Brazilian Lawmakers Mull Expanded Ethanol Tariff

(Argus Media) Mato Grosso state congressman Fabio Garcia presented a bill that would remove Brazil's 600mn liter/year (10,339 b/d) tariff exemption on imported ethanol, a move that would hurt imports from the US. The bill is seen as a response to the US administration's recent decision to tax imported steel and aluminum. Brazil is the second largest steel exporter to the US after Canada and its industry will be hardest hit by the protective tariff.

Since 1 September 2017, ethanol imports beyond 150mn t/quarter have been subject to a 20pc tariff. If the bill is approved, all imported ethanol will face the tariff. READ MORE

Excerpts from Ethanol Producer Magazine/UNICA) China and Europe recently closed their biofuel markets, making Brazil the only major market that was open to receive excess ethanol supplies. Because of this domino effect, ethanol imports to Brazil skyrocketed in 2017. Brazil received triple the amount of foreign ethanol last year than it did in 2016 and five times more than 2015 imports.

Long term, UNICA wants to address this challenge by removing trade barriers and working with other international leaders to expand free trade of biofuels. But in the short term, Brazil’s government needed to act for two reasons:

• Environmental: Brazil intends to fulfill its commitments made under the 2015 Paris Climate Agreement and had to safeguard against displacing lower-carbon fuels with higher-carbon fuels.

• Economic: The Brazilian sugarcane sector generates nearly 1 million direct jobs and is still recovering from a crippling financial crisis during which approximately 20 percent of sugarcane mills closed.

A Fair Compromise
As Brazilian officials mulled options for how best to respond, UNICA worked to moderate extreme positions and produce a fair compromise. We advocated—and the Brazilian government adopted—a temporary response that still allows a large volume of duty-free exports into Brazil.

Up to 158.5 million gallons of foreign ethanol can still enter Brazil annually without paying any import tax. For two years starting last September, volumes above that amount will pay a 20 percent tax. But there is no limit on the total volume of foreign ethanol that can be exported to Brazil.

The annual duty-free limit of 158.5 million gallons equals Brazil’s average annual ethanol imports from 2014 to 2016. In practice, the TRQ maintains what was the status quo before the 2017 spike, while protecting Brazil’s environment and economy from such an unwelcome surge generated by other closed markets. UNICA views this temporary response as a reasonable compromise that moderates what would have been harsher alternatives, such as imposing a 20 percent import tax on all ethanol as allowed by Mercosur policy.

The duty-free limit resets quarterly, and so far, the TRQ system appears to be working as intended. During the first three months under the new policy (September to November 2017), Brazil imported the maximum 39.6 million gallons allowed to enter duty free each quarter. An additional 26.7 million gallons also entered the country during that time, with a 20 percent import tax.

What’s Next
UNICA remains committed to removing trade barriers and working together with other biofuel leaders toward our ultimate goal of a global market for clean, renewable fuels. For starters, we will continue to collaborate with our allies and competitors on opening Asian markets, which should generate billions of gallons of new demand.

Finally, our organization is optimistic that RenovaBio—a new program in Brazil modeled on both the U.S. Renewable Fuel Standard and California’s Low Carbon Fuel Standard—will be a game changer. By providing more predictability for investors and incentives for technological innovation, RenovaBio should stabilize Brazil’s sugarcane sector and benefit global biofuels players. READ MORE