An Exchange of Incentives
Despite the multitude of approaches that have been suggested to deal with the developing energy crisis, the universal consensus that the world’s oil supply will shortly be depleted leaves a number of countries engaged in an active search for new alternative energy. Thus, the pressure is on industrialized countries not only to create an ecologically-friendly energy market, but to do so without disturbing the energy supply of their citizens.
In an effort to address the growing energy crisis, many industrialized countries, such as the United States, have begun various forms of partnerships with less industrialized, yet highly resource-rich nations. In March of 2007, United States President George W. Bush and Brazilian President Luiz Inácio Lula da Silva signed a Memorandum of Understanding that cemented a new alliance geared towards converting the U.S. into an ethanol-dominant auto fuel industry. In return, Brazil will be introduced into the global market.
First implemented in 1975, Brazil has been successfully able to use as much as 100 percent of its sugar-cane based ethanol output to fuel its vehicles. Brazil, the emerging global leader in ethanol production, today manufactures 17.8 billion liters of ethanol a year and there is additional potential for production and future growth. The new ethanol pact between the two behemoths involves an exchange of research, technology, and the supply of lignocellulosic ethanol, along with Brazil’s 33 years of experience. Nevertheless, the wave of public relations rhetoric that glowingly launched the prospect for future success is not only promising for the two signatories, but also for the international community. Regardless, there are still skeptics who insist that, at its best, this new arrangement between Washington and Brasilia can only further shorten food supply, increase food prices, and prove detrimental to the environment.
Just before the U.S. and Brazilian leaders met, Venezuelan President Hugo Chávez and now former Cuban President Fidel Castro expressed their longstanding reserves regarding the U.S.-Brazil Ethanol Pact. They argued that the use of ethanol geared towards energy consumption will only further contribute to global food shortages and an inflation of food prices. Because ethanol is produced from biomasses such as corn and sugar cane, the demand for these commodities will inevitably increase, causing their prices to surge as well. In fact, if corn and sugar cane manufacturers decide to aim their production towards ethanol-powered energy rather than food stocks, it is likely to result in shortages for all food-related items over time. Furthermore, environmentalists worry about the negative impact that a long term sugarcane monoculture could have on the environment and the potential for deforestation if ethanol is relied upon as the primary fuel to meet the world’s energy demands. Deforestation tactics would be expedited by the incessant need for crops to produce ethanol, ultimately resulting in the rapid extermination of existing forested areas.
The introduction of an international ethanol industry could also promote harsh labor conditions, particularly in countries that lack the necessary capital and strong labor-protection legislation, as energy sources could lead to an industry infiltrated with human traffickers as well as intensify transnational crime and corruption. It is important to note that the question of good governance is also bound to play a significant role in regards to ethanol production. While ethanol can serve as an opportunity for economic growth amongst less industrialized nations, it can also serve as a gateway into a host of corruptive practices, anti-pathetic social policy, and price gouging, if not properly managed by their authorities. BusinessWeek Reporter Alex Halperin further argues that the “U.S. doesn’t have adequate infrastructure for wide ethanol use,” given that “ethanol can’t travel in pipelines along with gasoline, because it picks up excess water and impurities. As a result, ethanol needs to be transported by trucks, trains, or barges, which is more expensive and complicated than sending it down a pipeline.” He also makes the point that “ethanol contains less energy than gas. That means drivers have to make more frequent trips to the pump,” an aspect of energy conservation that might not go over well with the general public.
Food or Fuel?
In spite of the many claims to the contrary, the Bush-Lula agreement offers some distinctly positive, if somewhat modest, possibilities for the international community. In response to the Chávez-Castro concerns, both Bush and Lula have expressed a desire that ethanol be produced from cellulose—an organic compound derived from plants—thus not relying on food substances such as corn and other grains. In fact, President Lula reinforced his support for the agreement by stating that “nobody need go hungry for lack of food in the world,” and that it is “the lack of income that prevents a billion men and women from having adequate access to three square meals a day,” rather than the consumption of ethanol. Furthermore, Raúl Zibechi, a monthly collaborator for the IRC Americas Program, reassures the general public that the U.S. is committed “to modify the energy matrix without having to rely on the massive consumption of corn ethanol which could cause a run on the price of grain. By using Brazilian ethanol that is 25% cheaper than the U.S. kind, the United States saves money, avoids corn shortage or major price fluctuation, and in passing receives more energy autonomy.” President Lula also addressed apprehensions about forced labor conditions, stating that the “Brazilian government monitors the industry to ensure that labor laws and regulations are being complied with” and that in a 2006 survey “only 298 workers (about 0.04%) were found to be in conditions similar to forced labor,” out of the 745,000 employees of the sector.
