Ethanol Market US and Brazil
Autor: Thiago Menezes | Publicado: 2013-05-16T20:11:00-07:00

Excerpt taken out of an article named "Ethanol: logic of circular biofuel trade comes into question". Posted on the online version of the Financial Times, on May, 16th, 2013.
http://www.ft.com/cms/s/0/e4baefbe-b0d6-11e2-9f24-00144feabdc0.html#ixzz2TW1PlBwi




...The US and Brazil, the giants of the market, together produce 87 per cent of the world’s output, according to analysts FO Licht. The US product is largely distilled from corn, while Brazil makes ethanol from its sugar cane crop. For the engine of a car, the two vintages are virtually identical. Yet in the eyes of the law they are quite distinct.



This helps explain why the US and Brazil are shipping one another ethanol at great expense rather than simply using it at home.



Washington is weaning its domestic ethanol industry off subsidies. In 2011 a tax credit for ethanol blenders expired, as did a corresponding import tariff.

But the industry still has the support of a government mandate requiring domestic ethanol consumption to grow each year. The mandate is indirectly helping to drive imports from Brazil.

The mandate, known as the&nbsp;renewable fuel standard, is split between volumes for traditional corn-based ethanol and “advanced biofuels” whose production releases less greenhouse gas impacts than ploughing fields for grain.



Corn ethanol has the biggest share, but the advanced biofuel requirement is growing more rapidly.



US production of advanced biofuels has not matched government expectations.

To meet the mandate, fuel companies are allowed to import sugar cane ethanol, mainly from Brazil. The US Environmental Protection Agency estimates about 15.9m barrels of sugar ethanol imports will be needed this year.



“As the mandate grows, ethanol imports rise accordingly,” say economists at the University of Missouri’s Food and Agricultural Policy Research Institute.



Another US policy encouraging Brazil to export ethanol is set by California. The state, known for standard-setting vehicular pollution controls, welcomes the use of sugar cane ethanol to satisfy its low carbon fuel standard programme.



In the reverse direction, US ethanol exports to Brazil are well below a peak of 9.4m barrels reached in 2011 when the South American country suffered poor sugar harvests.

The Brazilian ethanol industry has also been hurt by domestic government policies that have kept petrol prices artificially low to fight inflation.



This year, Brasilia raised the required ethanol blending rate to 25 per cent from 20 per cent of motor fuel in a bid to help the domestic biofuel industry. But imports from the US are expected to continue nonetheless.



The US corn-based ethanol industry has more capacity than needed for a domestic fuel market where demand is weak and most fuel companies refuse to blend more than 10 per cent ethanol with petrol.



Brazilian imports arriving under the advanced biofuels mandate further add to supplies. So a portion of the relatively cheap, unwanted corn ethanol barrels flows back to Brazil.

The Energy Information Administration, in a note last year, called it a “complex environment” where blenders and ethanol producers “not only have to produce enough corn ethanol to meet the overall renewable fuels mandate, but ... must also import significant volumes of sugar cane ethanol to meet the advanced biofuel mandate, all in the face of demand constraints”...