Cablegate: Ambassador Hosts Biofuels Roundtable

DE RUEHRI #0564/01 2711519
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E.O. 12958: N/A

1. (U) Summary. On July 13, U.S. Ambassador Clifford Sobel hosted a
roundtable on biofuels with representatives from Brazil's public,
private, and academic sectors. The event marked the initiation of a
dialogue to explore areas for strategic cooperation on research,
development and commercialization for the next generation of
biofuels. The discussion centered around three areas: 1) creating
stable sources for supply for a new global biofuels market, 2)
overcoming opposition to biofuels, and 3) addressing national and
regional differences by creating a framework to harmonize standards
and build international cooperation. Mission Brazil will explore
additional opportunities to continue building a new partnership
between Brazil and the United States on ethanol and biofuels. End

2. (U) Following up on the March 2007 US-Brazil Biofuels MOU signed
by Secretary Rice and Brazilian Foreign Minister Celso Amorim,
Ambassador Sobel launched on July 13 the first in a series of
dialogues bringing together representatives from the public, private
and academic sectors to discuss biofuels cooperation. Specifically,
discussion was focused on research and development (R&D) and

3. (U) Visiting U.S. Department of Energy (DOE) officials Brad
Barton, Director of Commercialization and Deployment for Renewable
Energy, and Dr. Dan Arvizu, Director of the National Renewable
Energy Laboratory (NREL) participated and presented the U.S.
Government's latest public initiatives for ethanol and biofuel
development. 23 Brazilian participants attended, including
executives from Petrobras and its subsidiaries BR and Transpetro;
the Petrobras Research Center CENPES; US and non-US oil and biofuel
companies Chevron, Shell, BRENCO, and Brasil Ecodiesel; the
Brazilian National Oil, Gas, and Biofuel Regulatory Agency ANP;
Brazilian Energy and Agricultural Research Institutions EPE and
EMBRAPA, and several other key Rio-based biofuels players.

Creating Stable Sources of Supply

4. (U) Ambassador Sobel emphasized the importance of increasing the
use of ethanol and biofuels given that the world consumes 79 billion
of the 81 billion barrels of oil produced per day. Additionally
with China's demand on the rise and projected to soon surpass that
of the United States, secure sources of supply will be even more
important. Various roundtable participants highlighted their own
biofuels programs and discussed ways to increase cooperation.

5. (U) Petrobras representatives noted that about 10% of the
company's annual budget (about US$ 1.5 billion/year) goes to
renewable energy. By the end of 2007, Petrobras expects to bring
its three first biodiesel plants online. It is also developing
studies with the private sector to build new plants to allow the
company to reach the B2 and B5 biodiesel mix to diesel by 2008. In
the last few years, Petrobras has increased the number of its BR gas
stations offering biodiesel in Brazil from three to 5,000.

6. (U) Brazil's National Petroleum, Gas and Biofuel Regulatory
Agency (ANP) is the regulatory body that controls product quality.
ANP currently certifies an ethanol/gasoline mix of 20-25%
ethanol/75-80% gasoline. The ANP participant highlighted that ANP
has approved 30 biodiesel producers to date; another 50 are under
review. ANP has also recently approved eight new biodiesel
projects. For example, the state of Sco Paulo is testing a new
biofuel blend for buses, referred to as bio-oil (produced by
BR/Petrobras Distribuidora), which contains 32% biodiesel/8%
ethanol/62% diesel. ANP representatives also stated that Brazil has
351 ethanol producers that generate 18 billion liters/year, of which
15 billion liters are for internal Brazilian consumption and 3
billion liters are for export.

