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ENERGY: Nascent Biofuel Market Has Birth Defects

Mario Osava* - Tierramérica

RIO DE JANEIRO, Dec 7 2007 (IPS) - The development of an international market for crop-based fuels could reduce climate changing gas emissions and mitigate the inflationary impacts of the current euphoria surrounding this energy alternative, but it is a process that will take years.

For now, the countries that are able, like the United States and the European Union, are working on creating systems of domestic production and consumption of fuel made from plants, aiming to reduce the need for petroleum, but with trade barriers and subsidies that undermine the future of this new market, say experts.

The fever for products like biodiesel and carburant alcohol, or ethanol, distilled from oilseed crops, sugarcane and maize, is a response to the climbing price of oil and to the climate changing effects associated with fossil fuel consumption.

In the Americas, only five countries can produce enough to add 10 percent ethanol to the gasoline consumed domestically. That proportion does not require changes to vehicle engines and can reduce considerably the emissions of greenhouse-effect gases.

The five are Brazil, Guatemala, Guyana, Nicaragua and Paraguay, according to the Atlas of Agro-energy and Biofuels of the Inter-American Institute for Cooperation on Agriculture (IICA), published this year.

Swimming against the current, the United Nations Food and Agriculture Organisation (FAO) is promoting a conference in June 2008 in Brazil to establish a regulatory framework for the future of the global biofuels market.


It&#39s "the right time" to discuss the issue and avoid the consolidation of the market distortions that in the future will be more difficult to correct, Luiz Fernando Paulillo, consultant with the FAO Regional Office for Latin America and the Caribbean, told Tierramérica.

Tariff barriers may fall, "but subsidies tend to last," as proved by the long and frustrating negotiations of the World Trade Organisation for convincing rich countries to reduce protections for their farm sectors, notes Paulillo.

But the subsidies for the production of grains are of little worry to farmers in Central America because the prospects of an enormous demand and higher prices "create a space for all producers, even the less efficient," according to Gerardo Escudero, IICA representative in Nicaragua.

Part of the hike is due to the fact that the United States decided to promote production of corn-based ethanol, causing an imbalance in the global grain trade, which drove up prices.

However, only 28 percent of that rise is due to ethanol, says Paulillo, who attributes the higher prices mainly to the sharp increase in the demand for food in Asia and rising petroleum prices, which make transport and petroleum-based agricultural inputs more expensive.

The United States is staking its bets on the new technology of hydrolysis, which will allow refining of ethanol from corn straw, wood waste and grass, and hopes to achieve viable production from cellulose within about five years, says Paulillo.

This could cause another shake-up in the market of the current raw materials for biofuels, which would suffer a reversal of the trend with a sharp fall in prices.

A regulatory framework would aim to prevent or make those reversals more gradual, says the Brazilian expert.

On the other hand, ethanol from cellulose would overcome certain problems, such as competing with food production or driving up food prices.

What is also needed is some "stability" and balanced progress in the supply and demand in order to give credibility to alternative fuels, says Benedito Rosa, international trade director for Brazil&#39s Agriculture Ministry, noting that the country&#39s fuel alcohol programme suffered a serious confidence crisis that nearly destroyed it some 15 years ago.

The survival and consolidation of the programme made Brazil the only country with the capacity to export a large portion of its ethanol, in addition to mixing it with gasoline at a proportion of 25 percent, and to have millions of vehicles that can run on the fuel up to 100 percent.

That is why Brazil is fighting alone against the tariff of 54 cents on the dollar per gallon (3.78 litres) that the United States imposes on imported ethanol and barriers that reach 63 percent of the price in the EU.

Organisations like the FAO, World Bank and the UN Development Programme support Brazil&#39s position because the recognise that sugarcane is more efficient as a biofuel in curbing emissions of greenhouse gases and that the raw materials used in the United States or Europe for biofuels in the end contribute little or nothing to reducing emissions.

Brazilian studies indicate that maize converted into ethanol produces just 1.3 units of energy for every unit of fossil fuel energy employed in its production, while the ratio for sugarcane in Brazil is more than eight to one.

One way to eliminate trade protections is Brazil&#39s proposal to include ethanol in the list of environmental goods being negotiated in the WTO, although the trade powers of the industrialised North are opposed.

Such barriers, however, open the way for a potentially vast expansion of the ethanol agro-industry in Central America and some Caribbean countries, with availability of land and water, and beneficiaries of trade agreements that grant them tariff exemptions in the huge U.S. market.

The Brazilian government and private sector are looking to boost agro-energy development in that region, believing that a global market – and the transformation of ethanol into a truly global product – will only be achieved when many countries produce and export it.

As part of that effort, the International Biofuels Forum was created, with the participation of Brazil, United States and the EU, as well as South Africa, China and India, to establish universal standards that would facilitate trade.

They are processes that require time to produce results, while the market continues to build itself with deformations and contradictions generated by economic and political interests.

The incentives for corn-based ethanol were saved by a serious farm crisis in the Midwest region of the United States, and eliminating those subsidies would create high unemployment, said Rosa.

(*Mario Osava is an IPS correspondent. Originally published by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme and the United Nations Environment Programme.)

 
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