U.S. law assists Brazilian ethanol imports

Washington, D.C. — The law that guarantees Iowa's ethanol producers a growing demand for their product also is creating a market for a foreign rival: Brazilian companies that make the fuel from sugar cane.

Brazilian ethanol already is coming into the United States. Like corn ethanol, the Brazilian product counts toward meeting the nation's annual mandates for conventional ethanol.

But Congress in 2007 also required refiners to start using more environmentally friendly alternatives, known as advanced biofuels, that would result in lower greenhouse gas emissions than conventional ethanol. For now, Brazil's sugar cane ethanol is the most widely available fuel that qualifies for mandates that will rise to 5 billion gallons by 2022.

U.S. producers, worried about the competition from Brazil, are gearing up for a fight in Congress to maintain a 54-cent-per-gallon tariff on imported ethanol that is set to expire at the end of the year.

Brazil has been pushing to eliminate the tariff, and there are bills pending in Congress to reduce or end the tariff. The bills are sponsored by lawmakers from California and other states whose consumers stand to benefit from importing cheaper Brazil ethanol rather than using corn ethanol from the Midwest.

"What's the fear from U.S. ethanol producers?" said Joel Velasco, North American representative of the Brazilian Sugarcane Industry Association, known as UNICA. "America always wins when it competes."

The tariff serves to erase at least some of the price difference to American refiners between Brazilian and U.S. ethanol, which typically has cost about 50 to 80 cents more per gallon.

U.S. ethanol producers justify the tariff by saying it is needed to offset the value of the U.S. ethanol subsidy, a 45-cent-per-gallon tax credit.

"Otherwise, the taxpayer is going to be subsidizing or supporting foreign-made ethanol," said David Nelson, chairman of MGP Cooperative, which operates an ethanol plant in Lakota.

Refiners who use ethanol, whether domestic or Brazilian, are eligible for the subsidy.

But it's unclear how much ethanol Brazil will ship into the United States in coming years.

Analysts at the Environmental Protection Agency say there will be competition worldwide for Brazil's product, which is cheaper to make than ethanol from corn and other sources. The agency estimated there could be demand from Europe and other regions for as much as 14 billion gallons a year — more than double what that nation produced last year, mostly for domestic use.

The United States imported 190 million gallons of ethanol last year, down from 600 million gallons in 2008, according to the Renewable Fuels Association. High sugar prices recently and a poor cane crop have squeezed Brazil's ethanol supplies and forced the government to reduce domestic consumption of the fuel.

The environmental agency estimated that imports of Brazilian ethanol will rise to 2.2 billion gallons by 2022, assuming the tariff is continued.

The actual levels of import will depend on what kind of mandates and targets other foreign countries set, the agency said.

The new advanced biofuels mandate could make Brazilian ethanol so valuable to U.S. refiners that the product will be shipped here rather than to other countries, said Bruce Babcock, an Iowa State University economist.

"If the tariff is dropped, then for sure more Brazilian ethanol will come in," he said.

Velasco said the agency may be overestimating demand for Brazilian ethanol, which faces tariffs in countries other than the United States. The European Union imposes a tariff of 98 cents a gallon, he said.

Congress enacted the requirement for advanced biofuels as part of a larger set of mandates for biofuel usage. Refiners are required to use 36 billion gallons of biofuels by 2022, about three times as much as this year.

The advanced biofuel standard was intended to shift refiners away from corn ethanol to fuels that produce fewer greenhouse gas emissions. An advanced biofuel must have no more than half the emissions of conventional gasoline. Brazilian ethanol is 61 percent lower in emissions than gasoline, the environmental agency said. Corn ethanol, which requires more energy to produce than Brazil's product, is about 20 percent better than gasoline.

Both corn and sugar cane ethanol qualify toward meeting the conventional biofuel mandates that rise from 12 billion gallons this year, up from 10.5 billion in 2009, to 15 billion gallons in 2015.

The ethanol industry's chief champion in Congress, Sen. Charles Grassley, R-Ia., has said that the tariff will be tougher to preserve than the industry's 45-cent-per gallon subsidy.

The president of the Renewable Fuels Association, Bob Dinneen, warned industry officials last week to take a lesson from what happened recently to biodiesel producers, who watched their subsidy expire Dec. 31 when lawmakers couldn't agree on legislation that would include a renewal of the measure. The $1-a-gallon tax credit has yet to be revived.

"The failure of the Congress to extend the biodiesel tax credit should be a sobering reminder not to take anything for granted," Dinneen said.

source: desmoinesregister