April 4, 2011

Brazilian Ethanol Certified for use in California

Author: Michael Cordonnier/Soybean & Corn Advisor, Inc.

Several dozen sugar/ethanol mills in Brazil have received certification from the state of California that the ethanol produced from those mills meets the standards set by the state for renewable fuels. This is a critical step needed to be able to import ethanol into California. A total of 43 sugar/ethanol mills in Brazil received the certification and of the total, 39 of those mills are associated with Copersucar and four are associated with the Cosan Group.

The certification was issued by the California Air Resource Board and it certifies that the Brazilian ethanol meets the requirements of the Low Carbon Fuel Standard. In addition to meeting the standards set by the state of California, in order to be able to export ethanol to the United States, the Brazilian ethanol producers must also be registered with the Environmental Protection Agency as part of the Renewable Fuel Standard.

Meeting the standards set by the state of California is an important symbol for the Brazilian ethanol sector. California has the toughest air quality standards in the United States in addition to demanding that renewable fuel in the state also meet the additional requirement of being a low carbon fuel. By meeting those standards, Brazilian ethanol is recognized as being able to meet virtually any fuel standard in the world.

Additionally, California has the largest automobile fleet in the country and it consumes more fuel than any other state in the U.S. Since it is a coastal state, importing ethanol into California would be certainly easier than trying to import it into an interior state. This could also set the stage for other coastal states such as Florida to consider importing ethanol from Brazil.

The Brazilian sugar/ethanol mills certified by the state of California have the capacity to produce 2.98 billion liters of ethanol per year or 11% of Brazil's total ethanol production. The mills registered with the EPA have the capacity to produce 6.21 billion liters per year or 25% of Brazil total capacity.

This all looks good in theory for the Brazilian ethanol sector, but there still remain significant hurdles before large quantities of Brazilian ethanol can be imported into the United States. The largest hurdle is the tariff levied on imported ethanol. This tariff is a highly contentious issue that continues to be attacked by critics of the U.S. ethanol industry. The blender's credit is also a program highly criticized as being a give away to the industry that has outlasted its original purpose. As long as these programs remain in place, it will be difficult to import large quantities of Brazilian ethanol.

Additionally, the Brazilian ethanol industry must also supply the ever increasing domestic market in Brazil. In fact, domestic supplies of ethanol in Brazil are generally very tight during the January to March period when there is no sugarcane being harvested. For the last two years, Brazil has had to import ethanol from the U.S. to meet the domestic demand between harvests. Therefore, Brazilian ethanol producers do not have a large excess supply of ethanol that they are trying to move into the export markets. Brazilian ethanol exports will slowly increase if the production capacity increases faster than the domestic demand.