7. (U) A representative from the Brazilian Renewable Energy Company
(BRENCO), a five-month old company that produces and distributes
ethanol and biofuels, said that BRENCO plans to produce four billion
liters of ethanol per year. BRENCO is also on the cutting edge of
that sector in Brazil, exploring production of the next generation
of cellulose-based ethanol and it is signing confidentiality
agreements with some U.S. companies to that end. BRENCO is focused
on creating a sustainable supply to inspire investor and market
confidence that would then be the basis for creating a global market
for ethanol and biofuels. In BRENCO believes Brazil's supply
capacity for ethanol will outpace demand, so a key Brazilian role is
to create worldwide demand. By 2015, Brazil could supply 12 percent
of the global market. In that context, a U.S.-Brazil partnership
would be critical for creating a global market for ethanol and
biofuels, and that it is essential to create a mechanism for ethanol

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producers (i.e. U.S. and Brazilian farmers) to become reliable

8. (U) Another investment company, UBS Pactual Bank, is confident
that investments will flow into stock in various projects, into the
construction of new ethanol plants (estimated at 230), and into
logistics expansion. UBS Pactual also believes that a growing
demand for flex-fuel cars will increase demand for ethanol, but
cautioned that the world market must have credibility and stability
to accommodate potential price spikes if supply is compromised by
climate conditions. UBS Pactual further commented that governments
can help stabilize markets by controlling demand growth for ethanol
and biofuels, but the international flow from producer to consumer
is not obvious or guaranteed, especially with market-distorting
mechanisms such as the U.S. tariff. Department of Energy officials
responded that the current ethanol price mechanism of US$0.51 per
gallon aims to stimulate local oil companies to buy biofuels from
domestic production. The $0.54 tariff on imports is actually an
offset to pay for domestic incentive.

Overcoming Opposition to a Global Biofuels Market
--------------------------------------------- ----

9. (U) A Brazilian delegate to the Interovernmental Panel on
Climate Change (IPCC), whic is studying the potential impact of
increased ethanol and biofuels production, also participated. he
identified specific concerns about the real ptential for biofuels
and the need to address cerain issues in order to have a positive
impact. hese included the designation of land to ethanol an
biofuel crops, and the impact of biofuels on clmate change (i.e.,
the speed of production willdetermine how quickly we can lessen
harmful carbon emissions).

10. (U) Sensitive to allegations that increased ethanol production
would damage the Amazon rainforest and drive up food prices, a
Petrobras participant indicated that Brazil needed to define
agricultural zones and social ramifications. (Note. Shortly after
the event, the GOB released a map of zones where sugar cane
plantations are prohibited because conditions in those areas are
considered inadequate for sugar cane. New sugar plantations and
ethanol plants will require a social-environmental certification
from the Brazilian standards institute INMETRO. End Note.)

11. (U) Brasil Ecodiesel, Brazil's largest biodiesel producer
pioneer in biodiesel production in the country, highlighted the
social aspect of biodiesel production. Its program has 57,000
farmers planting castor for Brasil Ecodiesel plants in six Brazilian
states. DOE officials noted that biofuels became politically
acceptable in the United States once the benefits to farmers became

Next Steps

12. (U) All participants acknowledged that better coordination among
government agencies in both Brazil and the United States is
necessary to develop markets with guaranteed sources of supply,
environmental regulations, harmonized standards, and IPR protection
- all in partnership with the private sector and the academic

13. (U) Amb. Sobel asked Barton and Arvizu to take the lead on
working with Brazil's biofuels community to explore areas of
strategic cooperation and to develop concrete ideas for follow up.
Barton suggested the best areas for next steps included developing
partnerships between US and Brazilian universities and research
institutions, beginning with NREL and CENPES (Petrobras' research
center) launching a scientific exchange program in August 2007.
Potential joint research programs could include exploration of
second generation lignocelulose ethanol, and finding ways to reduce
the corrosiveness and volatility of ethanol.

14. (U) Commerce's NIST will work with Brazilian and international
standards bodies (ANP, INMETRO and ABNT) and the parties to the
International Biofuels Forum to create compatible standards by the
end of 2007 as a basis for a new global biofuels market. EMBRAPA
plans to work with USDA to find ways to create a sustainable
production system with increased crop yields. Once global supply
sources are secured, discussions will begin on supply contracts. To
that end, Barton suggested engaging the Pipeline Research Council
(PRCI) to develop further U.S. infrastructure to accommodate
increasing amounts of ethanol and biofuels in the U.S. fuel mix.

15. (U) This message was cleared/coordinated with Embassy Brasilia.

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