VZCZCXRO2637
RR RUEHRG
DE RUEHSO #0314/01 1701726
ZNR UUUUU ZZH
R 181726Z JUN 08
FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 8324
INFO RUEHBR/AMEMBASSY BRASILIA 9456
RUEHRG/AMCONSUL RECIFE 4139
RUEHRI/AMCONSUL RIO DE JANEIRO 8760
RUEHBU/AMEMBASSY BUENOS AIRES 3183
RUEHAC/AMEMBASSY ASUNCION 3431
RUEHMN/AMEMBASSY MONTEVIDEO 2729
RUEHSG/AMEMBASSY SANTIAGO 2431
RUEHLP/AMEMBASSY LA PAZ 3842
RUCPDOC/USDOC WASHDC 3114
RUEATRS/DEPT OF TREASURY WASHDC
RHMFIUU/DEPT OF ENERGY WASHDC
RUEHRC/USDA FAS WASHDC 0733
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC

UNCLAS SECTION 01 OF 05 SAO PAULO 000314 
 
SIPDIS 
SENSITIVE 
 
STATE FOR WHA/BSC, WHA/EPSC FOR FCORNEILLE, E FOR GMANUEL, 
EEB/ESC/IEC FOR BHAENDLER 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS DOE/NREL FOR HCHUM 
DEPT OF TREASURY FOR JHOEK, BONEILL 
DEPT OF ENERGY FOR AMIRANDA, GWARD, CGILLESPIE 
 
E.O. 12958: N/A 
TAGS: ENRG EAGR ECON EINV TRGY BR
SUBJECT: U.S. SCIENTISTS VISIT BRAZIL FOR MOU ON BIOFUELS 
 
REF: BRASILIA 0126; BRASILIA 097; 07 BRASILIA 1826; 07 BRASILIA 905. 
 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
Summary 
------- 
 
¶1.  (SBU) As part of the U.S.-Brazil Memorandum of Understanding to 
Advance Cooperation on Biofuels, a U.S. delegation of eight 
scientists and engineers from the Departments of Energy and 
Agriculture visited Sao Paulo and Rio de Janeiro states from May 30 
to June 6.  Their visit follows a similar one by a delegation of 
Brazilian scientists to U.S. renewable energy laboratories in 
September 2007.  The U.S. delegation accomplished its mission to get 
a greater appreciation for Brazilian research and development in 
biofuels and use lessons learned to promote U.S.-Brazil 
collaboration on advanced biofuels research, particularly on 
cellulosic ethanol production.  The group explored several areas for 
joint cooperation including the possibility of sharing biomass 
samples to unify bilateral research opportunities and facilitating 
scientific exchanges to strengthen Brazilian analytical 
methodologies. 
 
¶2.  (SBU) Despite the opportunities for joint research 
collaboration, the U.S. delegation also witnessed several short-term 
challenges to furthering our bilateral relationship on biofuels.  In 
particular these challenges include the high costs of financing 
research and development in Brazil, an industry focus on producing 
bioelectricity which would reduce feedstocks for cellulosic ethanol 
production, and the persistent view by Brazilian industry that 
consistent efficiencies in production utilizing existing 
technologies will continue.  Even with these challenges, both sides 
agreed to work on the joint challenge of getting a positive biofuels 
message out via better education about the advantages of biofuels. 
The U.S. delegation appeared satisfied with their visit to Brazil 
and left with several tools to tackle the challenges and 
opportunities ahead.  End Summary. 
 
Visiting University Laboratories 
-------------------------------- 
 
¶3.  (U) The U.S. delegation visited several of Brazil's top research 
universities that have been studying biofuels since Brazil's ethanol 
program began in the 1970s.  Brazil's largest university, the 
University of Sao Paulo (USP), is widely viewed as among Brazil's 
best universities.  Professors from the Polytechnic Department 
outlined the four major research areas in Brazil:  pre-treatment of 
bagasse (USP-Lorena campus), enzyme production (UFRJ, USP, Goiania), 
fermentation (USP-Lorena and UFRJ), and the energy balance for new 
mills (UNICAMP/NIPE).  The USP professors told the U.S. delegation 
they need more collaboration on enzyme production and protein 
engineering of enzymes.  The U.S. side suggested sharing biomass 
pretreated samples would be a good way to collaborate on research 
and corroborate results.  The group also suggested an exchange of 
doctoral candidates or post-doctorate researchers with advanced 
training in analytical techniques to a U.S. laboratory to 
collaborate on methodology and learn U.S. methodology.  Likewise, at 
the Federal University of Rio de Janeiro (UFRJ), the U.S. delegation 
met with professors from the Chemistry Department and toured some 
biofuels research laboratories.  They discussed the University's 
chemical and microbiological research on biofuels, and similarly 
raised the issue of sharing bagasse and lignin cake samples as a way 
to collaborate on research. 
 
