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What is sugarcane ethanol?

Sugarcane ethanol is a renewable fuel produced from sugarcane, which is grown in the United States, Brazil and more than 100 countries. Like other forms of ethanol, it can be added to gasoline and used in all American vehicles at blends up to 10 percent ethanol.

Why would the United States want to use it?

Three main reasons:

  • Energy Security. Sugarcane ethanol is one more good option for diversifying energy supplies and improving U.S. energy security, so Americans are not reliant on any one source or country.
  • Economic. Americans could save about a dollar per fill-up off the price of regular gasoline by expanding the use of sugarcane ethanol. At an average price of $0.50 less per gallon than corn ethanol, sugarcane ethanol is one of the least expensive renewable fuels available.
  • Environmental. Sugarcane ethanol cuts greenhouse gases by at least 60 percent compared to gasoline – better than any other biofuel widely produced today. The U.S. Environmental Protection Agency (EPA) confirmed sugarcane ethanol’s superior environmental performance earlier this year by designating it an “advanced renewable fuel.” This important category of biofuels will make up 21 billion gallons of America’s fuel supply by 2022, or about 15 percent of today’s gasoline market.

What is the difference between corn ethanol and sugarcane ethanol?

The finished product – ethanol – is virtually identical. The only difference is the plant used to produce this renewable fuel.

Ethanol is made by fermenting sucrose, the basic building block of sugars, from plants. It takes less energy to manufacture ethanol directly from sugarcane (a one-step process) than from starch in corn (a two-step process). Starch first must be broken down into simple sugars, before it can be used to produce ethanol. Sugarcane already contains the necessary sugars, so the production process is more efficient.

What is America’s current policy towards ethanol?

Corn ethanol has been manufactured in the U.S. for more than 30 years and has blossomed into a thriving industry. The U.S. is now the number one producer, and American farms and refineries generate nearly half of all ethanol produced around the globe. Despite being a mature industry, corn ethanol producers in the U.S. still are protected by an interlocking series of government mandates, subsidies and trade barriers.

  • Mandates – The U.S. Environmental Protection Agency (EPA) oversees a program that requires adding continually increasing volumes of renewable energy into America’s fuel supply – growing from 12 billion gallons today up to 36 billion by 2022. The Renewable Fuel Standard (RFS2) forces fuel providers to use ethanol and sets aside a quota of up to 15 billion gallons annually for corn ethanol.
  • Subsidies – Even though EPA’s renewable fuels standard mandates its use and thus creates a built-in market, ethanol receives a 45-cents-per-gallon tax credit that costs American taxpayers approximately $6 billion annually.
  • Trade Barriers – To prevent foreign manufacturers from collecting the ethanol tax credit, Congress imposes a 54-cents-per-gallon tariff (or import tax) on ethanol coming into the U.S. from most foreign countries. The amount of the tax credit and tariff historically were aligned to achieve a direct offset. In 2008, while Congress lowered the subsidy for corn ethanol to 45 cents, it left the import tax at 54 cents. In addition, imported ethanol must pay a 2.5% ad valorem tax. Taken together, those import taxes add up to about $0.60 per gallon.

Both the ethanol tax credit and tariff are scheduled to expire at the end of 2010, and Congress currently is considering whether to extend or change its ethanol policies.

Why should the U.S. drop its tariff on imported ethanol?

Americans will benefit from ending the ethanol tax credit and trade protection. Those benefits include:

  • Lower Fuel Prices. According to economists at Iowa State University (in the heart of U.S. corn country) ending the subsidies would reduce ethanol prices by 12 cents per gallon in 2011 and 34 cents per gallon in 2014. Because most gas sold in the United States contains 10% ethanol – a limit the Environmental Protection Agency recently increased to 15% for newer vehicles – lower ethanol prices would lead to savings at the pump for all drivers.
  • Taxpayer Savings. In a time of soaring budget deficits, $6 billion is real money. Ending the ethanol subsidies would save that amount annually.
  • Clean Energy Diversity.  Americans would gain greater access to Brazilian sugarcane ethanol – a clean and affordable renewable fuel that cuts dependence on oil and reduces greenhouse gas emissions by 60% compared to gasoline.

Because the bottom line is that competition works. Consumers win when businesses have to compete in an open market, since competition produces higher quality products at lower costs. The same principle holds true for renewable fuels. Competition will create a race to the future and generate better alternatives for Americans.

