The OPEC of ethanol

Ethanol alliance with Brazil creates new challenges and opportunities

By Sara Wyant

Is your glass half empty with ethanol or half full? This appears to be one of the key underlying questions for anyone concerned about President George W. Bush's recent excursion to South and Central America.

Just prior to his visit, several lawmakers signaled their concerns about potentially giving away some of the "goods," like tax breaks, that U.S. ethanol producers are currently enjoying, to a country that's widely viewed as our competitor.

In a recent letter to President Bush, Sen. Chuck Grassley, R-IA, said that while he appreciates "that increased consumption of ethanol in such countries might eventually benefit the U.S. ethanol industry and U.S. farmers, I fail to understand . . . why the United States would consider spending U.S. taxpayer dollars to encourage new ethanol production in other countries, production that could directly compete with U.S.-produced ethanol." Another Republican, South Dakota's Sen. John Thune, also warned that "we won't want to replace foreign oil with foreign ethanol."

However, lawmakers who see a growing market for biofuels around the globe--one that can lift all boats--welcomed the President's overtures to a country that is currently the world's second largest producer of ethanol and the largest exporter. They see tremendous opportunities associated with creating what could be the "OPEC of ethanol" across the Americas and potentially reducing U.S. dependence on imported oil. When you consider the climate and resource base for biofuel production across North, South and Central America, a coordinated strategy could offer several geopolitical advantages. Brazil could also serve as a strategic ally when it comes to fighting terrorism and developing mutually beneficial trade flows.

New energy realism

Sen. Richard Lugar, R-IN, encouraged Bush and Latin American leaders to use what he calls "the new energy realism" to better hemispheric relations. "Presidents Bush and da Silva should expand and energize the initiative by launching a joint program of investment, training and research to build biofuels production capabilities throughout the region and the world," Lugar and Secretary General of the Organization of American States José Miguel Insulza wrote in a Miami Herald op-ed on February 26.

"Grants and loans from regional development banks could be used to assess the suitability of biofuels on a country-by-country basis. Investments and loans from the U.S., Brazil and other interested governments, as well as private-sector sources, could perfect cellulosic technology, train farmers in biomass crops and build biofuel production facilities and distribution systems. Sen. Lugar is so excited about the prospect, that he plans to introduce legislation that would formalize this proposal.

The Brazil pact

The agreement between President Bush and his Brazilian counterpart doesn't go as far as some had feared and is not as aggressive as the one Sen. Lugar proposed. There will be no tax breaks given away or joint pilot plants built. In reality, the plan falls somewhere in between.

According to a U.S. government summary, the agreement, which is technically a memorandum of understanding, aims to increase cooperation on industry technology, promote development of biofuels production in impoverished Central America and the Caribbean, and work toward better international standards on fuel ingredients. The initiative "does not include discussion of United States trade, tariffs or quotas," according to the summary.

"Working together with Brazil to encourage greater adoption of biofuels has the potential to spur renewable energy investment, facilitate technology transfer, stimulate rural development, and boost job creation in countries around the world."

Setting the stage

With a huge ethanol storage facility in the background, Presidents da Silva and Bush expressed hope that increased production of biofuels, like ethanol by Latin America, will lift incomes for millions of the region's poor. At the same time, it can reduce America's seemingly insurmountable thirst for imported oil and reduce the amount of greenhouse gases believed to contribute to global warming.

Even though da Silva later chastised President Bush over U.S. protectionism and the refusal to remove the 54 cent ethanol tariff, he seemed to be thrilled that his country was finally being recognized for taking a leadership role in the biofuel arena.

For Bush, the partnership also offers the potential to counter the political noise created by Venezuelan President Hugo Chávez, who has used his country's oil wealth to promote leftist populism throughout Latin America. In fact, Chavez seemed so irked by the President's overtures to his neighbors, that he organized rallies and protests in several cities near where the world leaders were meeting.

Even Sen. Grassley seemed pleased with the outcome. In a statement, he said he is "glad the accord doesn't explicitly call for the joint construction of a pilot ethanol plant." But he plans to continue to monitor developments, since the agreement was broadly written."

Editor's note: Columnist Sara Wyant is president of Agri-Pulse Communications, Inc. and publishes a bi-weekly newsletter, Agri-Pulse, on food and farm policy. For more information, you can e-mail her at Agripulse@aol.com.

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3/19/07

1 Star WK

Date: 3/15/07

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