January 16, 2008 / 8:40 PM / 12 years ago

Biofuels protectionism trumps climate concerns

SAO PAULO (Reuters) - Despite world concerns about global warming and the impact of biofuel production on food prices, policy makers have done little to boost international trade of cheaper and more environmentally friendly fuels for consumers, experts said.

Import tariffs and trade barriers have prevented, for example, an increase in cane-based ethanol exports from Brazil, the world’s most competitive producer of the biofuel. Shipments are actually expected to be lower in 2008 than last year.

In Europe, biodiesel producers have been hit by an increase in U.S. imports, which benefit from subsidies if they are blended with mineral diesel. To counterattack, the EU bloc may impose countervailing duties, industry leaders said.

The EU has also been affected by large volumes of Argentine biodiesel at cheap prices, which are encouraged by preferential taxes. The product is charged a 5 percent tariff by Argentina’s government, while edible oil exports have a 30 percent duty.

“Some countries are trying to solve a world problem, which is global warming and climate change, just with national solutions,” said the head of Brazil’s Sugar Cane Industry Union (Unica), Marcos Jank, at the Reuters Global Agriculture and Biofuel Summit.

According to Unica, cane-based fuel has higher productivity than other feedstocks. Sugar cane yields seven liters of ethanol per hectare compared with three liters with corn.

Production costs are lower, and energy efficiency — amount of energy used in the process versus energy resulting — is five times higher with cane than with corn, Unica said.

Moreover, its impact on food prices is much more limited than the one caused by corn or wheat. Almost a third of the next U.S. crop may be turned into fuel, increasing upward pressure on food inflation.

But tariffs in some of the world’s largest fuels markets like the U.S. and Europe will limit ethanol exports. Shipments from Brazil are to drop this year to 3.4 billion liters, down from 3.8 billion liters in 2007, Datagro consultants said.

GLOOM PERSPECTIVES

Unica argues its position is not self-promotional as cane-based ethanol could come also from Asia, Africa or South America. More than 100 countries — most of them poor nations — have natural conditions to grow cane.

“Europe is trying to subsidize their farmers to produce ethanol from beet and wheat instead of buying ethanol from abroad. The same happens in the U.S. Most of the ethanol there will come from corn, probably from biomass in the future, but not imported (ethanol),” Jank said.

“We believe that if these countries consider to import more from developing countries, the energy and environmental balance would be much better, and costs would be much lower.”

But signals from these countries point to the opposite direction.

The chairman of the U.S. House Agriculture Committee, Rep. Collin Peterson, said on Tuesday tax credits and tariffs on ethanol would have to be maintained to create the necessary conditions for the development of cellulosic ethanol.

“We are hoping that we won’t have any changes in the tax or tariffs any time soon,” he said.

Brazilian ethanol is charged with a 54-cent-a-gallon tariff to enter the U.S. market. This makes direct sales possible only on specific and uncommon occasions, depending on low prices in Brazil and high prices in the United States.

And perspectives remain negative as the U.S. passed in December its Energy Bill, which sets a target for biofuel use of 36 billion gallons — none of them imported, in principle.

“They (U.S.) won’t open their market. They will stick to its import tariff and create a quota, and then administrate this quota under geopolitical criteria,” said the president of Brazil’s Datagro consultants, Plinio Nastari.

Wallace Tyner, professor at Purdue University in West Lafayette, Indiana, said it would be necessary either alter the mandate or change the tariff for U.S. to meet its goal.

“Brazil and a lot of Central American countries have a capacity to expand pretty quickly their ethanol production if they get signals that there’s a market for it,” Tyner said.

(Additional reporting by Christine Stebbins in Chicago and Tom Doggett in Washington; Editing by Reese Ewing and Christian Wiessner)

(For summit blog: summitnotebook.reuters.com/)

For more on the Reuters Global Agriculture and Biofuels Summit see <ID:nSP132831>

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