 percent, causing the price of basic food products to rise. While all excitement generated by this new cooperation must be tempered by these considerations, biofuels are destined to play a major role in our future energy consumption and that should portend big things for the Americas.
Marcela Sanchez's e-mail address is email@example.com.