An initial test of President-Elect Barack Obama’s energy plan could be his treatment of the Memorandum of Understanding between the United States and Brazil to Advance Cooperation on Biofuels.
Last year Presidents George Bush and Luis Inácio Lula da Silva signed the memorandum to sidestep the ongoing commercial conflict stewing over stiff U.S. tariffs on Brazilian ethanol imports by agreeing on a host of initiatives to promote biofuels around the world.1 President-elect Obama has called for a national effort to reform our energy system and move toward a low-carbon or “green” economy, including the development of “the next generation of biofuels.” However, he has also been a stalwart supporter of corn based ethanol and argued on the campaign trail that “It does not serve our national and economic security to replace imported oil with Brazilian ethanol.”2
As President, Obama will face the double edged challenge of a disjointed pattern of cooperation and conflict with Brazil over ethanol in particular, and trade in general, and an electorate that expects immediate action to lessen the price of energy, if possible through renewable sources. With the bilateral accord already in hand, the Obama administration must decide to renew the bilateral accord or simply let it run out of gas.
The Memorandum of Understanding between the United States and Brazil to Advance Cooperation on Biofuels is a compelling twist to the still unfinished but promising story of bilateral cooperation to confront the mounting challenges of global warming and lessen dependence on fossil fuels. In 1997 Brazil and the United States reluctantly teamed up to push through the Kyoto Protocol negotiations by innovating the Clean Development Mechanism (CDM) that continues to inform efforts to deepen international cooperation to limit green house gases (GHG).3 A decade later the presidential diplomacy of Presidents Bush and Lula opened another chapter of this special bilateral story by endorsing their booming biofuel industries and pledging to work together to expand ethanol and biodiesel production and consumption in developing countries. While the biofuel pact is less innovative than the CDM, it promises to be a more important step toward lessening oil dependence and GHG emissions while incorporating increasing numbers of lower skilled workers within a growing, high value added production chain of biofuel, renewable energy, and flex fuel vehicle technologies.
Accordingly, the U.S. and Brazil agreement stipulates the “strategic importance” of biofuels and proposes that the two largest producers of ethanol jointly guide “a transformative force in the region to diversify energy supplies, bolster economic growth, advance social agendas, and improve the environment.”4 President Lula added in his special commentary published in the Washington Post:
The official launch of the U.S.-Brazil biofuel partnership boosted support among investors and policymakers while offering a calculated, bilateral response to mounting resistance to the adoption of biofuels as an alternative fuel.
Exuberance and Opposition
Johanna Mendelson Foreman, a specialist in Latin American energy and security issues at the Center for Strategic and International Studies (CSIS), proposed that the accord marked “a turning point in U.S.-Latin American relations, which have languished since September 11, 2001.”9 Peter Hakim, President of the InterAmerican Dialogue, wrote that “the agreement signed in Brazil for cooperation on biofuels added a new and potentially far-reaching dimension to bilateral relations.”10 Paulo Sotero, Director of the Brazil Institute of the Woodrow Wilson International Center, and Edward Alden suggested that bilateral “cooperation on biofuels promises economic, political and environmental gains that could go far beyond the benefits of trade deals” by expanding “production of sugar-cane ethanol in the Caribbean and Central America, lifting up poor economies that have tariff-free access to the U.S. market.”11
Senator Richard Lugar of Indiana, ranking Republican member on the Senate’s Foreign Relations Committee, along with José Miguel Insulza, Secretary-General of the Organization of American States (OAS), proposed deepening cooperation in the areas of technology transfer, trade, and investment. They endorse the memorandum, but favor a bolder approach to:
Senator Lugar even went a step further by introducing the “United States-Brazil Energy Cooperation Pact of 2007” to the Senate Foreign Relations Committee in an effort to push toward a free trade model of biofuel production and consumption.13
However, not all were as exuberant as Senator Lugar and supporters of the biofuel pact. The presidential diplomacy that celebrated biofuels in March of 2007 ignited a firestorm of opposition to ethanol and its production in both the U.S. and Brazil.
