Chocolate and Gold Coins

Monday, June 20, 2005

Will Brazil Be the New Energy Powerhouse?

There was an interesting piece in the WaPo - Brazil's Biofuel Strategy Pays Off as Gas Prices Soar by Dan Morgan, about Brazil’s ethanol production:

About half the cane brought here [in Brazil] will be made into ethanol as part of a 30-year gamble to substitute fuels made from crops for imported oil.

The Sao Martinho refinery makes ethanol out of sugar cane. The process is cheaper than the U.S. method, which uses corn.

As international oil prices soar, that bet has put Brazil at the forefront of a "biofuels" movement in which many countries view sugar cane, corn, soybeans, beets, cornstalks and native grasses as cleaner, money-saving substitutes for oil produced in politically unstable countries.

Ethanol has always been derided in the U.S. as just a wasteful boondoggle supported by government subsidies. However, as the price of oil goes up, ethanol might be price effective. And unlike oil, we can brew ethanol forever.

I should point out that the article shows why the U.S. ethanol industry is a boondoggle. We subsidize our corn ethanol by 51 cents a gallon, then we place a high tariff on imported Brazilian ethanol, and still the Brazilian ethanol is competitive with the U.S. ethanol.

The United States imposes a stiff tariff on imported ethanol. But over the past 12 months, 160 million gallons of the Brazilian product still entered the country.

Exact comparisons are hard to come by, but mill manager Mario Ortiz Gandini said the mill can produce sugar for less than half the price of U.S. ethanol from corn. "No country can beat us," he said.

Why are we bothering to produce this commodity? I say, let the Brazilians have this market.


  • Talking about subsidies....there are plenty of interesting arguements going around at the WTO on subsidies....

    Agricultural subsidies are amongst the highest in the US....which is trying to armtwist governments like the Indian govt to remove all subsidies to farmers (usually small petty farmers with holdings around 0.5 acres or less), to create "level" playing fields.....

    This whole concept of subsidies (to anyone) is completely unsustainable.....and the law makers know it, but still keep it!

    By Blogger Sunil, at 1:20 PM  

  • Hi Sunil
    I farmers can grow enough crops on 0.5 acres to feed a family, then my hat is off to them. That is incredible.

    Ending subsidies is difficult because once you start subsidizing an industry, you never stop. The special interest will always persuade the politicians to renew the subsidy or even increase it.

    By Blogger Michael Higgins, at 4:20 PM  

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