Sweet Energy, Sour Politics

Barbados has developed a new breed of sugarcane which is specifically intended for use as fuel. “Developed” is probably not the right word, though…selective sugarcane breeding has been conducted on the island for generations in an effort to improve the crop’s value for sugar production. Happily, intermediate breeds have been kept in a museum, and one of them turned out to be excellent for its fuel value.

Primary use of the “new” sugarcane will be boiler fuel for an electric power plant; it is also usable for ethanol production.

Meanwhile, back here in the US, we have a tariff on ethanol imports: 2.5% plus 54 cents per gallon. There are exemptions to this tariff for 24 countries designated in the Caribbean Basin Initiative: the requirements are complex, but basically, imports from these countries are duty-free if they are based on local feedstocks (as with the Barbados sugarcane), whereas there are caps on the duty-free quantities if the feedstock originates elsewhere (like Brazil) and is merely processed in a Caribbean nation.

According to this article, ethanol costs $.87/gallon FOB a Brazilian port. By the time it gets to a US port, the cost is $1.01/gallon, with the difference being the ocean freight charges. However, the tariff brings the actual cost to $1.58/gallon…thus, the tariff is a huge portion of the overall landed cost: you are paying four times as much for the tariff as you are for ocean freight over thousands of miles!

I can’t tell from the article how much is saved by processing in a Caribbean country to benefit from the CBI exemptions; presumably, at least some of the tariff savings are offset by the need for an additional stage in the logistics pipeline.

Given the current emphasis on alternatives to petroleum, putting huge tariffs on ethanol imports doesn’t sound very bright to me. Clearly, US agriculture interests are concerned about the competition: however, a more aggressive approch to the use of ag-based fuels could expand the demand pie and benefit everyone.

By the way, the article linked above, from the Iowa Farm Bureau, is a very well-written and well-balanced analysis of the ethanol import issue.

6 thoughts on “Sweet Energy, Sour Politics”

  1. Why do I have an awful feeling some particular folks in powerful positions will screw up this entire concept? First appearances, at least, always spark the imagination. Mine is, certainly. However, there’s always a jerk lurking in a dusty corner of Congress , somewhere, who will attempt to obfuscate any notion of new energy sources.

  2. Peter Huber recently argued in the WSJ that petroleum, gas and coal would continue to be the main sources of energy in our economy. Huber’s argument was thoughtful and well supported. Senator Lugar wrote a letter in response in which he asserted without evidence that Huber was wrong and that ethanol will and should be a major energy source. I don’t know if Lugar believes his own argument but, as a representative from a major grain-producing state and Senate Agriculture Committee member, he probably either felt compelled to defend farming interests or was asked to write (or even supplied with) the letter by lobbyists. In this political climate I think it’s going to be difficult to get tariffs on imported ethanol reduced.

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