BRAZIL CHALLENGES U.S. ON ETHANOL

Brazil Eliminates 20% Import Tariff on Ethanol; As Brazil shows its cards, U.S. corn ethanol has to find a new way to justify billions in subsidies
Joshua Kagan, April 8, 2010 (Greentech Media)

"One of the main arguments that pro-ethanol lobby groups like the Renewable Fuels Association (RFA) and Growth Energy make in defense of the generous Congressional subsidies to U.S. corn ethanol producers is that Brazil unfairly competes by slapping a 20% tariff on imported ethanol, effectively locking out U.S. ethanol exports…[But Brazil] is eliminating the import tariff until the end of 2011…

"Brazilian sugarcane ethanol has several economic advantages compared to U.S.-grown corn ethanol, including the capacity to co-generate electricity by burning the sugarcane bagasse, lower wage workers, and cheaper feedstocks in the form of sucrose…The economics are sufficiently advantageous that the Brazilians now feel that their ethanol can compete with any imported ethanol."

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"The Brazilians…are [essentially] now demanding the end of U.S. subsidies as a measure of reciprocity…Under the Renewable Fuel Standards (RFS)…Congress has mandated that petroleum refiners blend increasing amounts of corn ethanol into the nation's gasoline supply…[creating] an artificial demand floor for corn ethanol…[T]he $0.45/gal Volumetric Ethanol Excise Tax Credit (a.k.a. "blender's credit")…ensures that a refiner will actually purchase the ethanol rather than pay a penalty of non-compliance…[and there is a $0.54/gal import tax] on imported Brazilian ethanol. It is debatable how much Brazilian ethanol would actually be imported due to transportation costs…[but] the corn ethanol lobby…[insists] upon the import tariff…

"Proponents of corn ethanol's mandates and subsidies point out that corn ethanol is a domestic energy source that displaces imported petroleum, generates billions of dollars in tax revenue, and provides tens of thousands of jobs…Critics counter that U.S. biofuel policy has basically become beholden to an Agricultural Industrial Complex in which corn farmers and multinational agricultural companies…[get] billions of dollars in corporate welfare…[E]thanol has two-thirds of the amount of energy that a comparable gallon of gasoline contains, cannot be used in our downstream petroleum infrastructure like oil pipelines, competes with scarce cropland, freshwater, and food supplies, and requires engine modification for blends above 10%…"

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"…[T]he Renewable Fuels Association [says] that if Congress allows the $0.45/gal blender's credit to expire, 112,000 jobs would be lost and there would be a 38% reduction in U.S. production capacity…[and] the loss of a domestic ethanol industry would be a disaster because we would replace our dependence upon foreign oil with foreign ethanol…

"…[C]orn ethanol has progressed from 3.5 billion gallons of production capacity in 2005 to 14 billion gallons today -- a 32% CAGR during that period. At what point do we say that the time has come to pull off the training wheels and see if the industry can compete on its own merits?…[E]very dollar that continues to subsidize corn ethanol is a dollar not being invested in advanced gasification, pyrolysis, hydroprocessing, metabolic engineering, algae, and every other third- and fourth-generation biofuel technology…[I]t seems like our politicians have confused principle with principal."