For the first time in more than three decades of generous U.S. government subsidies for the domestic ethanol industry, coupled with a steep tariff on imports, the United States market will be open to imported ethanol as of Jan. 1, 2012, without protectionist measures.
The adjournment of the 112th Congress means both the US $0.54 per gallon tax on imported ethanol and a corresponding tax credit of US $0.45 per gallon for blenders, the VEETC (Volumetric Ethanol Excise Tax Credit), will expire as expected on Dec. 31.
"With Congress in recess, there are no opportunities for further attempts to prolong the tax credit or the tariff, so we can confidently say these support mechanisms will be gone at the end of 2011," said the Washington Representative for the Brazilian Sugarcane Industry Association (UNICA), Leticia Phillips.
"This means that in 2012, the world's largest fuel consuming market will be open to imports of less costly and more efficient ethanol, including sugarcane ethanol produced in Brazil, recognized since 2010 by the US Environmental Protection Agency (EPA) as an advanced biofuel because of its verified reduction of up to 90 percent in greenhouse gas emissions compared to gasoline."
If attempts in Congress to prolong the tax credit had been successful, the subsidy package now about to expire would continue to cost American taxpayers about US$6 billion per year.
As for the tariff, meant primarily to keep Brazilian sugarcane ethanol out of the U.S. market, its demise should reinforce fact-based assessments about the various feedstocks used around the world to produce ethanol, according to UNICA President Marcos Jank.
"The raw materials used in ethanol production should be evaluated strictly on the quality and sustainability of the ethanol they provide, not with political or protectionist criteria favoring country-specific feedstocks without regard for efficiency. What should matter ahead of all other considerations is the lowest possible use of fossil energy to produce as much clean, renewable energy as possible, while reducing emissions that lead to global warming," stressed Jank.
Eliminating barriers to Brazilian ethanol has been a priority for UNICA since 2007, when it set up an office in Washington. The organization has argued that ending costly and unnecessary subsidies will save U.S. taxpayers money, help lower prices at the pump and expand access for U.S. consumers to advanced renewable fuels like sugarcane ethanol. That in turn will contribute to reduce greenhouse gas emissions, benefit public health through a reduction in respiratory ailments and increase energy security.
With the end of the tariff, UNICA is calling on both Brazil and the United States to come up with mature, forward thinking policies.
Top two ethanol producers
"For the first time ever, the two top ethanol producers, which together account for more than 80 percent of world production, are not imposing an import tariff. Brazil zeroed its tariff in early 2010 and now the US is moving in the same direction. It's time for these two countries to show leadership and work together to develop a truly global free market for ethanol, without trade barriers, as is already the case for oil," said Jank.
He described the moment as "a great opportunity" for Brazil and the US to foment increased ethanol production and use throughout the globe.
The fact that the demise of the US ethanol subsidy and tariff package happens shortly after the 17th United Nations Climate Change Conference (COP17), held in Durban, South Africa, should not go unnoticed according to Jank.
"In Durban, most of the world renewed a commitment to cut emissions and extend the Kyoto Protocol until at least 2017. In that context, the significant contribution that expanded use of ethanol can bring to effectively fight climate change must now be widely recognized, particularly in the case of sugarcane ethanol," said the President of UNICA.
Jank acknowledged the end of the US tariff comes at a time when Brazil's sugar-energy industry is striving to resume accelerated growth, to keep up with booming demand for its products, both domestic and from abroad. "Our current priority is servicing domestic demand, but the upside to the end of the US tariff is that it will generate even more demand. That should be an additional and strong incentive for new investments, to speed up expansion and output in Brazil," he concluded.