Building a Biofuels Alliance
How Brazil Can Be a Part of American 'Energy Independence'

By Paulo Sotero and Edward Alden
Thursday, March 8, 2007

President Bush and Congress have promoted the increased use of biofuels such as ethanol as key to achieving American "energy independence." But breaking free of the U.S. reliance on imported oil will require diplomatic skill as well as homegrown solutions. The agreement that Bush will ink with Brazil this week is an excellent place to start.

Together, Brazil and the United States produce more than 70 percent of the world's ethanol. Cooperation in developing and spreading technologies for ethanol production, setting common international standards and opening new markets for alternative fuels could pay big dividends for both economies while reducing greenhouse gas emissions. The initiative could also help shore up the United States' deteriorating standing in the region by acknowledging that Brazil is the largest and most stable democracy in Latin America.

Undersecretary of State Nicholas Burns said last month that biofuels could become the "symbolic centerpiece" of U.S.-Brazilian relations. The relationship sorely needs such a focus. Differences over farm subsidies were largely responsible for killing the U.S. initiative to create a Free Trade Area of the Americas, and the two have not found common ground in the Doha round of trade talks.

But cooperation on biofuels promises economic, political and environmental gains that could go far beyond the benefits of trade deals.

Brazil meets 40 percent of its domestic vehicle-fuel needs through ethanol, and it exports less than 20 percent of what it produces. Brazilian ethanol, derived from sugar cane, costs one-third less to make than corn-based American ethanol does and is more environmentally friendly. Just 7 million acres of sugar cane are being grown for ethanol in Brazil, but more than 400 million acres of pasture land -- none of it in the environmentally sensitive Amazon region -- could be cultivated.

Collaboration could also help expand production of sugar-cane ethanol in the Caribbean and Central America, lifting up poor economies that have tariff-free access to the U.S. market. While it will not be discussed openly at this week's meeting between Bush and Brazilian President Luiz Inacio Lula da Silva, the United States would benefit politically if its allies in Latin America developed alternatives to the massive oil reserves controlled by Venezuela. Hugo Chávez's government is using its roughly $40 billion in annual oil revenue to spread its anti-American influence across the region.

So far, however, U.S. ethanol policy has been built on a narrow concept of energy independence. Encouraged by farm-state politicians, Washington has funneled subsidies to corn growers. U.S. ethanol production has tripled in the past six years but is still only about 5 billion gallons annually.

The president has called for a mandatory fuel standard that would require production of 35 billion gallons annually in alternative and renewable fuels by 2017. That would replace about 20 percent of oil consumption by vehicles, but the best estimates are that U.S. ethanol from corn will peak at around 14 billion gallons in 2010. Barring unexpected breakthroughs in cellulosic ethanol or hydrogen fuel cells, the United States cannot reach the 35 billion-gallon target on its own.

Another concern is the cost of corn. Driven by demand for ethanol, which now consumes about 20 percent of the U.S. corn crop, corn prices are at their highest level in a decade. Rising international corn prices have contributed to huge increases in the cost of staple foods such as tortillas in Mexico. At some point, high corn prices could even undercut the profitability of ethanol, despite generous subsidies.

An economically and environmentally sustainable strategy to increase the use of alternative fuels in the United States will require substantially increased imports of ethanol derived from sugar cane. Ending the 54-cents-per-gallon tariff on imported ethanol is an obvious step to take. Congress -- determined to hand windfall gains to American corn farmers -- rejected such a move in December. Some farm-state politicians are even complaining that the U.S.-Brazil initiative will create new competition for American producers.

But the political obstacles to removing the protections should not discourage more farsighted lawmakers. A modified tariff scheme well short of a full repeal could still turn ethanol from Brazil and other Latin sources into a stabilizer of renewable fuel supplies in the United States and strengthen economic integration in the hemisphere.

To its credit, Brazil has stopped complaining about U.S. protection for ethanol, seeing greater potential in collaboration to develop new markets worldwide. That is a generous offer, and one the Bush administration and Congress should seize.

Paulo Sotero is director of the Brazil Institute at the Woodrow Wilson International Center for Scholars. Edward Alden is a senior fellow at the Council on Foreign Relations.

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