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DE RUEHSO #0650/01 3391816
ZNR UUUUU ZZH
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FM AMCONSUL SAO PAULO
TO RUEHC/SECSTATE WASHDC 8757
INFO RUEHBR/AMEMBASSY BRASILIA 9908
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RUEHRI/AMCONSUL RIO DE JANEIRO 8937
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RUEHAC/AMEMBASSY ASUNCION 3585
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RUEATRS/DEPT OF TREASURY WASHDC
RHEHNSC/NATIONAL SECURITY COUNCIL WASHDC

UNCLAS SECTION 01 OF 03 SAO PAULO 000650 
 
SIPDIS 
SENSITIVE 
 
STATE PASS USTR FOR KDUCKWORTH 
STATE PASS EXIMBANK 
STATE PASS OPIC FOR DMORONSE, NRIVERA, CMERVENNE 
DEPT OF TREASURY FOR JHOEK, BONEILL 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ETRD BR
SUBJECT: DIFFERING BRAZILIAN VOICES ON U.S. ETHANOL POLICY AT 
BIOFUELS CONFERENCE 
 
REF: Brasilia 1393; Brasilia 1553 
 
SENSITIVE BUT UNCLASSIFIED--PLEASE PROTECT ACCORDINGLY 
 
¶1.  (U) Summary:  At the Government of Brazil's (GOB) much 
anticipated International Conference on Biofuels held in Sao Paulo 
from November 17 to 21, GOB reps, for the most part, stuck to the 
spirit of the U.S.-Brazil biofuels MOU and kept to promises to 
remain united with the U.S. on expanding ethanol markets, focusing 
on bilateral cooperative efforts and downplaying our differences 
over the ethanol tariff.  In contrast, Sao Paulo state governor Jose 
Serra criticized U.S. ethanol production in both his opening and 
closing remarks, using the occasion to lambaste U.S. trade policy 
and the higher production costs of corn ethanol.  He also made the 
charge that the U.S. is actually obstructing the creation of a 
global biofuels market.  Governor Serra may have been showing an 
economic nationalist streak or merely taking the opportunity to 
curry favor with his constituents in a lead up to his expected 
Presidential bid in 2010.  GOB officials meanwhile took pains to 
remind the U.S. delegation that Serra did not speak for the Brazilin 
government.  There were many Brazilian non-governmental participants 
whose comments are not characterized in this cable but will be 
addressed more specifically in further conference reporting.  End 
Summary. 
 
¶2.  (U) The GOB had criticized U.S. ethanol production during the 
food vs. fuel debate earlier this year.  However, since the Food and 
Agriculture Organization's meeting in Rome when President Lula 
famously differentiated between good and bad ethanol, GOB reps have 
consistently told Mission contacts that Brazilian government 
strategy was not to differentiate sugar from corn ethanol.  (Note: 
Ministry of Foreign Relations officials had assured Ambassador Sobel 
the speech was the work of errant speech writers whose focus was 
more agricultural than energy and would not be repeated.  End Note.) 
 Instead, they chose to line up with the U.S. in countering ethanol 
critics and work with Washington to create a global marketplace for 
ethanol. 
 
¶3.  (SBU) Andre Correa do Lago, Ministry of Foreign Affairs' 
Assistant Secretary-equivalent for Energy, has on multiple occasions 
told Ambassador Sobel and visiting U.S. delegations that it is not 
in Brazil's interest to differentiate between types of ethanol, as 
doing so would only hamper efforts to develop a worldwide market in 
biofuels.  Under Secretary for Energy and Science Andre Amado went 
further, suggesting to the Ambassador and others that the campaigns 
against biofuels and differentiating feed stocks were the result of 
orchestrated efforts by entrenched industrial interests. 
 
¶4.  (SBU) Indeed, GOB conference panelists and invited speakers, 
including Energy Minister Edison Lobao and Presidential Chief of 
Staff Dilma Rousseff (likely opponent of Serra's in a 2010 
presidential bid), by and large adhered to the message that common 
efforts to develop the world ethanol market would be good for both 
Brazil and the U.S., with Rousseff particularly highlighting the 
cooperation between the U.S. and Brazil in developing biofuels 
industries in developing countries.  Both highlighted the virtues of 
ethanol, limiting discussion about the differences among types of 
ethanol production.  In Minister Lobao's closing speech, he 
countered several common criticisms of ethanol, stating that 
fertilizers were the largest contributor to food price inflation and 
that ethanol had less environmental impact than fossil fuels. 
(Note: See septels for more on the International Conference on 
Biofuels topics.  End Note.) 
 
¶5.  (U) President Lula himself avoid any repeats of past unfortunate 
comments differentiating types of ethanol and instead focused on the 
importance, particularly in times of global economic crisis, of 
developing a global markets for biofuels.  He said that Brazil 
doesn't want the U.S. or Europe to stop producing their respective 
biofuels products, and only asks that they work to bring biofuels 
industry to developing countries as well.  He voiced his willingness 
to work with any country that wanted to transform the life of the 
people and create income.  Lula also echoed some of the themes of 
Lobo's speech, countering past claims that biofuels were to blame 
for the food crisis.  (Note: Though he stayed positive on biofuels, 
 
SAO PAULO 00000650  002 OF 003 
 
 
in discussing climate change and biofuels' role in addressing it, 
Lula did highlight statistics showing the U.S. as the largest 
greenhouse gas emitting country in the world.  End Note.) 
 
