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US to forge `ethanol alliance' with Brazil

A man walks with his bicycle through sugar cane fields in Piracicaba, Brazil, on Friday. In the background are ethanol-filled tanks. US President George W. Bush will be in Brazil this week, where he is expected to sign an ethanol deal with Brazilian President Luiz Inacio Lula da Silva. PHOTO: AP

Just an hour's drive outside this traffic-choked metropolis where US President George W. Bush will kick off a Latin American tour on Thursday, sugarcane fields stretch for hundreds of kilometers, providing the ethanol that fuels eight out of every 10 new Brazilian cars.

In only a few years, Brazil has turned itself into the planet's undisputed renewable energy leader and the highlight of Bush's visit is expected to be a new ethanol "alliance" he will forge with Brazilian President Luiz Inacio Lula da Silva.

The deal is still being negotiated, but the two leaders are expected to sign an accord on Friday to develop standards to help turn ethanol into an internationally traded commodity, and to promote sugar cane-based ethanol production in Central America and the Caribbean to meet rising international demand.

Across Latin America's largest country, Brazilian media were billing the Bush-Silva meeting as a bid to create a new two-state"OPEC of ethanol," despite efforts by Brazilian and US officials to downplay the label amid concerns that whatever emerges would be viewed as a price-fixing cartel.

Meanwhile, political and energy analysts warned that any agreements reached between Brazil and the US were unlikely to have short-term effects.

And the deal itself could end up largely symbolic because of reluctance by Washington to address a key point of friction: a US$0.14 per-liter US tariff on Brazilian ethanol imports.

"For the Brazilians, the tariff has utmost priority," said Cristoph Berg, an ethanol analyst with German commodities research firm F.O. Licht.

"They will agree with developing biofuel economies around the world, but the first thing they will say is `We want to do away with that tariff," he said.

But no one is expecting Bush to give ground on the tariff.

The politically sensitive issue essentially subsidizes US corn growers who are rapidly ramping up ethanol production amid Washington's encouragement of renewable biofuels to ease US dependence on imported petroleum.

But the visit will help Bush and Lula join forces to promote the politically popular issue of renewable energy simply by gathering in a place where ethanol is king.

At every gas station in the city of 18 million, drivers can fill up with gasoline or ethanol. Ethanol came courtesy of a 1970s decision by former military dictators to subsidize production and require distribution at the pumps.

A 1980s Brazilian fad with cars that ran only on ethanol petered out when oil prices fell in the early 1990s.

But the fuel came back into vogue in 2003 when automakers started rolling out "flex-fuel" cars that run on gasoline, ethanol or any combination of the two.

With international oil prices reaching record highs, Brazilian drivers turned to the cars; most choose ethanol, because it costs about half as much as gas.

The ethanol industry is now making profits like never before amid heavy foreign investment.

Brazil is the world's top exporter, though US ethanol production still surpasses Brazil. Brazil, however, produces it more cheaply.
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