Tomorrow, U.S. President George Bush lands in Brazil for the first leg of his Latin American tour, which will also include stops in Uruguay, Colombia, Guatemala and Mexico. Although the White House is hailing this trip as a demonstration of its commitment to the Western Hemisphere and an agenda "to advance freedom, prosperity and social justice, and deliver the benefits of democracy in the areas of health, education and economic opportunity," no one doubts the real objective in the region is to shift the energy geopolitical balance away from Venezuela's mercurial leader, Hugo Chavez.
In pursuit of this goal, the U.S. is hoping to sign a memorandum of understanding with Brazil to develop biofuels (i.e. ethanol) in the hemisphere. Together, these two countries account for 72 per cent of global ethanol production. They see no reason, however, why others should not jump on the bandwagon. In fact, many countries in the Americas have the potential to produce ethanol efficiently, a development that would free them from their current dependence on Venezuelan hydrocarbons.
Brazil's press says the MOU to be signed in Sao Paulo on Friday contains three initiatives: co-operation in developing markets for ethanol in third countries, especially in Central America and the Caribbean; establishment of international standards for ethanol to facilitate its trade as a commodity; and transfers in production, storage and transportation technologies.
This is the most positive agenda the U.S. has had for the region in decades. The devil is in the details, however, and unless Washington is ready to really co-operate, the whole initiative could backfire, leaving Mr. Chavez to say, "I told you so."
Driving this agenda is the U.S. concern with energy security and environmental sustainability. But it is Brazil that has learned a lesson or two on this front. The country now has one of the world's most diversified energy-resource bases. Renewable sources account for 40 per cent of total energy use (compared to the world average of 14 per cent). In 2006, the country became self-sufficient in oil production, chiefly because sugar-cane ethanol fuels 40 per cent of the domestic transportation market. Until last year, when the U.S. inched ahead, Brazil was the world's largest ethanol producer. And thanks to a combination of flex-fuel vehicles capable of handling any mix of gasoline and ethanol, a transportation and distribution infrastructure ready to deliver products to consumers, as well as a mandated blending of 20- to 25-per-cent ethanol in all gasoline, Brazil remains the world's largest ethanol consumer.
But it took Brazil decades to get here. In the 1970s, when the first big ethanol program was introduced in response to sharp increases in oil prices, consumers abandoned the product in droves as soon as those prices fell. Cleverly, Brazilian government and industry turned this challenge into an opportunity. The government withdrew its subsidies, and together with industry, invested in targeted research aimed at making the product economically viable and environmentally sustainable. Today, the fuel is produced from more than 500 cane varieties without irrigation; the feedstock is used to produce either sugar or ethanol; and in both cases, byproducts are used to generate heat and power in mills that can be retooled to manufacture either sugar or ethanol. The result: Brazil's ethanol is now the cheapest biofuel in the world, equivalent to $35 to $50 (U.S.) per barrel of oil.
Eventually, the United States, too, woke up to the potential of ethanol in its cornfields. Unlike the sugar-cane product, however, corn-based ethanol is not as economical or as environmentally friendly. Yet, thanks to a generous combination of subsidies, mandated use, and import barriers, domestic ethanol production in the U.S. doubled to almost four billion gallons in 2005 from two billion in 2002. Last year, production again jumped to an estimated 5.5-billion gallons and is expected to reach 11 billion by 2009. This accelerated increase has had a significant impact on agriculture and food markets, leading to a widespread acknowledgment that the competition between food and fuel will benefit no one. Consequently, the push to find a way to produce ethanol from cellulosic feedstock is on. Private companies are vying for the substantial grants and loan guaranties now available, and for the billions sure to come to speed up the economic commercialization of cellulosic ethanol.
As for the Sao Paulo meeting, the U.S. has stated that access to its markets for Brazil's ethanol is not on the table. All that is left, as far as this deal is concerned, are the Caribbean and Central American markets. With such paltry potential, it is hard to understand how that would benefit Brazilian producers.
In reality, the only real bargaining chip in the hands of the U.S. is sharing advancements in technology and implementation of cellulosic ethanol. That would not only be good for the environment, it would prove that co-operation works and actually goes a long way in delivering energy security.
The alternative is to continue the present charade: to talk about free trade and yet protect markets, to talk about co-operation and then act in isolation, to talk about advancing prosperity, but only on your own turf.
Certainly, it is not an agenda that will deliver security of any kind.