US Public Has Zero Desire for Brazil’s Ethanol; Should It?

Of nearly 2,000 Americans responding to a survey by The Regional Economist magazine of the Federal Reserve Bank of St. Louis zero percent say they favor lifting import tariffs on ethanol. That opinion bodes badly for lifting the $0.54 a gallon tariff on Brazilian ethanol made from sugar cane. This view reflects America’s new dream of energy independence. But is it wise or even ethical for America to shut its doors to Brazil’s hottest new fuel?

Without Brazil, Can US Reduce Gas Consumption 20% Over Ten Years?

This ambitious “twenty-in-twenty” gasoline reduction is the Bush administration’s goal. But without Brazil’s ethanol it may be an uphill battle. With US corn setting record prices this year, it’s no surprise ethanol made from US corn is $2.90 a gallon while ethanol from Brazilian sugar cane is less than half the price at $1.40 a gallon. Even after the tariff, Brazil’s ethanol would be almost a dollar a gallon cheaper than ethanol produced domestically from corn.

Unfortunately, the tariff is high enough that it makes ethanol unprofitable to sell to the US, says Jose Sergio Gabrielli, president of Petroleo Brasileiro.

Next Steps: Brazil Looks at Litigation to Open US Ethanol Markets

Frustrated by this week’s collapse of the Doha world trade talks, Brazilian negotiator Roberto Azevedo told the Associated Press that there was a “strong possibility” that Brazil would lodge a formal complaint with the WTO about the US ethanol tariff. His stance is echoed by the Brazilian ethanol lobby.

“We (Unica) will look at three possibilities: litigation, working with like-minded groups in the U.S. to lower tariffs and bilateral talks,” said Marcos Jank, president of the Brazilian sugar grower’s association, Unica.

“We want to export more ethanol and it’s unfair to see the markets closed,” said Janks.

Does the Brazil Ethanol Tariff Reveal America’s Double Standard for Free Trade?

In an article published by the Carnegie Council for Ethics in International Affairs, International trade and agriculture policy expert Adam Dean argues that the tariff against Brazil’s ethanol is unethical.

Dean recalls NAFTA requiring Mexico to open its markets to US corn imports with the results that many Mexican corn producers went out of their business. However, with American corn prices hitting new highs, Mexicans are having to pay more too.

By pushing corn exports at a time when more than 20% of American corn crops are needed for ethanol, the price of US corn is artificially elevated, hurting America’s trade partners.

On the other hand, if the US were to open its markets to Brazilian ethanol, less demand for corn ethanol would lower corn prices for Americans as well as US trade partners.

“The key to higher living standards for the poor of Latin America,” says Dean, “does not lie in protectionist trade measures or abandoning ethanol production. Rather, an American commitment to free trade would allow all to benefit from the advances in biofuel technology.”

Sources: Biofuels Digest, The Wallstreet Journal, Cattle Network via Biofuels Digest, Bloomberg, Policy Innovations via ENN.