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Cablegate: Codel Markey Explores Brazilian Biofuels and Flexfuel

VZCZCXRO5669
RR RUEHRG
DE RUEHRI #0043/01 0641919
ZNR UUUUU ZZH
R 041919Z MAR 08 ZDK
FM AMCONSUL RIO DE JANEIRO
TO RUEHC/SECSTATE WASHDC 4365
INFO RUEHBR/AMEMBASSY BRASILIA 0724
RUEHSO/AMCONSUL SAO PAULO 5134
RUEHRG/AMCONSUL RECIFE 3412

UNCLAS SECTION 01 OF 02 RIO DE JANEIRO 000043

SIPDIS

SIPDIS

NSC WASHDC
USDOC WASHDC
USDOE WASHDC
USDA WASHDC

STATE FOR WHA/BSC, WHA/EPSC AND GREG MANUEL
EB/ESC JAMES EIGHMIE
USDOC FOR 4332/ITA/MAC/WH/OLAC/JANDERSEN/ADRISCOLL/MWAR D
USDOC FOR 3134/ITA/USCS/OIO/WH/RD/DRAMBO
USDOE FOR RHIA DAVIS AND CAROLYN GAY
USDA for U/S FFS KEENUM AND FAS ADM YOST

E.O. 12958: N/A
TAGS: ENRG EPET PREL BR
SUBJECT: CODEL MARKEY EXPLORES BRAZILIAN BIOFUELS AND FLEXFUEL
AUTOMOBILES IN RIO DE JANEIRO


RIO DE JAN 00000043 001.2 OF 002


1. Summary: On February 18-19 Rep. Ed Markey (D-MA), Chair of the
Select Committee on Energy Independence and Global Warming, led a
congressional delegation to Rio de Janeiro to learn more about the
market aspects of Brazil's sugarcane ethanol industry, renewable
energy policy, flexfuel automobile technology, and next steps in
biofuel research. Other members of the delegation were: Rep. Thomas
Davis (R-VA), Rep. Lois Capps (D-CA), Rep. Barbara Cubin (R-WY),
Rep. Michael Ferguson (R-NJ), and Ref. Jeff Flake (R-AZ). The
delegation met with representatives of the Sao Paulo Sugarcane
Agroindustry Union (UNICA), Brazil's Energy Planning Office (EPE),
the Brazilian National Association of Automakers (ANFAVEA), and
Petrobras' Research and Development Center (CENPES). End Summary.

THE ARGUMENT FOR SUGARCANE ETHANOL
----------------------------------

2. Sugarcane production does not pose an environmental or
deforestation threat in Brazil, said Dr. Mauricio Tolmasquim,
Director of Brazil's Energy Planning Office (under the Ministry of
Mines and Energy). Current sugarcane and ethanol production is
predominantly concentrated in the center-south region around the
state of Sao Paulo. To meet increased demand for ethanol, Brazil
plans to use degraded pasturelands for sugarcane production.
According to industry analysts, an additional 200 million acres of
pastureland could be shifted relatively quickly for sugarcane
production. This estimated area lies outside of the Amazon Biome
Region.

3. In addition to being a renewable source of energy, ethanol is a
low-pollutant fuel and actually reduces overall greenhouse gas
emissions. According to Marcos Jank, CEO of the Sao Paulo Sugarcane
Agroindustry Union (UNICA), sugarcane is the most competitive
feedstock to produce ethanol because of its higher yield and low
cost (competitive at US$ 40 the barrel of crude). It also has very
positive energy and environmental balances. UNICA represents 108
members, which are responsible for 50% of the Brazilian alcohol
production and 60% of the Brazilian sugarcane and sugar production.
UNICA urged CODEL Markey to consider commoditization of ethanol
markets, increased technical and scientific cooperation, and common
standards. Although the U.S. and EU have set up new governmental
incentive programs on biofuels, UNICA argued that the global ethanol
market continues to be small and very volatile in the short term due
to high tariff and non-tariff barriers.

4. Rep. Capps was particularly interested in the idea that biofuels
represent an opportunity for developing countries. By growing
sugarcane, nearly 100 countries could potentially become biofuel
suppliers as opposed to the current 20 oil producers who provide
fossil fuels to the rest of the world. Brazil is already reaching
out to Angola and Mozambique because these countries have excellent
conditions for sugarcane production, according to UNICA.

BRAZILIAN CONSUMERS CHOOSE FLEXFUEL CARS
----------------------------------------

5. CODEL Markey was interested in learning more about the
popularity of flexfuel cars in Brazil and what, if any, specific
government policy decisions were made to provide an incentive for
the Brazilian public to purchase flexfuel cars. Flexfuel cars were
first introduced in Brazil in 2003 (by an American automaker). Now,
there are 10 brands and 63 models on the Brazilian market. Eduardo
Feijo of the Brazilian National Association of Automakers (ANFAVEA)
explained that these vehicles run on gasoline, ethanol (E100), or
any blend of gasoline and ethanol (from E22 to E100). Through
special electronic sensors, the on-board computer recognizes the
fuel and properly adjusts the engine combustion parameters without
any action required from the driver.

6. Dr. Tolmasquim, who was Deputy Minister of Energy from 2003-05
(when flexfuel cars were introduced in Brazil), recalled that no
specific government action was taken to support flexfuel cars.
Rather, the push came from the automakers themselves. Feijo added
that the popularity of the flexfuel car in Brazil is a phenomenon
that is entirely attributed to consumer choice. The delegation was
able to see several models of flexfuel vehicles at the Petrobras
Research and Development Center (CENPES), where cars were being
tested for biofuel efficiency.


RIO DE JAN 00000043 002.2 OF 002


BIOFUELS RESEARCH
-----------------

7. In addition to visiting a flexfuel automobile testing lab, CODEL
Markey visited an ethanol from sugarcane bagasse pilot plant at
CENPES. Bagasse, the leftover sugarcane biomass after juice is
extracted, is currently burned to produce heat energy to power sugar
mills. Petrobras hopes to develop commercially a viable method to
process excess bagasse into ethanol. According to Carlos Thadeu
Fraga, CENPES Director, Petrobras estimates that bagasse can yield
an additional 40 percent more ethanol per unit of sugarcane than
current methods. Other biofuel-related R&D projects at CENPES
include biodiesel, HBIO (vegetable/animal oil hydrogenation, and
non-conventional bioethanol (lignocellulosic bioethanol, castor seed
cake bioethanol and synthetic biofuel).

8. This message was cleared/coordinated with Embassy Brasilia.

MARTINEZ

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