US-Brazil Strategic Energy Cooperation - Time to Drop the Ethanol Tariff

The U.S. - Brazil Strategic Energy Dialogue began today. I see that Deputy Secretary Energy Dan Poneman is leading the delegation. After our immediate neighbors, Canada and Mexico, Brazil is probably the most important bilateral relationship on energy in the hemisphere. It is one of the fastest growing countries in the world, and they are soon to become a major oil producer, after the find of significant oil in deep water off their coast.

Brazilian gas pump - note the 'alcool' (ethanol) pump at right

And - they have the most advanced ethanol production infrastructure in the world. They use distilled sugar cane to create ethanol, a process that is about 7 times more energy efficient than using corn, the process we use in the United State. About 50% of their cars are flex-fuel models that allow the consumer to choose whether to use gasoline or ethanol as their fuel.

So, I'm just writing a plea to the United States Congress and to the Obama Administration - it is time to repeal the ethanol tariff. Nothing would do more to bring strategic cooperation on energy between Brazil and the United States.

In June, the Senate voted 73-27 on an amendment from Senator Feinstein that would repeal the 45 cent per gallon tax credit for domestic ethanol production and the 53 cent per gallon tariff on imported ethanol. These tariffs and subsidies act as a wall preventing a full integration of the ethanol market between the U.S. and Brazil. I understand that there is an agreement, brokered between the main opponents of the subsidy (Senators Feinstein and Coburn) and the main proponents (Senators Thune and McCaskill) that would phase the subsidy out, beginning immediately. This agreement should be immediately passed through the Senate and House when Congress returns, and the President should sign it.

This would help to cement the strategic cooperation on energy between Brazil and the United States, as well as saving the taxpayers money.

Ironically, the loss of domestic subsidies will be helped by the export of ethanol to Brazil. When I was working in Congress in 2008, we had Brazilian companies asking us to repeal the tariff so that they could export their superior sugar-cane ethanol here. Now, the stagnant growth of US gasoline demand (and the ethanol blended into it), combined with growth of car ownership in Brazil and record-high sugar prices means that the tables have turned; Brazil now must import American ethanol to meet demand. 

That make this the perfect time to wean American ethanol producers off subsidies and the tariff. High gasoline prices and a ready market mean that ethanol producers won't be significantly hurt by the loss.