World Bank chief calls on U.S. to remove ethanol tariffs

Despite a biofuels cooperation agreement signed between Brazil and the U.S. last week, the world's largest fuel consumer rejected the idea of removing its tariff on imported ethanol.

According to a recent analysis by the Global Subsidies Initiative, American biofuel producers are supported by billions of subsidies each year and by a US$0.54 per gallon tariff (earlier post). This encourages the production of biofuels that are hardly sustainable or energy efficient - such as corn ethanol - , and it blocks supplies of fuels that have a far better energy balance, reduce greenhouse gas emissions in a much stronger way, and thus contribute far more to tackling climate change. These corn subsidies and tariffs on corn ethanol were responsible for the recent Tortilla crisis in Mexico (earlier post), and they protect a select group of farmers in America, while denying poor farmers in the South to tap into an important economic opportunity and an emerging market in which they would be competitive if tariffs and susbsidies were removed.

Resistance to this situation is growing in circles of energy analysts such as the IEA (earlier post), economists (earlier post), international aid organisations and think tanks (earlier post) and in the developing world itself (earlier post) which stands to become a large biofuel exporter.

Joining those who call for a removal of the U.S. ethanol tariff is an important figure on the international political and economic stage, namely Paul Wolfowitz, the president of the World Bank. Wolfowitz's statement came at a conference in London on financing low-carbon energy, and it will increase the pressure on President George W. Bush to take action.

Wolfowitz, a former influential member of the Bush administration, also called for "a global framework" on cutting greenhouse gas emissions and for more aid to the poor for adapting to climate change.

In a departure from his prepared text on encouraging investment in cutting carbon, Mr Wolfowitz said: "Barriers to the international trade in ethanol need to be examined." Asked by the Financial Times afterwards whether this meant the US should lower or remove its import tariff of 54 cents per gallon on ethanol from Brazil, he said: "That's what I said. Weren't you listening?"

Mr Bush wants to increase the US use of biofuels in order to reduce dependence on imported oil. However, in spite of research from the US government's Energy Information Administration showing his target of reducing US consumption of petrol by 20 per cent in 10 years cannot be met from US farms alone, he has refused to countenance tariff changes that might be unpopular with US farmers:
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Mr Wolfowitz, an ally of Mr Bush as the former US secretary of defence, also put pressure on the administration over climate change by calling for "a long-term equitable global regulatory framework to reduce greenhouse gas emissions".

He stopped short of calling for a global mandatory cap on emissions but said he wanted "a framework that allows carbon markets to thrive and bring financial flows to developing countries to the tune of US$100bn within a few decades".

Such flows have been predicted for the carbon trade under the Kyoto protocol, which Mr Bush has rejected.

The Bush administration has also consistently rejected calls for a "global regulatory framework" on emissions, insisting instead on signing bilateral and some multilateral deals with countries such as China, India and Japan.

In his strongest remarks yet on climate change since taking over at the World Bank in June 2005, Mr Wolfowitz said: "Today, we are faced with compelling evidence that our consumption of fossil fuels is seriously hurting the environment – and the longer we delay action, the more costly it will be to try to correct it. Business as usual is not an option."

Jean Lemierre, president of the European Bank for Reconstruction and Development, which hosted the conference, added that energy efficiency developments in eastern Europe would substantially help reduce emissions.

He told the FT: "If eastern Europe was as efficient in its use of energy as western Europe, global energy use would be reduced by 7 per cent."