Brazil-U.S. Ethanol Pact: Benefits Greatly Outweigh Costs

Moving towards energy independence, combating climate change and repairing U.S.-Latin American relations make biofuels a worthwhile investment for all parties.

In March, President Bush and Brazilian President Luiz Inacio Lula da Silva agreed in São Paulo to cooperate to promote ethanol in the Americas as an alternative to oil. The agreement aims to increase cooperation on biofuels technology and to develop international biofuels standards. President Bush followed up by hosting President da Silva at Camp David on Saturday, March 31.

President Bush intended his trip to rebuild bridges to Latin America. Many Latin Americans are critical, even hostile, over what they see as the administration's neglect of the region.

Strained relationships often are repaired in small steps. The ethanol accord promises mutual benefits for the United States and Brazil, Latin America, and potentially, the rest of the world. If executed in a spirit of partnership and funded generously, it could have a significant regional and global impact on the development of ethanol markets, climate change and the ability of many poor countries to endure oil price shocks.

Although the agreement is overall a win-win-win deal for Brazil, the United States and the region, it has been criticized. Some opponents are simply trying to thwart better U.S.-Brazilian cooperation. But others have raised concerns about the dislocations and unintended consequences of promoting biofuel crops.

Only by addressing such worries and quelling the doubts can the Brazil-U.S. pact fully meet its promise to be a launching pad for what I envision as a transformational Americas-wide energy program that will radically improve the hemisphere's strategic and economic posture. I have introduced the United States-Brazil Energy Cooperation Pact to capitalize on the opportunity to re-establish strong U.S. relations with our neighbors while also building a more secure energy future.

The bill calls on Brazil and the United States to help fund feasibility studies to assess each Latin American country's biofuel needs and biomass production potential, with special attention to food security and the environment. By encouraging cellulosic ethanol that does not rely on grains, it should help assuage fears, shared by American and
Latin American livestock producers alike, that excessive reliance on corn for ethanol will further drive up animal feed costs and thus prices of beef, pork and chicken.

For Mexico, where skyrocketing tortilla prices have been blamed on the diversion of corn for ethanol, the bill calls for special efforts to find non-corn sources of biofuels.

The legislation envisions a special hemispheric carbon trading system to encourage preservation of tropical rain forests in the face of growing demand for energy crops, and it calls on the regional development banks, as well as U.S. foreign assistance, to support biofuel infrastructure projects.

The bill contains special provisions to help our closest and poorest neighbors in the Caribbean and Central America revive their moribund sugar cane industries so they can produce their own ethanol. (Currently nearly all the ethanol they sell is processed product from Brazil.)

And while biofuels are a key element of energy security, better utilization of conventional resources also plays a role. The bill seeks ways to help optimize Mexican oil output, which is lagging to the detriment of both Mexico and the United States, and encourages South America to exploit fully its natural gas supplies with new pipelines and liquefied natural gas facilities.

Giving the United States easy access to foreign ethanol supplies, even as we increase domestic production, is an essential component to meet President Bush's target of 35 billion gallons of renewable fuels use by 2017, which cannot be met by U.S. corn ethanol alone. (U.S. corn ethanol production will peak around 14 billion gallons in 2010, experts
estimate.) Reducing dependence on oil imported from unstable and often hostile regions is a paramount foreign policy imperative.

The U.S. doesn't tax imported oil, but currently levies a 54-cents-per-gallon tariff on imported ethanol to protect U.S. producers from cheaper Brazilian ethanol. It is clear that this barrier to trade in Americas-grown fuel is inconsistent with our political goals in the region, and with our long-term energy security.

Altering the import tax would affect a number of industries and interests. Therefore, the bill calls for a comprehensive study on the current political and economic impacts of the tariff and the potential costs and benefits of repealing it or modifying it.

In this way, by rethinking old policies in order to improve energy cooperation, the United States will encourage others in the region to do likewise. With this legislation, Congress can demonstrate to citizens of the Americas that the U.S. is ready to embark on an equal partnership for progress.

Senator Richard G. Lugar (R-IN) is the ranking minority member of the Senate Foreign Relations Committee.