Bush budget does not change ethanol import tariff - Brazil disappointed

U.S. Energy Secretary Sam Bodman hinted last week the Bush administration might address cutting back the 54-cent-per-gallon import tariff on ethanol in its 2009 budget. But the budget has been sent to Congress and did not propose any changes to the tariff that is set to expire this year. Brazil is disappointed and says the tariff blocks U.S. consumers from using more efficient and environmentally friendly biofuels, such as ethanol based on sugarcane.

The Bush administration said it would discuss with lawmakers later this year what should be done when tariff is set to expire at the end of December 2008, which falls during the 2009 budget year that begins October 1.

The tariff is designed to protect U.S. corn-based ethanol makers from cheaper imports, mainly from Brazil and other developing countries that make ethanol in a far more efficient way from highly productive crops like sugarcane.

But numerous social, environmental, development and energy think tanks have called for the complete abandonment of all EU and US tariffs and trade barriers on biofuels because they distort trade and are responsible for increased food prices: from the IEA and the World Bank, to the IMF, the IISD, the OECD and the FAO - all have warned that these measures deny poorer countries market access, limit the availability of the most efficient biofuels, and could have detrimental effects on the environment.

Just recently, the OECD repeated that the tariffs are 'wasteful' and 'distorting'. And according to the IMF, biofuels are not to blame for food price increases, but these protectionist measures are - the fund called for their abolishment. For once, free trade could help developing countries, many of who have a large sustainable biofuels production potential that can be tapped in a highly efficient and competitive way. According to many food and agriculture experts, freely traded biofuels could help fight hunger and poverty (more here, here and here). All of this, however, requires an abandonment of protectionist measures.

Amongst those in favor of phasing out the 54-cents-per-gallon tariff is Energy Secretary Bodman who had indicated last week while speaking at the U.S. Chamber of Commerce that he favored eliminating or cutting it back:

I would just say I think that there are advantages to having had the kind of both subsidies and tariffs that have helped protect this industry. I believe that, the best I can tell, this industry is pretty close to being able to stand on its own. - Samuel Bodman, U.S. Energy Secretary

Subsidies that support corn-based ethanol production have been blamed for soaring feed grain costs that have greatly increased the cost of meat production. According to the Global Subsidies Initiative, biofuel support in the U.S. amounted to $5.6 billion in 2006, and could be higher this year (previous post):
energy :: sustainability :: biomass :: bioenergy :: biofuels :: ethanol :: efficiency :: trade :: subsidies :: tariff :: Brazil :: United States ::

Developing countries in the South, where biofuels can be produced more efficiently and competitively, have argued that these subsidies and the import duty distort trade. They have hinted at possible legal action at the World Trade Organisation.

Some U.S. farm-state congressmen, however, support the subsidies, and presidential candidates have campaigned on the issue, saying they support them too . What is more, U.S. ethanol blenders get a separate 51-cent-a-gallon tax credit that runs through 2010, a measure that was included in the Senate farm bill, which is now in conference committee with the House.

Commenting on the Energy Department's new budget and its lack of a call to phase out the tariff, Deputy Energy Secretary Clay Sell said:

I think it's very important that we pursue a policy which gives the U.S. industry appropriate time and protection to develop.

Brazil sugar cane sector has meanwhile reacted and expressed its disappointment over the fact that the administration did not use the new budget to modify the U.S. ethanol import tariff.

The continuing ethanol tariff runs counter to America's open and fair trade rhetoric. It is shocking that developed countries such as the United States continue to tax renewable biofuels from reliable democratic partners while encouraging tariff-free imports of petroleum from unstable regions of the world. - Marcos Jank, president of the Brazilian Cane Sugar Industry.

However, the Renewable Fuels Association, which represents U.S. ethanol producers, said the import tariff is needed to encourage investment in the U.S. to develop cellulosic ethanol made from wood chips, switchgrass and other farm and forest waste.

"By removing the tariff ... you will cool the kind of investment you have seen in the industry," said RFA spokesman Matt Hartwig.


References:
Reuters: Bush budget doesn't alter ethanol import tariff - February 4, 2008.

Facts about ethanol: DOE Secy Bodman hints FY09 budget may propose changing ethanol tariff - January 30, 2008.

Biopact: World Bank chief calls on U.S. to remove ethanol tariffs - March 14, 2007

Biopact: IEA chief economist: EU, US should scrap tariffs and subsidies, import biofuels from the South - March 06, 2007

Biopact: Worldwatch Institute: biofuels may bring major benefits to world's rural poor - August 06, 2007

Biopact: IFPRI report: more free trade needed to tackle rising food prices; small farmers could benefit - December 04, 2007

Biopact: IMF chief economist: biofuels could help cut farm subsidies, protectionism main cause of high food prices - December 06, 2007

Biopact: OECD calls biofuel tariffs "wasteful" and "destorting"; calls for open markets - January 14, 2008

Biopact: Paper warns against subsidies for inefficient biofuels in the North, calls for liberalisation of market - major boost to idea of 'Biopact' - September 11, 2007

Biopact: FAO chief calls for a 'Biopact' between the North and the South - August 15, 2007

Biopact: Subsidies for uncompetitive U.S. biofuels cost taxpayers billions - report - October 26, 2006