Brazil raises cane over U.S. ethanol tariff

Who could resent the attention being showered on electric cars? Stylish and clean, they’re the darling of the renewable-energy crowd, which is hailing the scheduled rollout of several e-powered models next year as a major blow against global warming.

Well, Eduardo Leao, for one.

He’s executive director of Brazil’s largest sugar industry association, called UNICA, and he insists that cane-based ethanol produced in massive quantities by his members is a better alternative fuel for the environment than electricity. He also is adamant that Brazilian sugar-based ethanol is a greener and more socially beneficial fuel than the corn-based ethanol commonly used in the United States, an assertion backed, with some qualifications, by many environmentalists.

All of which only adds to the ire of Leao and his members at being largely shut out of U.S. markets by a 54-cent-per-gallon tariff on Brazilian ethanol imports. He says the duty makes the fuel uneconomical for U.S. consumers except when oil prices spike as they did in mid-2008.

“Electric cars will be an alternative but an expensive one that leaves questions about where all that electricity will come from,” Leao said in a recent interview. “Most U.S. electric power is generated with fossil fuels, which means, at the end of the day, you may not be reducing carbon emissions.”

The Brazilian sugar industry’s complaint — which was relayed in person by Brazil’s President Luiz Inacio Lula da Silva to President Obama at a regional summit in April — points up one of the trickier aspects of U.S. renewable-energy policy that aims to reduce foreign oil imports, cut greenhouse gas emissions and promote the development of a domestic biofuels industry.

The U.S. government is trying to assure a growing domestic market by mandating that an increasing percentage of fuel at the pump be ethanol and keeping most of Brazil’s lower-cost ethanol out. But the trade-off forsakes short-term environmental benefits that ethanol made from sugar cane may provide.

Sugar-based ethanol as produced by Brazil is not without its critics. Some environmentalists such as Roland Hwang of the Natural Resources Defense Council say that rising acreage dedicated to sugar in Brazil may be forcing farmers of other crops into the Amazon basin, causing deforestation that could negate some of the cane-based fuel’s benefits.

“Sugar’s emissions benefits compared to corn are like night and day, maybe twice as much, in reducing direct greenhouse gas impact,” Hwang said. “But if the loss of land to sugar plantations leads to someone cutting down the rain forest for cattle pasture, the impact is not so clear.”

Many U.S. motorists may be unaware that on average 8% of the fuel they put in their tanks these days is ethanol, the result of federal and state mandates, clean air standards and tax incentives implemented over the years to boost alternative fuel development.

Ethanol also has replaced the octane “kick” once provided by the now-banned carcinogenic fuel additive MTBE, said Bruce Dale, a biofuels expert at Michigan State University.

Add in growing worries about the global warming effect of gasoline, and U.S. ethanol production has tripled since 2003 to 9 billion gallons produced last year, according to the Renewable Fuels Assn. But the use of corn to produce most U.S. ethanol, critics contend, diverts Midwestern grain from the global food supply, thereby raising commodity prices and creating scarcities.

“The main problem with corn-based ethanol is that it competes with agriculture, and that’s a huge social problem,” said Anna Stefanopoulou, director of the University of Michigan Auto Research Center.

Although growing in absolute terms, U.S. use of ethanol pales beside Brazil’s as a percentage of fuel consumed. South America’s biggest country has been building its ethanol industry and infrastructure since the mid-1970s, when the country, reeling from the Mideast oil embargo, mandated ethanol development to cut reliance on foreign fuel imports.

Now, about 55% of all fuel pumped into Brazilian cars and trucks is ethanol. Thousands of miles of pipelines ship ethanol to remote reaches of the country, and it is available at nearly every gas station. In the U.S., ethanol is available at only 2,200 filling stations, or 1.5% of the total.

Virtually all new Brazilian cars are equipped with “flex-fuel” engines, meaning they can run on any combination of gasoline and ethanol. By contrast, the Big Three automakers in the United States have promised to equip half of all new cars they produce with flex fuel engines by 2012, although it’s an open question whether there will be enough ethanol and infrastructure to get the fuel to consumers by then.

To assure ethanol use, the federal government has mandated that ethanol’s share of vehicle fuel content grow to 15 billion gallons, or an estimated 10% of all fuel sold by 2015. Total use of biofuels could grow to as much as 20% by 2022 as mandates kick in for the use of a new generation of biofuels, including those made from algae, grasses and nonedible plant material — a type of ethanol known as cellulosic.

Proponents of the tariff on Brazilian ethanol say the strategic goals could be defeated by opening U.S. doors to Brazilian ethanol, because it could lead to the replacement of one dependency — on oil imports — with another — on foreign ethanol, said Ken Cassman, director of energy science research at the University of Nebraska at Lincoln.

“The tariff provides an investment environment so that next-generation biofuels can get off the ground, to foster the build-out of the U.S. renewable fuels industry,” Cassman said. “Plus, Brazil puts tariffs on everything, so let’s be fair here. Why give an advantage to a country that out-tariffs us on the stuff we make?”

The tariff is necessary in the sense that it offsets a 45-cent-per-gallon tax credit that all ethanol producers qualify for. The U.S. government has no need or desire to extend such a benefit to a foreign supplier, Cassman added.

But the Brazilians contend that by protecting the U.S. ethanol industry, the government is sacrificing environmental benefits available now for dubious goals down the road.

Those immediate environmental benefits may appeal especially to California in 2011, when a law takes effect requiring a phased-in 10% reduction of carbon emissions by 2020, the NRDC’s Hwang said.

“The potential for Brazilian cane-based ethanol to be used in California to meet low carbon fuel standards is significant,” Hwang said. “The question is, can they overcome the tariff and give assurances they are protecting the rain forests?”

The plea to reduce or eliminate the tariff on Brazil’s ethanol has received a sympathetic hearing from President Obama. But the odds for change are long because of political opposition in the corn-growing Farm Belt in addition to warnings from policy wonks who say it would subvert the effort to produce homemade ethanol.

Whether growing ethanol demand is met mainly by U.S. producers or Brazilian imports, one expert says electric vehicles pose no immediate threat to biofuels as an alternative power source.

“For electric cars to be a success, we’ll need a lot of miracles. Now they are good for urban driving only, because of their limited range and the need to recharge batteries frequently,” said the University of Michigan’s Stefanopoulou.

“These questions will assure a market for agri-fuels, which give drivers the longer range they are used to,” she said. “This is a large country and we drive a lot.”