Like Brazil, other South American countries are rich in the biomasses needed to produce cellulosic ethanol; these biomasses include corn stover, cereal straws, saw dust, paper pulp, switch grass, miscanthus, and hemp. If Brazil’s neighbors follow its lead by increasing production of eco-friendly fuel, major economies like that of the U.S., are more likely to invest in less industrialized nations’ local resources, thus enhancing prospects for expanding foreign direct investments and easing the financial burden presently borne by highly indebted poor countries. This is evident in Brazil’s economy, as its ethanol industry has generated enough funds to equal its external public deficit.
Furthermore, substituting ethanol for oil is likely to have a positive effect on employment. It should also be remembered that an ethanol-powered industry generates more jobs than does oil extraction and distribution. In Brazil alone, ethanol production created “on million direct jobs (including in family companies and cooperatives) and six million indirect jobs,” stated Lula. In addition, there is the obvious advantage of diversifying sources of supply for the global market when it comes to fuel. An ethanol-powered automobile sector costs only half the price of gasoline, which is looked upon with great favor by the general public. Brazil reports that “the use of ethanol as a substitute for gasoline has accounted for savings of over one billion barrels of oil equivalent…over the last eight years, the use of ethanol produced savings in oil imports of US $61 billion.” Regardless of opposing opinions concerning the value of ethanol use, it is a well-established fact that ethanol is a renewable energy source, acts as a temporary relief to global warming, and burns cleaner than gasoline.
Has There Been Any Progress?
Since the March 2007 Memorandum of Understanding between the U.S. and Brazil, a CEO Forum has been created to further the process of ethanol integration into the U.S. energy market, as well as to enhance and expand the constructive dynamics of the bilateral agreement. The Forum, with the participation of the U.S.-Brazilian public-private partnership, convenes twice a year to discuss the mutual interests of the two countries and to continue to strengthen economic ties. The CEO Forum, to be Co-chaired by U.S. Commerce Secretary Carlos M. Gutierrez and Director of the National Economic Council Allan Hubbard, aims to: “facilitate the exchange of information, promote bilateral discussion, foster an environment for rapid and secure movement of goods, enhance competitiveness through innovation and entrepreneurship, and partner in the development of skills to further solutions in education and workforce development.”
In addition to the Forum, the United States Department of Energy (DOE) has made plans to further ensure the success of an ethanol-powered industry through the implementation of four projects which, according to DOE Assistant Secretary for Energy Efficiency and Renewable Energy Andy Karsner, will be geared towards the “rapid development and deployment of renewable fuels.” On February 26, Mr. Karsner stated that DOE plans to invest a total of $33.8 million over a four year period into the program; the money is to be allocated to four research and development programs, each broadly aimed at addressing the principle setback: the mass production of biofuels required to fuel the energy industry.
Office of Public Affairs Reporter Julie Ruggiero states that the project’s main objective is to find cost-effective methods to break down biomass into fermentable sugars, “produce enzymes at a commercial scale, and have a sound business strategy to market the enzymes.” The four small-scale biorefineries–located in Commerce City, Colorado, St. Joseph, Missouri, Boardman, Oregon, and Wisconsin Rapids, Wisconsin–have been scheduled to receive $114 million from DOE and will test newer refining practices. The experimental projects are a part of the larger plan outlined by President Bush to develop six commercial-scale biorefineries and reduce gasoline consumption by 20 percent over the next ten years. Mr. Karsner reassured the public that the “Department is on track to bring online more clean, abundant, affordable, and domestically produced biofuels” on a commercial level that will “meet the rapidly growing demand for energy worldwide.”
In addition to the changes made domestically, the U.S. government finally agreed to Brazil’s requests to eliminate the 54 cent per gallon tariff placed on the energy source. The tariff was originally imposed by the U.S. to protect its workers from the downside of international competition and to maintain the prospect of eventually becoming an entirely independent energy producer; thus limits were put on the amount of ethanol that could be shipped to U.S. ports. Despite Congress’ vote to prolong its tariff on Brazilian ethanol imports until 2009, the country was granted its request that its ethanol be shipped directly from Brazilian to U.S. ports instead of via the Caribbean Islands, as has been required by the Caribbean Basin Initiative (CBI) Agreement of 1983.
