Brazil’s Sugar Association Renews Appeals for Cut on US Ethanol Import Tax

A Brazilian gas station that also offers ethanolBrazil's UNICA, the Brazilian Sugarcane Industry Association, congratulated the U.S. Environmental Protection Agency's decision to maintain the Renewable Fuel Standard (RFS) at its current level, but also urged the American Congress to reduce the imported ethanol tariff that, according to the organization, increases the cost of gasoline for American drivers.

"Today's EPA decision was sound. It is the high price of gasoline – not the Renewable Fuel Standard – that is driving ethanol demand. Reducing the blending mandate would have no impact on ethanol demand in the short term and could jeopardize future production of advanced renewable fuels," says Joel Velasco, UNICA's Chief Representative in Washington.

"The next step – and one that Congress has yet to take – is to reduce the distortive tariff on imported ethanol. This one-of-a-kind tax on a clean energy alternative serves only to punish American drivers by artificially inflating the price of gasoline at the pump," he added.

The US Ethanol Import Tariff of 1980 imposed a US$ 54-cent per gallon tariff on imported ethanol. Designed as a temporary measure, the tariff was meant to increase the amount of ethanol produced in the US. In 2007, domestic production had increased to more than 6 billion gallons.

The 2008 US Farm Bill reduced subsidies to the ethanol industry from US$ 51-cents per gallon to US$ 45-cents per gallon. However, the tariff on imported ethanol remains unchanged at US$ 54-cents per gallon. Lowering the subsidy without lowering the tariff keeps sugarcane ethanol, a less expensive fuel alternative, out of reach for many US drivers.

UNICA notes that the price distortion caused by the U.S. tax on less expensive imported ethanol is outlined in a recent report by the Farm Foundation, which notes:

"The U.S. tariff on imported ethanol introduces a potentially greater distortion than does the subsidy or mandate. Since high oil prices directly lead to higher corn prices, corn ethanol becomes much more expensive. Sugarcane-based ethanol is less expensive to produce than corn ethanol at any oil price, but the gap widens at higher oil prices.

"So removal of the tariff on imported ethanol would lead to the biofuel coming from the lowest cost source – sugarcane – which would reduce some pressure on corn prices and provide the United States with lower cost ethanol. Brazil has the potential to expand ethanol production substantially without increasing world sugar prices substantially, so imports down the road could be quite high."

UNICA represents the top producers of sugar and ethanol in Brazil's South-Central region, especially the state of São Paulo, in the Southeast, which accounts for about 50% of the country's sugarcane harvest and 60% of total ethanol production.

UNICA develops position papers, statistics and specific research in support of Brazil's sugar, ethanol and bioelectricity sectors. In 2007, Brazil produced an estimated 487 million metric tons of sugarcane, which yielded 30.6 million tons of sugar and 22 billion liters of ethanol.

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