Part II of Interview With UNICA's Joel Velasco: Corn vs. Sugarcane Ethanol

In this segment of my interview with UNICA's chief U.S. representative Joel Velasco, we discuss Growth Energy's claims, the politics surrounding corn and sugarcane ethanol and tariffs.

ROBERT GLUCK:  What are the main differences between corn ethanol and sugarcane ethanol? 

JOEL VELASCO: The main difference between sugarcane ethanol and other types of ethanol is that it offers the greatest reduction in greenhouse gas emissions in large part because sugarcane is one of the most photosynthetic efficient plants. Let me explain. 

Ethanol is made by fermenting sucrose, the basic building block of sugars, from plants. It takes less energy to manufacture ethanol directly from sugarcane (a one-step process) than from starch in corn (a two-step process). Starch must first be broken down into simple sugars before it can be used to produce ethanol.

A good comparison is how a piece of bread gets very sweet when you chew it for a long time. Sugarcane already contains the essential sugars, so the production process is more efficient.  While corn has an important byproduct in distillers grains (DDG), sugarcane is biomass rich and yields a byproduct known as bagasse that is used for bio-electricity.

Burning this biomass – bagasse – helps make the production mills completely self-sufficient, while generating surplus electricity to supply well over 3% of the country’s growing energy needs.

RG:  You have said, "It's time to address some of the most egregious claims" made by Growth Energy.  In response to my recent three-part interview with Tom Buis, CEO of Growth Energy, can you address what "egregious claims" Growth Energy and Buis have made and, briefly, what your response is to those claims?

JV:  Growth Energy is new trade association representing some ethanol producers that appear to be determined to distort the facts.

There are three areas where Growth Energy tends to grossly exaggerate and unfairly attack the Brazilian ethanol industry, all of which were touched on in your interview:   First, the impact removing the 54-cent per gallon tariff would have on both jobs and the economy.

Growth Energy claims removing the tariff would result in catastrophic job loss and billions of dollars lost in the economy. These over-inflated jobs claims have been debunked so many times that I won’t take the space to address it here now (but for a great analysis, check out what NRDC says about the exaggerations).

What I will add is that eliminating the tariff would help reduce price volatility in the ethanol market and ultimately lower the cost of gasoline in the U.S. since it includes up to 10% ethanol.  Those benefits help all Americans. 

Second, the notion that America would ever be “addicted” to foreign ethanol is laughable. No one other than Growth Energy is talking about America becoming addicted to sugarcane ethanol from Brazil. It’s a false argument designed to play on protectionist fears. 

The United States will consume nearly 13 billion gallons of ethanol this year; while at most, Brazil will produce 7 billion gallons of sugarcane ethanol that must first service a large and growing domestic market.  Not a good equation for addiction, right? 

Under the most optimistic scenarios, sugarcane ethanol would comprise only 5% to 10% of U.S. ethanol consumption, which in turn is a mere 10% of the U.S. gasoline (and in turn half of our crude oil) consumption. Sugarcane ethanol is one more good option for diversifying energy supplies and improving U.S. energy security, so Americans are not reliant on any one product or country. 

Third, that Brazil’s ethanol industry is heavily subsidized. In reality, Brazil’s industry has operated without government subsidy and without price, supply, or demand controls for well over a decade. We’ve gone to great lengths to refute this and other egregious claims about the industry – a detailed rebuttal can be found on our blog at SweeterAlternative.com.

RG:  In a news item listed under the heading “Unspecified ‘Political’ Infuences Cancel Previously Approved Discounted Gasoline Offer of Memorial Day”, posted on your website, one week after approving the event and less than 24 hours after allowing promotional banners to be hung on its property, Capitol Petroleum Group cancelled plans by the Brazilian Sugarcane Industry Association (UNICA) to offer Washington-area residents a discount of 54-cents per gallon on gasoline purchased at two Exxon stations on Capitol Hill. 

A company representative, citing unspecified “political” reasons, abruptly ended UNICA´s plans to help DC drivers keep a little extra money in their pockets for the upcoming Memorial Day weekend.  You were quoted as saying: “ Open market competition and free speech are two fundamental principles that have made the United States a global leader. It´s a shame that those values don´t seem to apply in this situation.”  Please explain to our readers what happened here. Why did Capital’s rep use the word “political” here?

JV:  While we are unclear who or what caused this sudden shift in plans, we have provided a detailed timeline showing how the owners and managers at the gas stations worked with us for weeks – even supervising the installation of banners on their property – and then suddenly changed their mind saying the event had become too “political.” 

Despite our repeated attempts, the owners didn’t explain what they meant, so you’d have to ask them.  One thing is certain: consumers win when businesses have to compete in an open market, because competition produces higher quality products at lower costs. 

We may have been silenced in this instance, but UNICA will continue advocating for open market competition by encouraging Congress to end the 54-cent-per-gallon tariff on imported ethanol. 

Regardless of the unknown influences that cancelled our gas discount event, we were able to honor our commitment to lower prices by offering a gas card giveaway to DC drivers. The response was overwhelming, and we will be offering similar promotions for U.S. consumers throughout the year.

RG:  According to your website, the one-day event would have highlighted the current 54-cent-per-gallon tariff on imported ethanol, which makes gas more expensive for Americans.

“The event would have also educated drivers about the benefits of sugarcane ethanol – a clean and affordable renewable fuel that reduces greenhouse gas emissions by at least 60 percent compared to gasoline and could help the United States cut its dependence on oil from the Middle East. UNICA will continue advocating for open market competition by encouraging Congress to end the 54-cent-per-gallon tariff on imported ethanol.”

Why did Congress legislate the 54-cent tariff on imported ethanol? What are UNICA’s chances when it comes to ending it?

JV:  The original intent of the tariff (created by Congress 30 years ago) on imported ethanol was to offset the tax credit, and ensure that America was not subsidizing foreign producers. For many years, the tax credit and tariff remained at parity, but in 2004 the credit was reduced to 45 cents per gallon.

This inequality amounts to a true trade barrier that puts Brazilian ethanol at a competitive disadvantage. If the justification of the tariff is to remove U.S. taxpayer support of foreign producers, one has to question the merit of this purely punitive measure. 

In terms of ending the tariff, 2010 looks to be our best shot ever. The chorus of opposition continues to swell, and the broad spectrum of support includes conservatives, progressives, and meat producers, among others. It is promising to see such strange bedfellows in agreement, and reinforces the idea that our current policy is amiss.  After three decades of subsidies and protectionism, ethanol is not a nascent industry. 

You can read the other segments of my interview with Joel Velasco here:

• Part I of Q & A With UNICA's Joel Velasco: "UNICA's Mission and the Fiery Biofuel Industry"

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