VZCZCXRO1898
RR RUEHRG
DE RUEHBR #0905/01 1411957
ZNR UUUUU ZZH
R 211957Z MAY 07
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC 8976
INFO RUEHSO/AMCONSUL SAO PAULO 9906
RHEBAAA/DEPT OF ENERGY WASHDC
RUEHRI/AMCONSUL RIO DE JANEIRO 4412
RUEHRG/AMCONSUL RECIFE 6666
RUEHRC/USDA WASHDC

UNCLAS SECTION 01 OF 04 BRASILIA 000905 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
STATE FOR TMANUEL 
STATE FOR OES/SAT 
STATE FOR WHA/BSC FOR WPOPP 
STATE FOR WHA/PD FOR JRUSSO 
STATE FOR WHA/MEX FOR FCORNEILLE 
STATE PLS PASS TO DOE/PI FOR CGILLESPIE 
STATE PLS PASS TO DOE/EE/GERMANTOWN HQ FOR CGILLESPIE 
STATE PLS PASS TO DOE/NREL FOR HCHUM 
STATE PLS PASS TO DOE FOR GWARD 
TREASURY FOR OASIA-DAS LEE AND JHOEK 
USDOC FOR 4332/ITA/MAS/WH/OLAC 
3134/ITA/USCS/OIO/WH/RD 
USDA FOR FAS WASHDC 
STATE PASS USTR: SCRONIN 
 
E.O. 12958: N/A 
 
TAGS: TRGY ENRG SENV EAGR ETRD KSCA US BR
 
SUBJECT: DEPARTMENT OF ENERGY'S A/S KARSNER VISITS BRAZIL TO JUMP 
START BIOFUEL COOPERATION 
 
REF:  (A) STATE 51101, (B) STATE 51237, (C) STATE 50729, (D) STATE 
 
51681; (E) BRASILIA 433 
 
SENSITIVE BUT UNCLASSIFIED 
 
¶1.  (SBU) Summary:  During Assistant Secretary Karsner's April 
23-25, 2007, visit, he was able to meet with a broad spectrum of 
policymakers representing state and federal government plus those 
from the private sector who make up Brazil's biofuel power elite. 
Beginning with meetings in Sao Paulo with state government and 
ethanol industry officials and ending with the federal policy makers 
in Brasilia, he delivered the message that the United States is 
serious about cooperation with Brazil on biofuels, and that his goal 
for the visit was to take back specifics on the kind of 
collaboration Brazil envisioned.  The Assistant Secretary's ' let's 
get down to business ' style was refreshing, and enormously helpful 
to Mission objectives in getting the GoB to focus in on developing 
immediate, specific next steps toward implementation of the biofuels 
MOU signed by Secretary Rice and Foreign Minister Amorim in March. 
End Summary. 
 
¶2. (U) Other members of the DOE Office of Energy Efficiency and 
Renewable Energy (EERE) team traveled with A/S Karsner and included 
Courtney Gillespie, Office of Policy and International Affairs; 
Bradley Barton, Office of Commercialization and Deployment; Michael 
Mills, Program Analyst and Dr. Helena Chum, Group Leader in DOE's 
National Renewable Energy Laboratory in Colorado. 
 
Sao Paulo State and Private Sector Meetings 
- - - - - - - - - - - - - - - - - - - - - - 
 
¶3. (SBU) Although A/S Karsner had only one full day of meetings in 
Sao Paulo, he was able to interact with many of the key players in 
the state's biofuels sector.  At a luncheon hosted by Consul General 
McMullen, the Assistant Secretary heard from Jose Goldemberg, the 
newly appointed chief of a special commission on Bioenergy created 
by SP Governor Jose Serra with a mandate to promote science and 
technology investment in the biofuels industry.  Also present was 
Carlos Henrique Brito Cruz, President of Brazil's largest science 
and technology scholarship foundation.  Brito, whose foundation by 
law receives one percent of Sao Paulo state's tax revenues, for an 
annual budget of approximately USD 300 million, outlined six main 
areas of on going research.  Both Goldemberg and Brito supported the 
goal of Presidents Bush and Lula to jump start academic exchanges 
between our respective technical and educational institutions. 
Helena Gasparian, foreign affairs advisor for the Governor, 
emphasized that the State of Sao Paulo produced the most ethanol 
(almost two-thirds of Brazil's entire production), was home to the 
major equipment manufacturers and had numerous technical, 
educational and research institutions. 
 