The U.S.-Brazil agreement could lead to a considerable geopolitical alteration for both parties involved. For the United States, the incorporation of cellulosic ethanol into the country’s energy system will generate economic growth for the nation, as per dollar invested ethanol production creates more jobs than the oil industry. Ethanol production can give back economic clout to local farmers, as the energy source is mainly derived from corn, sugar cane, and/or cellulose. In addition to employment opportunities, the user public will not be faced with the heavy burdens of high gas prices because ethanol costs about half the price of gasoline. Also worthy of mention is the positive effect that an ethanol-integrated energy industry can have on the environment. More cars will be “flex-fuel vehicles” that can run on a large portion of ethanol and a small portion of gasoline (usually 85 percent ethanol and 15 percent gasoline). The end result could be a significant reduction of carbon emissions, thus improving air quality overall. Regionally, the U.S. hopes to reconstruct its Latin American policies principally through its collaboration with Brazil. Washington views this collaboration as a way to strengthen its presence in Latin America and diversify its economy through a series of bilateral trade arrangements in the region. On a global scale, the U.S. is proving to the international arena that it is committed to the issue of addressing climate change, as the hegemonic power is currently the prevalent emitter of carbon dioxides amongst its peers. Additionally, the U.S. is further safeguarding its economic and national security interests by seeking out alternative energy resources. Due to the Iraqi War, the U.S. can no longer chance the risk of funding its oil-controlling adversaries in the Middle East without also having a continental power in its train.
The geopolitics of the ethanol agreement also means considerable change for Brazil. According to the CIA World Fact Book, currently 31 percent of the Brazil’s population lives below the poverty line; in addition, its unemployment rate measures at 9.8 percent. Because the ethanol industry is looked upon to generate a relatively large dose of new jobs, Brazil will likely experience rapid economic expansion, thus resulting in the alleviation of economic hardship for its citizens. On a regional level, Brazil has the sufficient standing to convince a number of its Latin American neighbors to follow its lead. Conversely, Brazil’s growing relationship with the U.S. can potentially hinder its relations with Venezuela and Cuba, although Lula’s extension of lines of credit approaching one billion dollars in value would appear to argue against this.
Hugo Chávez and Fidel Castro already have spoken out with chagrin regarding the food-related dynamics of the Brazil-U.S. accord, despite the fact that they have made comparable deals elsewhere in the region. Sam Logan, of ISN Security Watch and an established expert in the field, stated that “Chávez will work to undermine the U.S.-Brazil ethanol alliance behind the scenes while publicly supporting the idea of ethanol and criticizing the U.S. approach.” While neither Venezuela nor Cuba approve of Brazil’s decision to take its energy efforts outside of the region, both nations are unlikely to take any serious measures against Brazil due to their own desire to maintain close ties with Latin America’s most powerful and influential nation.
To add stress to an already uncomfortable situation, the U.S. is now looking to Brazil to take on greater responsibility in South America in terms of applying stricter law enforcement for transnational offenses such as illegal drug trade, arms trafficking and money laundering. In spite of growing cooperation with the U.S., Brazil is still sensitive to the national interests of its Latin American counterparts. As stated in the Mercosur Foreign Agenda Statement, it is a top priority for all members, including Brazil, “to coordinate its positions with its neighbors within the scope of its terms aimed at the creation of a comprehensive, efficient hemispheric trade system.” On an international level, its agreement with the U.S. provides Brazil with an opportunity for it to enter into the global market system as a leader in the alternative energy field, which is rising in popularity and necessity. Not only will the ethanol deal with the U.S. possibly bring prosperity to the country, but it will also help confirm Brazil as a major economic power. This is a goal Brazil has attempted to reach for years.
While many have argued that this agreement is more a personal one between Bush and Lula, it is also evident that working together can serve the common interests of both countries. Nevertheless, the real outcome of this new relationship between Bush and Lula will attest to whether the U.S. can rebuild relations with South America, and whether Brazil will be able to satisfy the expectations of the U.S. in regards to transnational security, while becoming a strong actor on its own in the global marketing system particularly when it comes to energy issues.