PARIS — A framework of tariffs and subsidies introduced by the U.S. Energy Tax Act of 1978 has long bolstered the American ethanol industry, helping to increase demand while keeping foreign competitors out.

But these tariffs are due to expire Dec. 31 and other countries are lobbying hard to get into the U.S. market — particularly Brazil, the world’s largest producer of sugar cane ethanol, which stands to be the biggest beneficiary if the tariffs are allowed to end.

Unica, a Brazilian trade body whose members are responsible for about 50 percent of the ethanol produced in the country, has been campaigning heavily, including a video, “All I Need to Know About U.S. Ethanol Subsidies,” which says that ethanol policies have cost American taxpayers $6 billion a year and have consumed $45 billion since 1980.

“We just want to see all biofuel products treated equally,” Emmanuel Desplechin, the associations’s European representative, based in Brussels, said in an interview. “Discriminatory trade policies should be removed if the U.S. and Europe are serious about weaning themselves off fossil fuels.”

The ethanol industry supports about 400,000 jobs in the United States — a number that the Renewable Fuels Association, a U.S. industry group, said could be cut by as much as 30 percent if the tariffs are not extended.

Ethanol makers say the fuel is 60 percent cleaner than conventional gasoline. Using a blend of gasoline and ethanol to power cars is seen by many as the most realistic way of cutting the 378 million gallons, or 1.4 billion liters, of gasoline consumed daily in the United States.

But ethanol, particularly from corn, the primary source of American ethanol, remains controversial. Billed by some as an answer to questions posed by climate change and fuel security, it is criticized by others as siphoning food away from the hungry and into the fuel tanks of rich countries, leaving a trail of environmental devastation in its wake.

As oil prices rise, ethanol becomes more competitive. As a rule of thumb, Mr. Desplechin said, when oil reaches $40 a barrel, ethanol is profitable — and oil is trading at about twice that level, about $83 a barrel.

U.S. ethanol refiners have produced record volumes this year, according to the U.S. Department of Agriculture, raising U.S. corn demand and depleting stocks of the crop — illustrating how energy policy has become an important factor in global grain markets in recent years.

Food prices are no longer at the record levels of 2008, but they remain high and are still prone to sudden upward spikes.

And though a study published by the World Bank suggested that the part played by biofuels in the rise of food prices in 2006-8 may have been overplayed, concerns persist over diverting agricultural resources to fuel production.

There is broad consensus that ethanol from sugar cane, which is fermented and distilled from the crushed cane waste after the sugar has been extracted, does not have the same impact on food production as ethanol from corn, since producers do not have to choose between producing food or fuel. And it is one of the most environmentally friendly of the first-generation biofuels, in terms of its carbon dioxide emissions, in production and use.

Mr. Desplechin added that sugar cane was not to blame for deforestation. Sugar cane for ethanol occupies 1.5 percent of Brazil’s arable land, while the area for livestock pasture represents almost 50 percent.

Sugar cane-based ethanol has been produced in Brazil since the 1970s, when, after an oil crisis, the Brazilian government introduced a subsidy to encourage carmakers to start producing large numbers of ethanol-powered cars, fostering the creation of a nationwide distribution network.

The industry has developed more strongly since 2003 with the introduction of “flex-fuel” engines that can run on ethanol, gasoline — which in Brazil is 25 percent ethanol — or any blend of the two.

There are about 10 million flex-fuel cars on Brazilian roads, and they account for about 90 percent of new car sales. Ethanol meets about half of Brazil’s fuel needs. “In Brazil, gasoline is the alternative fuel for cars,” said Mr. Desplechin.

Over all, a sixth of the country’s total energy needs are met by sugar cane. According to Unica, this shift has reduced carbon emissions by more than 600 million tons since the mid-1970s.

“Brazil is not a special case,” said Mr. Desplechin. “Other countries could use the same model to expand their use of alternative and greener energy.”

The United States has committed to raising its renewable fuel consumption to 36 billion gallons a year by 2020, or about 7 percent of its total consumption, while the European Union has called for 10 percent of European transportation fuel demands to be met by renewable sources by 2020.

Meanwhile, the U.S. subsidies and import tariffs, put in place by the Energy Tax Act enacted by President Jimmy Carter, award a tax credit of 45 cents per gallon to refiners who blend ethanol with gasoline and impose an import tariff as a deterrent to foreign competition. The tax credit was worth an estimated $4.7 billion last year.

“The U.S. tariffs are prohibitive to imports and should be allowed to expire,” Mr. Desplechin said.

A study by economists at Iowa State University said that ending protection for U.S. producers would reduce ethanol prices by 12 cents per gallon in 2011 and 34 cents per gallon in 2014. At the moment most gasoline sold in the United States contains 10 percent ethanol — a limit that the U.S. Environmental Protection Agency may increase to 15 percent this autumn.

The study also said that if the subsidies were eliminated, the effect on U.S. corn and ethanol demand would be minimal, since Congress already mandates the use of renewable fuels. It said U.S. corn-ethanol production would continue to rise to about 14.5 billion gallons by 2014, without the credits or tariffs.

Congress has not yet decided what to do, but many in industry expect a compromise, renewing the tax credit but at a lower rate.

“The industry is expecting 36 cents,” for the tax credit said Cole Gustafson, a professor of agribusiness and applied economics at North Dakota State University. “The issue is mostly dependent on the federal budget situation and whether sufficient funds can be found.”

Biofuel production in Europe is also heavily subsidized. All production is protected by tariffs — up to 63 percent on ethanol — and subsidies that add up in total to 0.5 euro cents, or 0.7 cents, per liter of biodiesel and 0.74 euro cents per liter of ethanol produced, according to figures from the Global Subsidy Initiative of the International Institute for Sustainable Development, a research organization based in Canada.

Tom Buis, chief executive of Growth Energy, an American industry coalition of ethanol supporters, called last month for continuing U.S. government support — if not through tariffs, then through investment in infrastructure improvements, more flex-fuel vehicles and increased blending levels.

The industry hopes to receive approval soon from the Environmental Protection Agency for an increased cap on blending ethanol in gasoline — allowing cars built since 2007 to use regular gasoline blended with ethanol levels of 15 percent instead of 10 percent.

According to some industry estimates, shifting to the 15 percent blend, known as E15, would create about 136,000 jobs in the United States, reduce greenhouse gas emissions by eight million tons a year and reduce reliance on foreign oil.

“All eyes are on Washington,” Mr. Buis said. “We have timely issues. The clock is ticking.”

source: nytimes

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