¶4. (SBU) William Lee Burnquist of the Cane Technology Center 
described the political advantages to be gained by using ethanol to 
stimulate development in other countries, especially in the 
Caribbean.  Brazil has a compelling interest in seeing ethanol 
develop into a world commodity with a greatly expanded market, he 
said, which won't happen until other countries begin to produce it. 
The two sides agreed to work to identify researchers in 
ethanol-related technologies and processes for future collaboration. 
 
 
¶5. (SBU) At a subsequent meeting with Brazilian auto executives from 
GM, FORD and VW, A/S Karsner was told that Brazil's success in 
reaching the point where 80 per cent of new passenger cars had the 
capability to run on pure gasoline, pure ethanol or any combination 
in between, was the result of an unusually close thirty year 
collaboration between their industry, government and research 
institutions.  A/S Karsner explained the Administration's graduated 
plan to increase the percentage of ethanol in the fuel for passenger 
 
BRASILIA 00000905  002 OF 004 
 
 
cars. 
 
¶6. (SBU) The President of the Sao Paulo Sugarcane Agroindustry 
Association, UNICA, told the DOE delegation that Brazilian investors 
were hesitant to invest in the Caribbean (as a means of getting 
around the 54 cent tariff on ethanol shipped directly from Brazil) 
because after significant investments in the region the situation 
could change.  The U.S. might remove the tariff and Brazil would no 
longer need the Caribbean, or the U.S. corn growers' domestic lobby 
could cut off that region's tariff-free status.  In addition, Brazil 
presently exports less than 20 per cent of production so seeking 
export outlets is not viewed as an urgent priority. 
 
¶7. (SBU) Ricardo Dornelles, Director of the Department of Renewable 
Fuels for Brazil's Ministry of Mines and Energy (MME), who attended 
the International Partnership for the Hydrogen Economy (IPHE) 
conference with the DOE delegation, met A/S Karsner, and said MME 
would like to approach the Inter-American Development Bank about 
funding feasibility studies in third countries to ease the anxieties 
of potential private sector investors.  In addition, he believed the 
bilateral dialogue should not be limited to biofuels, but should 
cover all fuels for transportation.  Dornelles would like to see 
Brazil investigate the possibility of exporting gasoline to the 
United States.  Referring to the MOU signed in 2003 establishing a 
bilateral Energy Working Group (EWG), both agreed to discuss whether 
that agreement had been superseded by recent events. 
 
¶8. (SBU) The following day, on the margins of the International 
Partnership for the Hydrogen Economy International Conference, A/S 
Karsner met with two private sector groups. One large cane growing 
company, COSAN, expressed reservations about Brazil's ability to 
easily direct the new influx of foreign investment funds into 
increased production of ethanol. COSAN also pointed to the 
possibility of a sugar supply glut due to the sheer number of new 
projects or planned expansions.  Another smaller group of new 
investors were extremely positive about the market's future. 
 
¶9. (SBU) A/S Karsner also spoke with Brazil's former Agriculture 
Minister, Roberto Rodrigues, Co-chair with former Florida Governor 
Jeb Bush, of the Inter-american Ethanol Commission.  Rodrigues said 
a waiting period before the tariff on ethanol is removed may provide 
time to ease the apprehension of U.S. corn growers.  Rodrigues urged 
the Assistant Secretary to consider third country partnerships with 
African countries, as China and the EU are already doing. 
 
Brasilia and Federal Government Meetings 
- - - - - - - - - - - - - - - - - - - - - 
¶10. (SBU)  During an early morning meeting at the Ministry of 
Agriculture research institute EMBRAPA,  Executive Director Jose 
Geraldo Eugenio de Franca emphasized  EMBRAPA's eagerness to 
collaborate on agriculture research. As a first step, EMBRAPA 
suggested the establishment of a bilateral working group 
facilitating visits by researchers to each others facilities to 
investigate possible areas for future collaboration. 
 