¶4.  (U) The U.S. delegation met with University of Campinas 
(UNICAMP) professor Marcelo Mendessi, who runs the Agency for 
Innovation (INOVA).  UNICAMP is one of the few Brazilian examples of 
university collaboration with the private sector.  Mendessi 
explained that INOVA's role is to encourage technology transfer of 
developing technologies by facilitating the patent and development 
processes.  Although UNICAMP is Brazil's largest patent holder, the 
 
SAO PAULO 00000314  002 OF 005 
 
 
number it holds is about the same as research universities outside 
Brazil.  Mendessi explained to the U.S. delegation the lack of 
private sector innovation and the low preponderance of Brazilian 
companies seeking patents. 
 
Government Sponsored Research 
----------------------------- 
 
¶5.  (U) The U.S. delegation toured Sao Paulo state's Institute of 
Technological Research (IPT), a think tank primarily focused on 
biomass gasification for syngas generation.  IPT has received 
significant research funding for biofuels development.  According to 
IPT researchers, 30 percent of funding is from the Sao Paulo state 
government and 70 percent from research and service contracts. 
Investment for this year is 20 times greater than last year because 
of Petrobras' increased investment into biomass research, 
specifically on gasification plants.  Both sides pointed to the 
challenges of harmonizing research when performed on different 
substrates; despite many commonalities neither side could 
corroborate the other's research without sharing substrate samples. 
One area of possible collaboration discussed with IPT was cellulosic 
conversion of sugarcane "trash" (leaves and stalks) to ethanol.  The 
U.S. delegation pointed to American analytical methods for other 
feedstocks that could serve as a model.  As with USP professors, 
both sides agreed there is a need for more training for Brazilian 
researchers in analytical methods.  The U.S. delegation suggested 
encouraging exchanges to U.S. research centers for the period of one 
year or more to improve and collaborate on analytical methodologies. 
 IPT Chief Operating Officer Marcos Tadeu Pereira noted that IPT has 
funding for this type of exchange to pay expenses for professionals 
with five to 10 years of experience. 
 
¶6.  (U) The National Laboratory for Synchrotron Light Technology 
(LNLS) outlined for the U.S. delegation its proposed Center of 
Science and Technology of Bioethanol (CTBE).  LNLS receives half of 
its budget from the Ministry of Science and Technology (MST), eight 
percent from private companies that pay fees to use its facilities 
(primarily Petrobras), and 42 percent from the Foundation of 
Research Assistance of Sao Paulo State (FAPESP).  CTBE's Director, 
Marco Aurelio Pinheiro Lima, explained that the center would reach 
out to industry and would be fully dedicated to research into 
ethanol production from sugarcane.  Their goal is to have 100 
researchers on staff and another 100 associate researchers from 
other institutions.  Pinheiro Lima told the U.S. delegation that 
CTBE's two projects would be on hydrolysis technology to convert 
bagasse and trash into ethanol and low-impact mechanization. 
 
Private Sector Research and Development 
--------------------------------------- 
 
¶7.  (U) Visits to two separate groups, the Center for Sugarcane 
Technology (CTC) and the joint operation of two Votorantim companies 
Canavialis and Alellyx, gave the U.S. delegation a somewhat 
different view of the short-term viability of second generation 
cellulosic ethanol production.  Both groups genetically engineer 
sugarcane seedlings to produce higher yields and withstand disease 
and climate changes.  Fernando Reinach, a General Partner for 
Votorantim New Business Ventures, explained that Canavialis produces 
2.2 million seedlings each year and has one million hectares under 
management as part of its technology package management service, 
which is about 20 percent of Brazilian market share of sugarcane 
planted.  They also have a project in Angola where they are 
reintroducing varieties to reestablish the Angolan sugarcane 
industry. 
 
¶8.  (SBU) Both explained that productivity gains in Brazil could 
reduce crop expansion needs.  Reinach noted that genetically 
modified sugarcane enables Brazilian cane farmers to produce 80 
percent more sucrose per hectare, which by itself would almost 
double production without increasing production areas.  Similarly, 
William Burnquist from CTC said it has existing technology to 
increase production by 20 percent or more from 85 to 100 tons of 
 
SAO PAULO 00000314  003 OF 005 
 
 
sugarcane per hectare without increasing hectares planted, but that 
many mills lack the necessary capital to invest in this technology. 
Burnquist told the U.S. delegation that CTC believes that the 
Brazilian ethanol industry has already reached sustainable 
productivity because productivity gains are up on average two 
percent per year over the last 65 years.  Brazilian mills are 
crushing approximately 600 tons of cane per hour, double what they 
used to with using only half the energy.  In their view, there is 
nothing to suggest that the productivity gains will not continue 
into the future. 
 