C. Ford Range and Benjamin Senauer argue that increased production of biofuels “could starve the poor.” They add that:
Even Brazil’s very efficient production of ethanol from sugarcane has sparked heated debate. Lucia Ortiz and David Waskow of Friends of the Earth offer an environmental assessment of increased ethanol production in Brazil and assert that:
Raul Zibechi echoes the environmentalist critique and concludes that the U.S.-Brazil accord will destroy the Amazon basin and push aside millions of small farmers. Moreover, Zibechi predicts that the U.S.-Brazil ethanol pact will cement:
Both supporters and opponents of U.S.-Brazil cooperation to advance biofuel production agree that it represents a potentially transformative process. For this reason the bilateral agreement riveted the attention of investors, policymakers, foreign policy experts, environmentalists, agrarian reform and food security advocates, the scientific community, and even a few anti-imperialists in the United States and Brazil. This act of bilateral cooperation stirred a much needed debate on the policy options and intersections surrounding the issues of renewable energy, environmental preservation and climate control, and sustainable rural development at both the regional and global levels. Indeed, the chorus of commentary surrounding such a modest form of international cooperation affirms the cascading international policy importance of biofuels. Yet, much of the exuberance and opposition stirred up by the memorandum focus on the production and use of ethanol, not the instrument and accompanying process through which both governments aim to transform the ways in which we produce and use renewable fuels for transportation in the coming decade. Aside from the virtues and vices of ethanol, to what extent is theMemorandum of Understanding between the United States and Brazil to Advance Cooperation on Biofuels a useful tool and policymaking framework for promoting biofuels, lessening GHG, and stimulating much needed rural development around the world?
Steering Bilateral Cooperation
The U.S.-Brazil biofuel agreement folds into well established consultative mechanisms, such as the Brazil-U.S. Commercial Dialogue and the Consultative Committee on Agriculture. These mechanisms allow for periodic meetings of experts and industry leaders to exchange research findings and discuss technological advances. The accord also commits the parties to work together with selected Caribbean Basin Initiative (CBI) countries, such as El Salvador, the Dominican Republic, Haiti, and St. Kitts and Nevis, to carry out feasibility studies and assist with national efforts to prepare the institutional terrain for the production of sugarcane and construction of ethanol refineries.19 At the global level, both countries agree to jointly develop and adopt uniform standards and codes of production and distribution that are needed to regulate a global marketplace for biofuels and related clean transportation technology.
This complex process of information sharing, research and development, public-private partnerships, and multilateral and global policy development is supervised by Brazil’s Under Secretary General for Political Affairs at the Ministry of Foreign Relations, Ambassador Everton Vieira Vargas, and Under Secretary for Economic, Energy, and Agricultural Affairs of the Department of State, Reuben Jeffery. Vargas is a seasoned diplomat with considerable experience with international environmental policy. Jeffery is a relative new comer to diplomacy, but a veteran of the investment firm Goldman Sachs. Considered a “finance” expert, Jeffrey served as deputy to Paul Bremer in Iraq and most recently as Chairman of the Commodity Futures Trading Commission (CFTC). Vargas and Jeffery are supported by their respective ministries as well as a steering committee of scientists and industry leaders. Under the memorandum, Vargas and Jeffrey are charged with weaving together the efforts of U.S. and Brazilian private interests and public authorities to structure a global market in biofuels with an accompanying set of standards, effective infrastructure and logistics, and appropriate vehicle technologies.
The tentative results of this cooperation are as uneven as they are promising. Several bi-national exchanges of government officials, technical experts, and industry representatives have been carried out. According to the U.S. Department of Energy (DOE), the bilateral steering committee has met several times, both in Brasília and Washington. Also, the DOE hosted a delegation of Brazilian scientists who visited the National Renewable Energy Laboratory (NREL) and Lawrence Berkeley National Laboratory in September of 2007.20 At the Washington International Renewable Energy Conference in March of 2008 selected steering committee participants evaluated the agreement’s first year and agreed that progress was made toward a future framework for instituting international standards for the production and use of ethanol through joint action with the International Biofuels Forum (IBF), but noted that bilateral efforts to promote sugarcane cultivation and ethanol refining among developing countries lagged far behind.21
Recently, U.S. Assistant Secretary for the Bureau of Economic, Energy, and Business Affairs, Daniel S. Sullivan, testified before the House Foreign Affairs Committee’s Subcommittee on the Western Hemisphere and reported progress on the bilateral objectives as well as efforts to promote biofuels in a number of CBI countries and steps toward harmonization of global standards through collaboration with the IBF. Yet, the Assistant Secretary did not offer any documentary evidence to suggest that the bilateral agreement had indeed expanded ethanol production in any of the CBI countries or that an international agreement on ethanol standards was forthcoming.22 Impatient, Marcos Jank, recently named President of UNICA, the Brazilian sugarcane and ethanol producer association, asserted at the Washington International Renewable Energy Conference that efforts needed to be intensified to incorporate the private sector within bilateral efforts to advance cooperation to develop the next generation of biofuels.23
Private Interests and “Joint Products”
The commercial conflict that dogs U.S.-Brazil relations and threatens to partially strangle the Doha round of the World Trade Organization negotiations grows from the peculiar, private interests of corn and sugar producers in the United States. Corn is the dominant biomass for U.S. ethanol production, and its producers are protected behind a fortress of federal and state government subsidies and protections that have entrenched these producers’ interests over the years.25 The efficiency of corn as the primary feedstock for ethanol refineries is far surpassed by the effective advocacy of corn producers’ private interests in the national policymaking process and throughout the legislative chambers of the Corn Belt. Without miraculous advances in productivity-enhancing technology it is unlikely that corn could ever make it to the short list of efficient feed stocks for ethanol production. Yet, the entrenched interests of U.S. corn producers challenge the fundamental collective action framework of the bilateral biofuel accord. More to the point, corn-fed ethanol starves the market of incentives to invest in more efficient ethanol production and bring it to the pump.
