Ethanol Fuel in Brazil - Ethanol Diplomacy

Ethanol Diplomacy

In March 2007, "ethanol diplomacy" was the focus of President George W. Bush's Latin American tour, in which he and Brazil's president, Luiz Inácio Lula da Silva, were seeking to promote the production and use of sugar cane based ethanol throughout Latin America and the Caribbean. The two countries also agreed to share technology and set international standards for biofuels. The Brazilian sugar cane technology transfer will permit various Central American countries, such as Honduras, Nicaragua, Costa Rica and Panama, several Caribbean countries, and various Andean Countries tariff-free trade with the U.S. thanks to existing concessionary trade agreements.

Even though the U.S. has imposed a USD 0.54 tariff on every gallon of imported ethanol since 1980, the Caribbean nations and Central American countries are exempt from such duties based on the benefits granted by the Caribbean Basin Initiative (CBI). CBI provisions allow tariff-free access to the US market from ethanol produced from foreign feedstock (outside CBI countries) up to 7% of the previous year US consumption. Also additional quotas are allowed if the beneficiary countries produce at least 30% of the ethanol from local feedstocks up to an additional 35 million gallons (132.5 million liters). Thus, several countries have been importing hydrated ethanol from Brazil, processing it at local distilleries to dehydrate it, and then re-exporting it as anhydrous ethanol. American farmers have complained about this loophole to legally bypass the tariff. The 2005 Dominican Republic – Central America Free Trade Agreement (CAFTA) maintained the benefits granted by the CBI, and CAFTA provisions established country-specific shares for Costa Rica and El Salvador within the overall quota. An initial annual allowance was established for each country, with gradually increasing annual levels of access to the US market. The expectation is that using Brazilian technology for refining sugar cane based ethanol, such countries could become net exporters to the United States in the short-term. In August 2007, Brazil's President toured Mexico and several countries in Central America and the Caribbean to promote Brazilian ethanol technology.

The Memorandum of Understanding (MOU) that the American and Brazilian presidents signed in March 2007 may bring Brazil and the United States closer on energy policy, but it is not clear whether there has been substantive progress implementing the three pillars found in that agreement.

Brazil has also extended its technical expertise to several African countries, including Ghana,Mozambique, Angola, and Kenya. This effort is led by EMBRAPA, the state-owned company in charge for applied research on agriculture, and responsible for most of the achievements in increasing sugarcane productivity during the last thirty years. Another 15 African countries have shown interest in receiving Brazilian technical aid to improve sugarcane productivity and to produced ethanol efficiently. Brazil also has bilateral cooperation agreements with several other countries in Europe and Asia.

As President Lula wrote for The Economist regarding Brazil's global agenda:

"Brazil’s ethanol and biodiesel programmes are a benchmark for alternative and renewable fuel sources. Partnerships are being established with developing countries seeking to follow Brazil’s achievements—a 675m-tonne reduction of greenhouse-gas emissions, a million new jobs and a drastic reduction in dependence on imported fossil fuels coming from a dangerously small number of producer countries. All of this has been accomplished without compromising food security, which, on the contrary, has benefited from rising agricultural output...We are setting up offices in developing countries interested in benefiting from Brazilian know-how in this field."