America and Brazil Intersect on Ethanol

Our two nations already have a strong economic relationship; the United States is Brazil's biggest export market and the largest foreign direct investor in Brazil, while Brazil is, after Mexico, by far the most important U.S. economic partner in Latin America. Last November, when President Bush visited Brasilia, the two governments agreed to substantially increase by 2010 the volume of their bilateral trade, from the current figure of $35 billion.

Our two countries need to accelerate their cooperation. The economic and political environment in the Americas is changing rapidly, creating new challenges for each that we can meet better if we do so together. Brazil has special influence in the region because of the size of its economy, population, land mass, natural resources and significant economic, political and cultural ties with neighbors. Brazil and the United States should combine their strengths to contribute to the region's economic, social and political development.

Similarly, efforts at lowering trade barriers in the Americas, so important in stimulating growth, are now on hold, in part because the United States, Brazil and Mercosur (trading zone between Brazil, Argentina, Uruguay, and Paraguay) have differences over important issues. Resolving these differences would be a boon to both countries.

We both face challenges to our energy security from the sharply rising worldwide demand for energy. Higher world energy prices, greater vulnerability to energy shocks and increased potential for conflict are consequences that will affect all nations. But amid this new energy threat, we also have an opportunity to fashion a win-win response that could benefit both our countries.

The key is ethanol, which Brazil long ago saw as an important element of its energy strategy and now provides 18 percent of the country's automotive fuel, thanks to a booming sugar-cane-based ethanol industry. As a result, Brazil, which years ago had to import a large share of the petroleum needed for domestic consumption, recently reached complete self-sufficiency in oil. For its own energy security, the United States -- by far the world's largest oil importer -- similarly needs to break oil's near-monopoly on the transport sector by turning to ethanol for a much larger share of its auto fuel supply. Although the United States, using corn, produces nearly as much ethanol as Brazil and is expanding its annual production by 25 percent, the four billion gallons produced is still a tiny fraction of the 140 billion gallons of gasoline consumed.

Using E-85 fuel, a blend of 15-percent gasoline and 85-percent ethanol, and easily available flexible-fuel technology so that cars can burn E-85, the United States could dramatically lower its oil dependence. Gaining consumer acceptance will spur the expansion of ethanol production and infrastructure. That means spreading the availability of E-85, now largely limited to the Midwest, to markets from coast to coast.

One solution might be for the United States to import more Brazilian ethanol to blend on East Coast, where transportation costs significantly raise the price of Midwest ethanol. That would, however, require the politically difficult step of ending the protective tariffs on Brazilian ethanol that now shelters the U.S. industry. It makes strategic sense to import environmentally friendly ethanol from a reliable friend like Brazil in our own hemisphere. After all, the United States doesn't tax imported crude oil, which pollutes and often comes from unstable suppliers.

Policymakers would need to consider the impact on the U.S. ethanol industry, where breakthroughs in making ethanol out of cheap and widely available biomass promise to lower costs and increase supplies. Currently, ethanol makers are highly profitable and are literally overwhelmed by demand. They have little immediate prospect of marketing large volumes of their product on the East Coast. Some analyses suggest that increasing foreign supplies to accelerate the U.S. switch to E-85 will create a bigger ethanol pie for all. What is clear is that dropping the tariff would remove a major source of friction between the two countries, as well as strengthen the energy security of both. This bold gesture of friendship could launch productive bilateral negotiations on trade and broader cooperation on other issues.

Together, the two countries could undertake an international joint action to globalize the production and utilization of ethanol, including by sharing their technology with potential producers of ethanol throughout the world, particularly in developing countries. We share common goals. We should start sharing common programs to achieve them.

About the authors...

Roberto Abdenur is Brazilian ambassador to the U.S., and Sen. Richard G. Lugar (R-Ind.), is chairman of the Senate Foreign Relations Committee. The article was originally published on May 6 in the Miami Herald and the Brazilian newspaper Folha de S. Paulo. This commentary was released publicly by the Brazilian Embassy.