¶11. (SBU) At Brazil's Foreign Ministry, the Director of the 
Department of Energy, Minister Anttnio Josh Ferreira Simes welcomed 
A/S Karsner, the delegation, Ambassador Sobel and U.S. Embassy 
Counselors Norman and Hrapsky.  They discussed the importance of 
scientists from both countries working together to develop a paper 
on the impact of the increased use of biofuels on greenhouse gases. 
A/S Karsner and Ambassador Simes agreed to push back until June the 
date for a group of Brazilian scientists to visit renewable energy 
laboratories in the United States.  A/S Karsner suggested that the 
two countries hold quarterly technical workshops, each with a 
different biofuels focus.  Both agreed that the governments have an 
important role to play in smoothing out roadblocks in the renewable 
energy market easing private sector concerns to encourage 
investment.  One key area would be in the establishment of global 
 
BRASILIA 00000905  003 OF 004 
 
 
biofuels measures and standards.  As the United States and Brazil 
move forward bilaterally, the two countries should loop in South 
Africa, India and China.  As the meeting closed, Ambassador Sobel 
suggested that A/S Karsner return to Brasilia to continue 
discussions. 
 
¶12. (SBU) In the March 31, 2007 Camp David meeting, both Presidents 
Bush and Lula urged that bilateral cooperation between technical 
training institutions be accelerated.  A/S Karsner and Ambassador 
Sobel visited Brazil's Ministry of Education to meet with leaders 
from the Ministry and CAPES (Brazil's higher education scholarship 
agency, which is also the GoB partner in the Fulbright program). 
A/S Karsner described his offices research projects, which could 
also include international participation.  Ambassador Sobel 
suggested to CAPES head Jorge Guimaraes that Brazil select research 
institutions to meet with A/S Karsner during his next trip to 
Brasilia. They agreed that CAPES would work with the Embassy's 
Public Affairs section and DOE delegation member Bradley Barton to 
organize a seminar or digital video conference between U.S. and 
Brazilian universities to discuss details of how to facilitate 
cooperation and exchanges. 
 
¶13. (SBU) At lunch at the residence of Ambassador Sobel, Brazilian 
Senate Biofuels Subcommittee President Joco Tenrio pledged to push 
for the creation of a group to serve as a liaison with the U.S. 
Congress concerning discussions of ethanol. 
 
¶14. (SBU) The A/S's final meetings in Brasilia were with Alessandro 
Teixeira, President of the Brazilian Agency for Industrial 
Development (ABD), Presidential Chief of Staff Dilma Rousseff, Vice 
Minister of Mines and Energy Nelson Hubner, and Ambassador Raymundo 
Magno (Rousseff's chief foreign policy aide).  The discussion 
centered upon possibilities for cooperation with respect to research 
and development of biofuels, specifically ethanol.  A/S Karsner 
stated that during his trip to Brazil he had met with government 
officials, researchers, and private sector leaders all active in the 
field of renewables.  Within the U.S., he continued, his bureau 
oversees a multi-year $1.6 billion biofuel research program and a 
$1.5 billion annual budget.  Indeed, USDOE has established a $13 
billion portfolio of loan guarantees aimed at advancing the 
commercial use of ethanol in the United States.  He noted that the 
USG had announced the construction of six commercial-scale 
cellulosic ethanol plants scattered across the U.S., capable of 
producing 80 million liters of ethanol per year.  Rousseff stated 
that the GOB was enthusiastic about the prospects for cooperation 
with the U.S., adding that Brazil would like to promote 10% use of 
ethanol fuel worldwide.  She looked forward to continued efforts to 
follow up on the bilateral Memorandum of Understanding signed by 
Secretary Rice and Foreign Minister Amorim during the President's 
 
SIPDIS 
March 8-9 trip to Sao Paulo. 
 
Media Coverage 
- - - - - - - 
 
¶15.  (U) The April 26, 2007, Valor Econtmico, ran a lengthy story 
under the headline 'Advances in the Ethanol Partnership with the 
USA.' The story quotes A/S Karsner as saying that his presence in 
Brazil is 'an important political sign' of U.S. commitment to a 
partnership with Brazil on biofuels and that he had been charged by 
President Bush to set the stage for collaboration with counterparts 
in Brazil.  The article says that President Bush's commitment to 
biofuels is an immediate business plan, not a vision for the future, 
with a short timeframe. When asked about the Brazilian desire to see 
U.S. tariffs on ethanol lifted, Karsner said that, although this is 
an issue to be decided by the U.S. Congress, the issue of tariffs 
should not determine the bilateral relationship.  It is more 
important to have a broader strategic discussion. 
 
¶16.  (U) This cable was cleared by A/S Karsner's delegation prior to 
 
BRASILIA 00000905  004 OF 004 
 
 
transmission. 
 
SOBEL