¶9.  (SBU) Both Votorantim and CTC voiced concern that the prospects 
for cellulosic ethanol development in Brazil in the near-term 
appeared limited.  In Reinach's view, the opportunity cost of using 
bagasse for cellulosic ethanol instead of for producing electricity 
implies that sugar mills would face losses because electricity 
prices per megawatt in Brazil are greater than what they would gain 
by turning this bagasse into ethanol.  He noted that Brazil's 
electricity demand would ultimately determine the use of trash and 
bagasse for this purpose, and that Brazil would likely buy 
cellulosic technology from the U.S. if producers opted to employ 
ethanol production via cellulosic transformation in the future. 
Reinach pointed out that electricity generation from bagasse is 
inexpensive and clean and that Brazil potentially has enough bagasse 
to provide for half of its electricity needs.  (Note: Please see 
septel from Sao Paulo for more information on the bioelectricity 
sector as part of Mission Brazil's ongoing electricity series.  End 
Note.)  Burnquist expressed similar views, saying Brazil does not 
need second generation ethanol to meet its projection of 100 million 
liters of ethanol or to help supply ethanol to the U.S. under the 
new U.S. ethanol targets.  He noted, however, that Brazil provided 
the easiest industrial situation to employ second generation 
technologies because Brazilian mills already have fully integrated 
biomass, fermentation, distillation, and waste management processes. 
 
 
¶10.  (U) In addition to on-going collaboration between CTC and USDA, 
the group discussed more possible joint projects including 
non-competitive engineering tools that could be used on all 
feedstocks and a larger-scale project to help mills reduce costs. 
 
¶11.  (SBU) The U.S. delegation also met with biofuels scientists 
from Petrobras' Research and Development Center (CENPES) in Rio de 
Janeiro and received a series of briefings on the energy company's 
research in areas such as biodiesel and lignocellulosic ethanol 
production.  As Petrobras holds a monopoly on Brazil's ethanol 
pipeline system and distribution network, the group also discussed 
ongoing research on pipeline and transportation issues such as why 
U.S. pipelines, which transport corn-based ethanol, are showing 
signs of stress wear while Brazilian pipelines which transport 
sugarcane-based ethanol are not.  The group also visited Petrobras' 
bagasse-to-ethanol pilot plant which was inaugurated in 2007. 
 
¶12.  (U) The U.S. delegation also met with Brazilian capital goods 
manufacturer Dedini, which manufactures 80 percent of all Brazilian 
ethanol distilleries and also supplies products across the entire 
ethanol/sugar production spectrum.  Jose Luiz Oliverio, Dedini's 
Senior Technology and Development Vice President, told the 
delegation that Dedini has money to develop new technologies from 
FAPESP and is very interested in collaboration on gasification 
technologies.  He noted that Dedini signed a confidentiality 
agreement with General Electric to develop gas turbines for 
gasification of vinasse.  Despite Dedini's interest in developing 
equipment, however, Oliveiro pointed to the high cost of capital as 
the number one impediment in Brazil for technology development. 
 
¶13.  (SBU) John Melo, CEO of U.S. company Amyris, outlined its 
recently signed joint venture with two Brazilian companies to 
develop a business model to produce biodiesel and jet fuel.  Amyris 
has been developing the technology since 2001 and the Gates 
Foundation put money behind the idea in 2004.  Amyris chose to build 
its business in Brazil to tap into existing scale and business 
 
SAO PAULO 00000314  004 OF 005 
 
 
know-how and because sugarcane is the cheapest feedstock.  Melo 
projected that the first sugar mill would be converted and capable 
of producing diesel by June 2010 followed by a two year period of 
scale-up to full production.  Melo said that Amyris estimated that 
it would cost USD 20 to 30 million to convert the mills to diesel 
production. 
 
¶14.  (SBU) The U.S. delegation also met with the Brazilian Sugarcane 
Industry Association (UNICA) to exchange views.  With respect to the 
U.S.-Brazil MOU on biofuels, UNICA representatives noted that 
multiple certification systems are counterproductive and that UNICA 
is lobbying for one or two harmonized and transparent systems that 
cannot be used as veiled non-tariff barriers.  UNICA's Chief 
Representative to the U.S. Joel Velasco noted that continued 
collaboration in forums such as the U.S. Interagency Biomass Board 
and working closely with DOE's Office of Biomass Program was needed 
to educate third parties on biofuels developments.  Velasco 
advocated creating a more regular mechanism to communicate (perhaps 
a periodic conference call) to keep the flow of information 
constant.  UNICA also suggested organizing a bi-national scientific 
convention after which the participants would release a public 
statement of their findings.  UNICA criticized the scientific 
communities in both countries for its relative silence on biofuels 
issues. 
 
