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With many nations seeking to reduce petroleum imports, boost rural economies, and improve air quality, world fuel ethanol production reached nearly 20 billion gallons in 2009 from 40 countries on six continents. This represents nearly 400% growth since 2000.

world

FACT: According to the International Energy Agency, the growth of ethanol production worldwide has led to a 1 million barrel per day decrease in global world oil demand.

global

FACT: Brazil produces more ethanol than any other country except the U.S., and is the largest exporter of fuel ethanol.

While the U.S. became the world's largest fuel ethanol producer in 2006, Brazil remains a close second. Brazil created its National Ethanol Program (PROALCOOL) during the 1970's in response to the oil crisis of that time. Under the program, tax and loan incentives were used by the Government to build facilities. Secondly, the government provided subsidized loans to mills, valued at well over $2 billion and transferred large subsidies to the domestic auto industry to underwrite the cost of creating a special vehicle to run on hydrated alcohol. Brazil provides market guarantees for ethanol through a controlled producer price, where sales of ethanol are made through Petrobras (the state-owned oil and gas company) and historically, the price of ethanol was held to an artificially low level of 59% of the gasoline price at the pump.

By the end of the 1990's, Brazil had created a robust industry with billions of gallons of production and billions of dollars in non-performing debt. Brazil wrote off the debt and retained the industry. Today, a number of programs remain in place:
  • A blending requirement that all gasoline used in Brazil contain a minimum of 20-25% anhydrous alcohol (currently 23%);
  • The banning of diesel-powered personal vehicles to boost the demand for ethanol powered vehicles;
  • A requirement that all government entities purchase 100% hydrated alcohol fueled vehicles;
  • A taxing regime that is favorable to ethanol compared to gasoline;
  • Low interest loans for financing producer owned stocks;
  • A protective tariff of 20% ad valorem;
  • The potential for special production subsidies for the Northeastern section of Brazil; and
  • Recently Brazil successfully reintroduced its flex-fuel vehicle, which creates a vehicle that can run on any blend of gasoline.

FACT: Most nations have an import tariff on fuel ethanol, and comparatively the U.S. tariff is nearly non-existent.

The U.S. ad valorem tariff is 2.5% of the product value, and is lower than any other country in the world. To prevent U.S. tax dollars from further subsidizing foreign-produced ethanol, which has already received support from the country of origin, there is a secondary duty of 14.27 cents per liter or 54 cents per gallon. The secondary duty was created to offset the value of the ethanol tax credit taken by the petroleum industry when ethanol, both domestic and imported, is blended with gasoline. As evident by the history of ethanol imports into the U.S., the secondary tariff is not a barrier to market entry.

imports

There are exceptions to this rule. First, in some of our bilateral trade agreements like the U.S.-Israel Free Trade Agreement and the North American Free Trade Agreement, we allow ethanol that is fully produced with feedstocks from those countries to enter the U.S. duty-free.

Secondly, Congress has created some unilateral trade preference programs, such as the Caribbean Basin Initiative and the Andean Trade Preference Act that allow ethanol produced in those countries to enter the U.S. duty free. This means that ethanol producers in those countries avoid the secondary tariff as long as the ethanol is produced from within their own country. The purpose of this program is to encourage economic development in the Andean and Caribbean region, which helps fight poverty and drug trafficking. Notably, to date, these trade agreements and preference programs have not led to significant ethanol imports to the U.S., but neither have they been a barrier.

1 Source:  Renewable Fuels Association