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Friday, July 14, 2006

Fuel for Thought

By LUIZ INACIO LULA DA SILVA
July 14, 2006

The sharp rise in international oil prices, political instability in producing regions and the environmental impact of fossil fuels have combined to evoke a growing interest in alternative energy sources. In this context, the Brazilian experience with ethanol fuel has been a noteworthy success story over the last 30 years. And the success is now expanding to biodiesel and H-Bio. I expect that our experience will be of interest during the G-8 summit in St. Petersburg.

With the continual increases in oil prices, ethanol has become even more important for our country. We now add at least 20% ethanol to all gasoline sold in Brazil. In addition, E100 fuel (i.e., pure ethanol) is sold at all of the more than 30,000 service stations. Annual production is in the range of four billion gallons, of which around 690 million gallons are exported. Ethanol accounts for about 40% of the fuel consumed by passenger vehicles. The introduction of "flex-fuel" cars in 2003 was an extraordinary success: Today roughly 80% of all new cars sold in Brazil can be fueled with any mixture of ethanol and gasoline, or simply pure ethanol.

Moreover, Brazil has just achieved oil self-sufficiency. Here, ethanol has played a decisive role, along with increased oil production. Since the 1970s, ethanol has replaced about 800 million barrels of oil, the equivalent of almost two years of current Brazilian oil production.

Naturally, we are well aware that ethanol is not the only solution to oil supply problems. But, surely, it can become a key part of the solution. A substantial increase in ethanol consumption may even extend the timeframe of the world's oil supplies, postponing the date when the reserves run out.

Last November, I was greatly pleased to host George W. Bush in Brasília. During his visit, we were able to speak at length about our respective experiences with ethanol. Brazil and the U.S. together account for about 70% of world's ethanol production. I am delighted to see that President Bush has actively promoted expansion of U.S. ethanol production and consumption.

Both Brazil and the U.S. have a lot to gain if we can work together to promote a global market for ethanol, with other countries involved in its production, especially in Latin America and in Africa. In poor countries, production of ethanol and biodiesel can have an extremely positive impact. It assists in dealing with the energy deficit, influencing internal consumption and exports. It can also generate a vast number of jobs, redistributing the population more harmoniously between urban and rural areas.

Although Brazil is often seen as a model in the ethanol sector, it does not wish to achieve a dominant global position, nor would that even be feasible. Actually, it is important we have as many countries as possible producing ethanol. Otherwise it will be difficult to achieve our goal of creating a global market, with ethanol being traded as any other commodity. In this spirit, Brazil is proposing the creation of a forum gathering the most significant ethanol producer and consumer countries.

Brazil and the U.S., for their part, can already begin to work toward shared goals with regard to technical and regulatory frameworks, research cooperation and the support of ethanol production and consumption in other countries. Expanding the international ethanol market will benefit both Brazilian and U.S. producers.

Naturally, Brazil hopes to see the day when the secondary tariff on U.S. ethanol imports (now 54 cents per gallon) is eliminated, as that would foster the goal of globalization of the ethanol market and enhance bilateral trade. Nevertheless, the goal of an ethanol partnership stands on its own merits and should be pursued regardless of any such bilateral trade considerations. As the world's ethanol consumption increases, the primary challenge will not be to compete for markets, but rather to expand ethanol production quickly enough to meet surging demand. Everyone has a lot to gain.

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