¶6.  (U) Governor Serra, in contrast, was extremely critical of U.S. 
ethanol, along with U.S. trade policy, and underscored the 
differences between U.S. and Brazilian ethanol during both his 
opening and closing remarks to the conference.  In his conference 
keynote, Serra boasted about Brazil's energy matrix, citing Brazil 
as the "greenist" industrialized country with 48 percent share of 
its energy generated from renewable sources.  He went on to point 
out that 15 percent of Brazil's energy is derived from sugarcane, 
highlighting ethanol for automobile fuel as the primary driver. 
Serra further identified the state of Sao Paulo as the major 
producer of ethanol.  Sixty percent of Brazil's sugar production and 
two-thirds of the country's ethanol for export are produced in Sao 
Paulo.  Serra noted that Sao Paulo was working toward the total 
elimination of the manual sugarcane harvest, which requires burning 
the fields after harvest, and also touted the state's investments 
and research endeavors into biofuels. 
 
¶7.  (U) In both speeches, Serra distinguished Brazilian ethanol from 
other sources, paying particular attention to U.S. ethanol.  Serra 
stated that U.S. ethanol is less efficient and blamed worldwide food 
price inflation on U.S. corn ethanol.  He said that U.S. corn-based 
ethanol production was "much more costly, and that it was largely 
responsible for the recent period of high inflation because of 
higher corn prices."  Serra added that Brazilian sugarcane ethanol 
did not compete with food production and that it was the cheapest 
feed stock.  He noted that second generation cellulosic ethanol 
production would not erase the production cost benefit of Brazilian 
ethanol. 
 
¶8.  (U) Serra emphasized that U.S. policies obstruct the existence 
of a global biofuels market and indentified the United States as the 
most protectionist developed country.  He said the "U.S. preaches 
but does not practice" free trade.  Serra told the high level 
delegation at the closing ceremony that the U.S. tariff of 14 cents 
per liter against imported ethanol was only one of many non-tariff 
obstacles to entry into the U.S. market.  He said domestic subsidies 
increased the effective tariff to 30 cents per liter, the rough 
equivalent to the production cost of Brazilian sugarcane ethanol. 
According to Serra, the U.S. had to establish these types of regimes 
to protect the market for the less efficient corn-based ethanol. 
 
¶9.  (U) Finally, Serra said that Brazil should help other countries 
develop ethanol markets in order to expand the ethanol supply needed 
to develop a global market.  He highlighted the investment and 
technical assistance that the GOB had been doing in third countries. 
 Serra failed to mention that such programs are a key part of the 
U.S.-Brazil MOU, which established third country assistance. 
 
¶10.  (SBU) Comment:  Governor Serra's attack on U.S. ethanol likely 
reflects his positioning of himself for the 2010 presidential 
election.  Serra is staking out his credentials as a green economic 
nationalist, an identity that could play well as the global 
financial crisis hits Brazil and puts pressure on the Lula 
administration to respond.  Serra has been very proactive in recent 
weeks in demonstrating his efforts to strengthen various entities of 
the state of Sao Paulo against the financial crisis.  GOB contacts 
at the conference admitted to U.S. delegation members that they were 
embarrassed by Serra's attacks on the U.S.  One of the organizers 
lamented that Serra "just didn't get the point of the conference." 
Multiple GOB representatives took pains to remind the U.S. 
delegation that Serra did not speak for the government.  Based on 
these reactions and GOB actions and rhetoric both in advance of and 
during the conference, it appears that, despite nationalistic 
rhetoric from some quarters, the GOB intends to stick to its 
message: that biofuels are better than oil, a global market is 
essential for this quick and clean alternative to flourish, and 
wealthier nations must assist developing nations in taking advantage 
of the opportunities presented by biofuels.  Post will continue to 
work with the GOB to advance our mutual efforts in this direction 
and will seek opportunities to counter Serra's nationalist drift 
with more accurate information about the U.S.-Brazil energy 
 
SAO PAULO 00000650  003 OF 003 
 
 
partnership.  The ethanol tariff will continue to be an irritant in 
bilateral relations as long as it remains in place, but overall 
cooperation in the biofuels arena is still a highlight of the 
bilateral relationship and offers great opportunities for continued 
positive engagement. 
 
¶11.  (SBU) COMMENT CONTINUED - BIO NOTE.  Most observers expect 
Governor Serra to be the center-right PSDB candidate for the 2010 
Presidential election.  He likely will square off against President 
Lula's preferred successor, Chief of Staff Dilma Roussef.  Lula, who 
came into office billed as a Workers Party (PT) leftist, has shown a 
pragmatic streak, particularly on macroeconomic issues.  Serra, 
although leader of a party considerably to the right of the PT, is 
himself seen to have leftist tendencies, some undoubtedly honed in 
his period of political exile from Brazil during the military 
dictatorship.  His comments last week on trade and biofuels are a 
case in point.  While often critical of the U.S., Serra is not 
anti-American, and is an effective administrator willing to work 
with us on issues of mutual interest and concern.  End Comment. 
 
¶12.  (U) This cable was coordinated/cleared by Embassy Brasilia and 
the ATO in Sao Paulo. 
 
WHITE