Despite all the talk about the future of cellulosic ethanol, sugarcane is the best biomass for ethanol refining for now, a consequence of the technological innovations promoted by Brazil’s nationalist Proalcool Program.26 Ironically, sugarcane producers in Florida and Louisiana could pull out the political roots of corn fed ethanol production by refining their sugar into ethanol. However, “King Sugar” has built an even bigger fortress of credits, subsidies, and import protections that leaves little incentive to invest in such value added activities as ethanol refining.27 Taken together, the entrenched political interests of both corn and sugarcane producers in the United States derail public policymaking aimed at the efficient production of ethanol for domestic use, thereby complicating the Obama administration’s execution of a low carbon energy plan that includes biofuels.
The increasing demand for corn and ethanol, along with Brazil’s diplomatic efforts to cajole the United States toward a global ethanol market, may eat away at the protective mechanisms that shelter U.S. corn and sugar producers from global competition. There are signs that U.S. beef, pork, and poultry producers may be marching toward greater free trade in ethanol to offset the growing value of domestic corn supplies and their own feedstock costs.28 Leading the way, the National Cattlemen’s Beef Association is now calling for the sun to set on both the ethanol blender credit and the import tariff.29 As the relative share of the U.S. corn harvest dedicated to ethanol production increases, so may the calls for free trade in ethanol from those who depend on corn the most. In addition, consumers and industries sensitive to the price of gasoline are also joining the debate. Recently, the U.S. Chamber of Commerce began to advocate that the ethanol blender credit of 54 cents per gallon be lowered as gasoline prices rise. As the costs of transportation fuel increase, more and more motorists and their representatives will be on the hunt for cheaper alternatives, including Brazilian ethanol.
The future Obama administration will have to weigh the relative economic importance of these private and popular interests while carefully swallowing the bittersweet bilateral politics surrounding ethanol. If he wishes to promote biofuels through cooperation with Brazil, the next president will have to contend with U.S. corn and sugar producers.
In fact, Brazil has already begun to reframe its approach to the U.S. government after more than a year of the uneven progress of the bilateral accord. Amidst Brazilian press reports that the biofuel pact with the North Americans was losing steam,30 with the U.S. presidential race in full gallop, and the Doha round of the World Trade Organization (WTO) pulling up lame, Brazil’s Foreign Minister, Celso Amorim, engaged in a spat of “electoral” diplomacy by warning that his government could bring an action in the WTO over U.S. tariffs on Brazilian ethanol imports.31 Although Amorim’s public effort to drag the ethanol debate to the center stage of U.S. presidential politics fell short, his threat exposed the shallow foundation of U.S.-Brazil cooperation on biofuels and the gathering clouds of a possible torrent of discord.
Following the U.S. presidential election, the Brazilian government is hosting a worldwide conference on biofuels in November of 2008 to reboot its efforts to globalize sugarcane-based ethanol production and the flex-fuel vehicle motor technology that accompanies it. More likely than not, the Brazilians will become increasingly strident in their opposition to the U.S. ethanol tariff unless the president-elect chooses to expand bilateral cooperation in the coming years, including action to lower barriers to international biofuel imports, either through a bilateral agreement or through the Doha round.
The Memorandum of Understanding between the United States and Brazil to Advance Cooperation on Biofuels may not be the best policy framework to effectively build a biofuel partnership between the two largest producers and consumers of ethanol, but it is a thoughtful first step. The agreement validates the importance of biofuels as a possible partial solution to growing energy demands and the challenge to lessen GHG emissions. It also encourages both nations to work together to bring biofuel production to a host of developing countries that could benefit from both the jobs created and the money saved by decreasing oil imports. Lastly, the memorandum promises to harness both the private and public sectors of the two largest producers and consumers of biofuels to transform the global marketplace for transportation fuels. The memorandum does not include provisions to liberalize international biofuel trade, nor is the steering committee sufficiently representative of civil society interests, both in the United States and Brazil, to build a broader coalition of supporters that goes beyond producers and technical specialists.
Yet, if the president-elect is serious about transforming the way we produce and use energy around the world, then he will have to carefully consider whether this pivotal bilateral biofuel agreement is a priority, and if so, then how best to renew it to achieve its ambitious goals. If not, then expect President Obama to just let U.S.-Brazil biofuel cooperation run out of gas, inadvertently fueling more commercial conflict with the second largest democracy in the Americas.
