Earlier this week in Brazil, the price of ethanol rose above the price of sugar for the first time in nearly two years. What does this mean? Sugar mills, which dot Brazil’s landscape, will now opt to produce ethanol rather than sugar. This is a key development in a country that has been a leader in sugarcane ethanol for the past 40 years.
Since the 1970s, Brazil has led the way in producing alternative liquids as a part of the country’s energy matrix. Indeed, in 1975, Brazil initiated a gasoline substitution program called Pró-Álcool (The National Alcohol Program), which was developed in response to the world oil crisis at the time. Brazil could pivot its extensive sugar supply to produce ethanol, which could be used as an automotive fuel instead of relying on fossil fuels—which fluctuated in price—in large part due to the vagaries of the Organization of the Petroleum Exporting Countries (OPEC).
This approach resulted in a win-win: Brazil became the world’s second-largest producer of ethanol fuel and, until 2010, was the world’s largest exporter. The Brazilian government subsidized production of ethanol, mandated that fueling stations offer ethanol in addition to gasoline, and provided incentives to build cars that ran on ethanol alone. Later, Brazilian automakers began producing “flex-fuel” automobiles that gave drivers the option to fill up their tank with either pure ethanol, or an ethanol/gasoline blend, depending on what was cheaper on that particular day.
With the expiration of the U.S. tariff on ethanol imports at the end of 2011, this year marks a potential watershed in U.S.–Brazil trade ties. For three decades, Washington protected corn-based ethanol producers from Brazil’s more environmentally-friendly and economically-efficient sugar-based ethanol. Now, without the 54-cent-per-gallon tariff on imported ethanol or the corresponding 45-cent-per-gallon tax credit, the U.S. market is open for business for ethanol imports.
The demise of these protectionist measures removes a bone of contention with the Brazilian government, saves U.S. taxpayers about $6 billion a year and expands access to cleaner energy for U.S. consumers. Though the move will have positive foreign policy repercussions, it stemmed from domestic political dynamics: as the industry matured, subsidies became a harder sell, particularly at a time of high corn prices.
Ironically, Brazilian ethanol production fell in 2011, requiring imports from the United States to meet local demand. This unusual situation, largely due to poor weather and delays in crop replanting after the 2008 financial crisis, will minimize the immediate impact of the end of the U.S. ethanol tariff. Still, industry analysts expect new investment to revive exports.
From the Americas Society/Council of the Americas. AS/COA Online's news brief examines the major—as well as some of the overlooked—events and stories occurring across the Americas. Check back every Wednesday for the weekly roundup.
White House Chooses First Hispanic for SCOTUS
On Tuesday, President Barack Obama announced his choice for a Supreme Court justice to replace David Souter, picking the first Hispanic judge in history to be selected for the highest court in the United States. Sotomayor, whose credentials include three decades in the field of law and 16 years as a federal appeals judge, is from the South Bronx and of Puerto Rican descent. Pundits suggest that her ethnic background could serve as an obstacle for Republicans fighting her confirmation. Read AS/COA analysis about the nomination.
The Houston Chronicle’s Immigration Chronicles blog points out that several media outlets made the mistake of saying Sotomayor was born to immigrant parents. Puerto Ricans have been U.S. citizens since 1917.
AS/COA’s Christopher Sabatini joined PBS’ Worldfocus to talk about the historic nature of Sotomayor’s appointment, as well as how Latin America is receiving her nomination.
June 1: This AQ-Efecto Naím segment looks at sustainable cities in the hemisphere.