Bilateral Meeting with the GOB 
------------------------------ 
 
¶15.  (SBU) The U.S. delegation met with their Brazilian government 
counterparts the final day of the visit at the Consulate General in 
Sao Paulo.  Minister Andre Correa do Lago, Director of the Energy 
Department, Ministry of Foreign Affairs led the Brazilians, along 
with Adriano Duarte Filho, General Coordinator for Technological 
Sectors, Ministry of Science and Technology, Jose Monserrat Filho, 
Head of the Board for International Affairs, Ministry of Science and 
Technology, and Daniel Machado da Fonseca from the Division for New 
and Renewable Energy Resources, Ministry of Foreign Affairs.  (Note: 
Fonseca accompanied the U.S. delegation throughout the visit.  End 
Note.) 
 
¶16.  (SBU) Lago opened the meeting by commenting on the High-Level 
Conference on World Food Security in Rome which Lago reported that 
the U.S. and Brazil had worked together to "avoid damaging language 
on biofuels."  Likewise, Lago referenced the upcoming meeting of the 
Global Bioenergy Partnership (GBEP) which was held in Rio de Janeiro 
on June 18 and 19 as another important opportunity to make the case 
for biofuels.  Lago said that the scientific community needs to be 
more engaged in the food versus fuel debate and noted that the GOB 
is considering lobbying for a special scientific commission to write 
a report from the scientific perspective.  He said that the GOB 
envisioned a multinational commission made up of Brazilians, 
Americans, Europeans, and others with a view to make the 
commission's findings as objective as possible. 
 
¶17.  (SBU) Regarding the MOU on Biofuels, Lago complemented the 
progress of the Standards Committee, but noted that a few details 
still needed to be worked out on ethanol standards and quite a bit 
more work on biodiesel.  When questioned whether the Europeans had 
been constructively engaged in setting standards, Lago simply 
responded that "the Europeans are engaged" indicating that they had 
not always been constructive, but said that the Europeans had been 
cooperative on a technical level. 
 
¶18.  (SBU) Overall, members of the U.S. delegation told the 
Brazilians that they were impressed with the work Brazil has been 
doing on biofuels.  The DOE's Amy Miranda suggested that DOE could 
team up with UNICA and others to showcase for third parties the 
latest developments in bioenergy.  James McMillan from NREL said 
that Brazil still has huge untapped opportunities and highlighted 
Dedini's rapid hydrolysis technology (a process using hydrolysis to 
convert sugarcane bagasse into sugars that, fermented and distilled, 
result in ethyl alcohol) as one example.  Joseph Rich from USDA said 
 
SAO PAULO 00000314  005 OF 005 
 
 
that Brazil's infrastructure to support the biofuels business was 
impressive and that the U.S. could learn from the Brazilian 
expertise.  Richard Bain, also from USDA, complemented the first 
generation integrated mills and agreed that the decision for mills 
to produce bioelectricity made sound economic sense.  He suggested 
bioelectricity as an area for future collaboration, especially for 
sustainability issues. 
 
¶19.  (SBU) USDA's Edward Richard highlighted crop production 
technology for further collaboration, specifically to assess the 
value of sugarcane trash.  Patricia Hu reflected on the 
lessons-learned in the area of transportation.  She noted that the 
focus of her office is assessing the "demand problem" which exists 
right now in the U.S.  Demand will determine eventual infrastructure 
investments along the supply chain, from feedstock to fuel station. 
She said her office is looking at the need for dedicated ethanol 
pipelines, as ethanol is causing cracking in the current pipelines. 
 
Comment 
------- 
 
¶20.  (SBU) Although the public rhetoric to separate Brazilian 
sugarcane-based ethanol from U.S. corn-based ethanol has divided the 
two governments in recent weeks, the technical visit as part of our 
MOU with Brazil was very successful.  Both sides avoided the fuel 
versus food debate and tried to find common links for shared 
research on second generation cellulosic ethanol.  Despite the 
interest among Brazilian researchers for sharing techniques and 
methodologies, the Brazilian private sector lacks the incentives for 
implementing cellulosic ethanol over the short and medium term. 
Without a tangible export demand for ethanol (and a proportional 
price increase), many sugarcane mills probably would chose to 
produce electricity with excess bagasse and trash instead of 
incorporating cellulosic ethanol production into existing mills. 
However, even given the lack of incentives and vagaries of demand, 
the U.S. delegation saw that Brazil could still be a perfect test 
laboratory for integrating cellulosic ethanol into its existing 
production system if the right set of incentives were in place.  The 
challenge for furthering the MOU will be addressing these 
opportunity costs for Brazilian producers in such a way to drive 
mutual incentives for advancing cellulosic research.  End Comment. 
 
 
¶21.  (U) This cable was written jointly with US Consulate Rio de 
Janeiro and coordinated and cleared with Embassy Brasilia. 
 
STORY