1. According to the Congressional Research Service, Brazilian imports are subject to a 2.5% ad valorem tariff, plus an added duty of $0.54 per gallon. This duty effectively negates the tax incentives for covered imports and has been a significant barrier to ethanol imports when U.S. domestic prices are low. However, under certain conditions ethanol imports from Caribbean Basin Initiative (CBI) countries are granted tariff/duty-free status, even if the ethanol was actually produced in a non-CBI country. In this particular case, the CBI countries participate only in the final step of the production process — dehydration, after which the ethanol is shipped to the United States. Up to 7% of the U.S. ethanol market may be supplied duty-free by ethanol dehydrated in CBI countries. For more information on the U.S. ethanol and biofuels policy see the Congressional Research Service briefing “Ethanol and Other Biofuels: Potential for U.S.-Brazil Energy Cooperation” written by Clare Ribando Seelke and Brent D. Yacobucchi. September 27, 2007.
4. Read the MOU in English at the U.S. State Department’s website, http://www.state.gov/r/pa/prs/ps/2007/mar/81607.htm, accessed on May 8, 2007 and the Portuguese version at Brazil’s Foreign Ministry, the Itamaraty, at http://www2.mre.gov.br/dai/b_eua_332_5915.htm, as accessed on May 8, 2007.
13. See Senate bill 1007, accessed at http://thomas.loc.gov/cgi-bin/query/z?c110:s.1007 on May 8, 2007. For a summary see Senator Lugar’s website summary at
15. Lúcia Ortiz and David Waskow. “Burdening Brazil With Biofuels.” TomPaine.common sense. March 19, 2007, as accessed at http://www.tompaine.com/ articles/2007/03/19/ burdening_brazil_with_biofuels.php on May 8, 2007.
18. See the U.S. Department of Energy Office of Public Affairs news release, “U.S. and China Continue to Increase Cooperation on Vehicle Efficiency.” September 20, 2007 and accessed on Nov. 7 at http://energy.gov/print/5518.htm. For the U.S.-China biofuel pact see U.S. Department of Agriculture news release, “U.S. and China Increase Biofuels Cooperation Ahead of the Third U.S.-China Strategic Economic Dialogue.” December 12, 2007.
19. Under the Caribbean Basin Initiative (CBI), countries in Central America and the Caribbean have had duty-free access to the United States since 1989 for ethanol from regional feedstocks. Access for ethanol derived from non-regional feedstocks has been limited by a CBI quota equal to 7% of total U.S. ethanol consumption. For more information see the United States Trade Representative website at http://www.ustr.gov/ Document_Library/Fact_Sheets/2004/ Fact_Sheet_on_Ethanol_in_CAFTA.html?ht=
20. See the U.S. Department of Energy Office of Public Affairs, “Joint Statement on Brazil-United States Energy Meeting.” August 6, 2008 and accessed on Nov. 6, 2008 at http://www.energy.gov./print/6455.htm.
22. See Assistant Secretary Daniel S. Sullivan’s statement to the Subcommittee on the Western Hemisphere of the House Committee on Foreign Affairs, “Energy Issues in the Western Hemisphere.” July 31, 2008 and accessed on November 3, 2008 at: http://www.state.gov./e/eeb/rls/rm/2008/107598.htm.
24. Busby discusses these collective action problems and then defines “joint products” as “goods that have both public benefits and private excludable benefits-there may be unilateral incentives for an actor to provide the public good(2006:42).”
25. See Langevin, Mark. “Fueling Sustainable Globalization: Brazil and the Ethanol Alternative.” InfoBrazil. Sept. 17, 2005 and accessed at: http://www.infobrazil.com/ Conteudo/ Front_Page/Opinion/ Conteudo.asp?ID_Noticias= 972&ID_Area=2&ID_Grupo=9
27. For a general description of the politics of “King Sugar” see the Center for Responsive Politics and its “The Politics of Sugar” found at OpenSecrets.org at http://www.opensecrets.org /pubs/cashingin_sugar/sugarindex.html
28. For a taste of the emerging opposition from corn-fed animal stock producers see Kimberly A. Strassel’s Wall Street Journal editorial, “Ethanol’s Bitter Taste.” May 18, 2007 and accessed at http://www.opinionjournal.com/ columnists/kstrasselpw/?id=110010094.
29. See the National Cattlemen’s Beef Association’s policy statement at http://www.beefusa.org/ goverenewablefuelsandethanolproduction.aspx
31. Associated Press. “Brazil may press WTO on US ethanol tariffs.” September 4, 2008 and accessed on November 3, 2008 at the Trade Observatory website at: http://www.tradeobservatory.org/ headlines.cfm?refID=103762