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October 5, 2007

Caipirinha vs. fuel

Posted by Angel Gonzalez at 5:06 PM

In Brazil, the world's top producer of sugar cane and cane-derived alcohol, people "drink the best and drive the rest," says Roberto Giannetti da Fonseca, an official with Sao Paulo State's Federation of Industries. What Brazilians don't put into caipirinhas fuels the world's most advanced ethanol economy -- a lead the U.S. has tried to follow in recent years.

Da Fonseca's trade delegation met with Seattle officials and businesspeople Friday to share Brazil's experience with alternative fuels. Da Fonseca lambasted the heavy tariffs that the U.S. imposes on foreign ethanol (54 cents per gallon) and said that corn -- the staple of the domestic ethanol industry -- "is not a feasible fuel" because it's too energy-inefficient and disrupts food prices. Kicking open the door to cheap, imported sugar-cane-based ethanol would make alternative fuels easier to adopt, he said.

The domestic ethanol industry is currently being squeezed by high corn prices and an oversupply of the fuel. This phenomenon, some experts say, is an indication that despite the costly efforts to create a local alternative energy industry, the future of the field may lie in Latin America, Africa and south Asia.

"I'm not a big believer in US-produced ethanol," says Michael Cohen, an analyst with San Diego-based Pacific American Securities. "Eventually free markets will go where low-cost production will be -- the tropical nations of the world."

Brazil's own experience with ethanol began in the 1970s, when the military dictatorship ruling the country sought to control the outflow of hard currency caused by the skyrocketing oil prices of that decade. Engineers created ethanol-friendly engines, resistant to the fuel's tendency to corrode metal, but the movement petered out as gasoline became cheap once again in the 1980s and 1990s. In recent years, cheaper ethanol, higher gas prices and better engine technology have made the sector bloom once again: 40 to 45 percent of transportation fuel consumption in Brazil consists of ethanol, and 90 percent of new cars sold have flex-fuel engines, which can use either ethanol or gasoline, said da Fonseca.

But Brazil's recent history may indicate that alternative and fossil fuels are destined to coexist, and that drivers will choose between one and the other depending on availability and price. In the last decade Brazil's national oil company Petrobras discovered significant offshore hydrocarbon reserves that have made the South American giant not only self-sufficient in oil, but also able to export the commodity.

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Tricia Duryee
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