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October 27, 2011

107 Brazilian Ethanol Mills Approved to Export Ethanol to the U.S.

Brazilian ethanol producers have sought and obtained approval from the United States Environmental Protection Agency (EPA) to export their products to the United States. The approval process is part of the Renewable Fuel Standard, which sets the standards for renewable fuels utilized in the U.S. The EPA has already recognized that the ethanol produced in Brazil is an advanced biofuel with greenhouse gas emissions reduced as much as 91% compared to gasoline.

As of early October 2011, 107 sugar/ethanol mills in Brazil have been approved by the EPA, which is significantly higher than the 55 mills that had been approved as of February of 2011. This increase in approvals is a reflection of the interest in utilizing sugarcane-based ethanol and its low carbon footprint.

The principal market for Brazilian ethanol in the U.S. will probably be the state of California due to its stringent air quality standards, but the state of Florida is also considered a potential market. The air quality standards in California are the toughest in the country, which would be advantageous for the use of Brazilian ethanol.

In order to export ethanol to California, a separate approval must be obtained from the California Air Resources Board certifying that the sugar/ethanol mill meets the state's Low Carbon Fuel Standard (LCFS). Thus far, 44 sugar/ethanol mills in Brazil have met the LCFS standard, which means they are eligible to export ethanol to California.

But, just because a mill has met the LCFS standard doesn't mean that it will be automatically exporting ethanol to the United States. Exports will be determined by the price relationship between ethanol in Brazil and in the U.S. Currently, Brazil is running a deficit of ethanol production and as a result, ethanol prices are very high in Brazil. The deficit is the result of adverse weather over the last three growing season and an aging sugarcane crop in Brazil. Renovation of Brazilian sugarcane fields has declined since the worldwide economic problems started in 2008

Turning around ethanol production in Brazil will not be easy or quick. Due to the long-term nature of sugarcane production and the high cost of constructing new sugar/ethanol mills, industry officials expect that it will take 3-5 years of significant investments in new production and mill construction just to meet the increased domestic demand for ethanol in Brazil. As a result, ethanol exports to the U.S. are expected to remain low in the near term.

Long-term prospects are unclear, but one thing is certain, these approvals are essential if Brazilian producers want to export their product to the U.S. in the future.