Without a tariff, wouldn’t Americans lose jobs and become dependent on foreign ethanol?

No.  The Iowa State study also found that elimination of the subsidies would have practically no short-term impact on U.S. corn and ethanol demand. That’s because Congress already mandates the use of renewable fuels like ethanol, and those requirements will triple from 13 billion gallons today to 36 billion gallons by 2022. As a result, American corn ethanol production would continue to increase to some 14.5 billion gallons by 2014 (even without tax credits or tariffs) meaning productive farmers and ethanol refiners in the U.S. will keep their jobs.  And far from becoming dependent on foreign ethanol, Iowa State estimates that sugarcane ethanol would supply about 5% of U.S. needs in 2014.

Does Brazil place tariffs on imported ethanol?

In April 2010, the Brazilian government unilaterally eliminated its tariff on imported ethanol. The ruling, made by the Brazilian Chamber of Foreign Trade (CAMEX) reduced the 20 percent tariff to zero until the end of 2011. The Brazilian Sugarcane Industry Association (UNICA) has asked the Brazilian government to make the tariff elimination permanent if the U.S. Congress will do the same and drop the U.S. tax on imported ethanol.  As the world’s top producers of ethanol, the United States and Brazil should lead by example in creating a free market for clean, renewable energy.

I don’t have a car that runs on ethanol. Why should I care?

Most gasoline sold today in the U.S. has been blended with up to 10% ethanol.

Is sugarcane ethanol good for the environment?

Yes. A major benefit of sugarcane ethanol is its superior environmental performance. Compared to gasoline, sugarcane ethanol cuts greenhouse gases by at least 60 percent. The U.S. Environmental Protection Agency (EPA) designated sugarcane ethanol as an Advanced Renewable Fuel – an important category of superior biofuels that will make up 21 billion gallons of America’s fuel supply by 2022. In California, the state’s air regulators have classified sugarcane ethanol as a “low-carbon” fuel that will help reduce greenhouse gas emissions from the state’s transportation sector.

Has sugarcane ethanol proven it can work?

Most sugarcane ethanol is currently produced in Brazil, a South American country with a democratically elected government and a long-standing trade relationship with the United States. Brazil has replaced more than half of its gasoline needs with sugarcane ethanol – making gasoline the alternative fuel in that country. Many observers point to Brazil’s experience as a case study for other nations seeking to expand the use of renewable fuels.

Isn’t sugarcane ethanol subsidized in Brazil?

Sugarcane ethanol is no longer subsidized in Brazil. Generous subsidies are a thing of the past that ended nearly fifteen years ago. The only things that a purist would consider “subsidies” are credit lines that the Brazilian Development Bank (BNDES) provides to finance new projects and lower sales tax rates in some states. The financing is provided on a competitive basis – domestic or foreign investor – and the interest rates are close to 10 percent per year, far higher than any rates offered in the U.S.

Also, some Brazilian states (3 of 27) charge a lower VAT (Value Added Tax) on hydrous ethanol sold to Flex-Fuel cars compared to VAT imposed on gasoline at the pump. That’s a savings to consumers in that state and does not apply to ethanol exports.

Does the production of sugarcane ethanol in Brazil impact the Amazon Rainforest?

Destruction of rain forests and their fragile ecosystems in Brazil is a serious and widely-recognized problem, but sugarcane is not the culprit. Most Brazilian sugarcane (90 percent) cultivated for ethanol production is harvested in south-central regions of the country, more than 1,500 miles away from the Amazon. The rest (10 percent) is grown in northeastern Brazil, over 1,000 miles from the Amazon’s eastern-most fringe (view the full map).

To compare these distances using American cities, if the heart of the Amazon were located in Dallas, then most sugarcane cultivation would occur in New York City.

To learn more about Brazil’s efforts to guide the sustainable production and expansion of the sugarcane and biofuels industries, read the landmark study, “Sugarcane Agroecological Zoning.”

Could sugarcane ethanol be produced in countries other than Brazil?

Sugarcane ethanol has the potential to reshape global fuel markets. More than 100 countries grow sugarcane and most could produce and use ethanol. According to the Food and Agriculture Organization of the United Nations (FAO), only 10 percent of the world's land that is available and suitable for cane production is actually used for sugarcane cultivation. Most sugarcane producing countries are tropical, developing countries that would benefit tremendously from an opportunity for significant economic development.

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Leticia Phillips
Representative, North America
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