It's time to kill corn subsidies and go Brazilian

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ERIC REGULY

ereguly@globeandmail.com

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May 12, 2008

New in the ROB, feature columnist Eric Reguly will write in this space every Monday.

Your doctor will tell you not all cholesterol is created equal. The dangerous version can kill you, the good can make you healthier. Brazil uses the same line with ethanol. The corn-based stuff pumped out by the Americans and Canadians is bad, bad, bad. But our sugarcane ethanol is cheap and plentiful and environmentally friendly.

There is no doubt sugarcane ethanol is the more attractive fuel by almost every measure; just how much is still matter of political and scientific debate. Which raises the question: If there is good ethanol and bad ethanol, why not take the good, ditch the bad and put the billions of savings to other uses?

Forget it. The United States and Canada use a wall of import duties and tariffs to repel Brazil's sugarcane ethanol, and protect corn ethanol. They do so in spite of the barrage of evidence that the latter is harmful to taxpayers and the environment and is pushing up food prices around the world.

In Canada, the House of Commons just approved a bill that will require gasoline to have 5-per-cent ethanol content by 2010. Europe is implementing aggressive biofuel content rules. The Americans treat corn ethanol as a birthright.

The Brazilians are old ethanol pros. Sugarcane ethanol came to life in the 1970s, when the twin oil shocks made gasoline prices unaffordable. The government subsidized production and encouraged auto makers to engineer cars that could run on ethanol.

The effort was pretty much a dud. The engine technology was abysmal and falling oil prices soon made gasoline attractive again. In the 1980s, Brazil killed the subsidies.

But Brazil saw a long-term future in sugarcane ethanol, and it slowly came back to life. The fuel could create jobs in the deregulating agriculture industry, reduce the dependence on foreign oil and give motorists a choice at the pumps. Technological improvements would allow car engines to run on various ethanol-gasoline mixtures.

At the time, sugarcane's relative environmental benefits were of no concern.

The attraction was low cost and high efficiency in a country too poor for high-tech alternatives to gasoline and diesel.

Sugarcane is everything corn is not. Corn is a food. Turning it into fuel raises food prices because of competition for arable land. In the United States alone, one-third of the corn crop goes to ethanol production. In the European Union, some 15 per cent of arable land will have to be devoted to biofuel production to meet content mandates. Yes, sugar is food. But it is not a staple.

Sugarcane ethanol is inexpensive to produce. It requires no irrigation and only small amounts (relative to corn) of fertilizers and pesticides. It grows year round. The factories where sugarcane is turned into ethanol are clever little contraptions. The waste material is burned to produce steam, which spins a turbine to make electricity. About 3 per cent of Brazil's electricity comes from the ethanol factories. The figure is expected to rise to as much as 15 per cent by 2015.

Where sugarcane shines is in efficiency. One hectare yields 7,500 litres of ethanol. One hectare of corn produces about 4,000 litres, according to the United States Department of Agriculture. The Brazilian sugarcane association, known as Unica, claims one unit of energy is required to produce nine units of sugarcane ethanol. The ratio for corn is far worse, at one to two. Did we mention Brazilian ethanol gets no subsidies?

To be sure, sugarcane is not perfect. Since most of it is harvested by hand (mechanization is coming), the working conditions can be grim, and flash burning is often used to clear the foliage around the plants to make access easier. Burning creates carbon dioxide. While sugarcane is grown near Sao Paolo, well south of the Amazon rain forest, the argument can be made that the land devoted to sugarcane displaces other crops, resulting in deforestation elsewhere.

Add up the pluses and the minuses and sugarcane ethanol blows corn ethanol off the farm. So why not import it?

Because ethanol is all about transferring wealth to the American and Canadian corn industries. The subsidies are rich, the market is guaranteed through content goals. The American corn ethanol machine will tolerate no threats. The new U.S. Farm Bill proposes to extend the ethanol import tariffs - 54 cents (U.S.) a gallon - for another two years.

Canada's corn ethanol industry, while smaller, also sucks up a fortune in subsidies for dubious environmental benefits and unwelcome upward pressure on food prices. If Canada wants ethanol, import the good stuff. If it wants to be serious about the environment, kill domestic ethanol subsidies and plow the money into technology devoted to making the oil sands cheaper. "The oil sands need enormous investment to make them environmentally sustainable," says Annette Hester, a research fellow at the Canadian International Grains Institute.

The chances of either happening are small. The Canadian and American ethanol policies border on the insane.

Flex fuel reigns in Brazil

In Brazil, 90 per cent of new cars are 'flex-fuel' vehicles - they can burn any combination of gasoline and ethanol.

By 2012, half of the Brazilian car fleet (25 million vehicles) will be flex-fuel vehicles.

Brazilian gasoline contains no less than 25 per cent ethanol.