Brazil accuses US and EU of 'hypocrisy' on biofuels

A day after President Bush delivered his State of the Union address in which he calls for a large increase in the use of biofuels, Brazil accuses both the United States and the European Union of not talking straight. Their positions on biofuels and climate change are 'hypocritical' as long as both blocks impose barriers on biofuel imports from the South. On the other hand, the EU is investing in African ethanol production and gives out signals that it might be interested in tapping the continent's large potential.

Both the US (earlier post) and the EU (earlier post) recently announced ambitious new plans to increase the use of biofuels in order to strengthen energy security and fight climate change.

But a high representative at Brazil's Ministry of Commerce and Trade states that the tariffs imposed on Brazilian ethanol allow ethanol producers in the North to make fuels that make no sense, neither from the perspective of reducing carbon dioxide emissions, nor from a commercial point of view. Biofuels such as ethanol made from sugarcane are far more climate friendly and energy efficient than biofuels made from crops like corn.

According to Otaviano Canuto, Brazil's representative at the World Bank, the doublespeak of the US and the EU is based on the fact that Western governments cannot admit to their consumers that biofuels from the South are competitive without subsidies and when oil is above US$40 per barrel. The governments of the EU and the US are afraid to upset their energy farmers, whose fuels can only survive when oil stands at US$60-80. According to the Interamerican Development Bank, Brazil produces ethanol at a cost of approximately US$0.83 per gallon.

The undeniable competitive advantage of the South is being blacked out by a barrage of subsidies, tariffs and so-called nonmarket barriers.

Tariffs and subsidies
The United States impose a tariff of US$0.51 per gallon of ethanol produced in Brazil. The U.S. Congress recently extended the tariff until 2009. According to the World Bank, the European tariffs are even higher.

When it comes to subsidies, the picture looks even worse: in its recently published report (earlier post) entitled “Biofuels: At What Cost? Government Support to Ethanol and Biodiesel in the United States”, the Geneva-based Global Subsidies Initiative calculated that American corn ethanol, received a whopping US$6.8 billions worth of subsidies in 2006 via hundreds of schemes (this is $1.87 per gasoline gallon equivalent or “gge”). The annualised estimate for 2007-2012 is even higher at $8.7 billion (or $1.96 per gge):
ethanol :: biodiesel :: biomass :: bioenergy :: biofuels :: energy :: sustainability :: biofuel trade :: tariffs :: subsidies :: nonmarket barriers :: Africa :: Brazil :: United States :: European Union ::

Brazilian experts argue that Midwestern corn farmers in the U.S. would not survive market competition without the protectionist tariff, not even after receiving billions worth of subsidies each year. In Europe, the lobbying work mainly comes from producers in Spain, France and Sweden. The EU too recently extended its energy crop subsidies to €45 per hectare.

Until now, Brazil succeeded in exporting US$600 million worth of ethanol in 2005, mainly to Japan and Sweden, two countries committed to fulfilling their Kyoto obligations.

United States interested, but in the grip of lobbyists
Despite the tariff, there are some signs that the U.S. is interested in importing ethanol from the South. Jeb Bush, President Bush's brother and governor of Florida, recently created the Interamerican Ethanol Commission which aims to lift the tariff and raise the consciousness of the American consumer about tropical biofuels.

The U.S. Department of Energy recently calculated that American ethanol producers might never attain the efficiency and productivity levels of their Brazilian counterparts, not even when socalled 'second-generation' production methods are used. This is why imports must be considered.

But this is also why a large and powerful machinery of lobbyists is fighting to the death to keep its subsidies in place.

Contradictory voices in Europe
On the one hand, the EU has imposed barriers on imported ethanol, but on the other, it recognises the importance of the production potential in the South.

More specifically, and according to diplomatic sources, the government of the United Kingdom is looking into producing ethanol in Africa, most notably Mozambique, in order diversify its import portfolio.

"The objective is to create an African ethanol industry very fast, with the objective of first supplying the South-American market. The UK provides the funds", confirms a high representative of the British Department of Agriculture (DEFRA).

According to the British ambassador in Brazil, Peter Collecott "the idea is to produce ethanol for the African market, after which it will be easier to make it a truly global commodity." Collecott confirmed that "the project is currently being analysed".