Some fear the Amazon could see even more destruction if sugarcane fields for ethanol expand into rain forest areas.
SAO PAULO, Brazil - Just an hour's drive outside this traffic-choked metropolis where President Bush kicks off a Latin American tour Thursday, sugar cane fields stretch for hundreds of miles, providing the ethanol that fuels eight out of every 10 new Brazilian cars.
In only a few years, Brazil has turned itself into the planet's undisputed renewable energy leader, and the highlight of Bush's visit is expected to be a new ethanol "alliance" he will forge with Brazilian President Luiz Inacio Lula da Silva.
But a top U.N. environmental official is warning that while such an alliance offers opportunities it also poses risks to Brazil's Amazon rain forest.
The deal is still being negotiated, but the two leaders are expected to sign an accord Friday to develop standards to help turn ethanol into an internationally traded commodity, and to promote sugar cane-based ethanol production in Central America and the Caribbean to meet rising international demand.
Across Latin America's largest nation, Brazilian media are billing the Bush-Silva meeting as a bid to create a new two-nation "OPEC of Ethanol," despite efforts by Brazilian and American officials to downplay the label amid concerns that whatever emerges would be viewed as a price-fixing cartel.
The Amazon angle
On Monday, Achim Steiner, head of the U.N. Environment Program, added his voice, saying that growing international demand for ethanol threatens the Amazon if safeguards are not put in place because the world's largest remaining tropical wilderness is a target area for agriculture.
Brazil's ethanol is made from sugarcane. And while sugarcane cultivation is minimal now in the Amazon, some environmentalists fear growing demand for the fuel could push cane growers there.
"I think at the end of the day ... it's a question of whether the Amazon is sufficiently protected and whether the expansion of the ethanol production happens in the context of government policies that try and direct that growth potential in a sustainable base," Steiner said after meeting with Brazil's ministers of environment, energy and foreign relations.
Steiner praised Brazil for reducing Amazon deforestation by 11 percent last year and said he was hopeful the government would develop sufficient safeguards to protect the wilderness.
But many environmentalists say much of the reduction in deforestation was due to an overvalued currency and stagnant prices for soybeans on the international market, which made it far less lucrative to cut down remote forest plots to grow soybeans.
In the near term, soybean growers likely will continue to expand into the Amazon as farmland in the Brazil's south and central regions moved to sugarcane, which requires greater infrastructure.
"While the whole process of alcohol fuel is less damaging to the climate than fuel from gasoline or oil, what can be positive for the environment can turn negative depending on the extension of the plantations," said Paulo Adario, director of the Greenpeace's Amazon Campaign.
The Amazon region, which covers nearly 60 percent of Brazil, has lost 20 percent of its forest — 1.6 million square miles — to development, logging and farming.
Ethanol's influence
At every gas station in this city of 18 million, drivers can fill up with gasoline or ethanol. Ethanol came courtesy of a 1970s decision by Brazil's former military dictators to subsidize production and require distribution at the pumps.
A 1980's Brazilian fad with cars that ran only on ethanol petered out when oil prices fell in the early 1990s. But the fuel came back into vogue in 2003 when automakers started rolling out "flex-fuel" cars that run on gasoline, ethanol or any combination of the two.
With international oil prices reaching record highs, Brazilian drivers turned to the cars; most chose ethanol because it costs about half the price of gas.
The ethanol industry is now making profits like never before amid heavy foreign investment. Recently, Brazil's state-run oil firm, Japan's Mitsui & Co. and a Brazilian construction firm signed a memorandum of interest to study the construction of a pipeline in Brazil that would be used to help export ethanol to Japan.
Sugar, corn and other sources
Brazil is the world's top exporter, though U.S. ethanol production still surpasses Brazil. But Brazil has an edge over the United States for future production because ethanol can be produced more cheaply with sugar cane than the corn used by U.S. farmers to make ethanol.
And increased use of corn for ethanol is prompting international corn price increases, prompting Silva to tell reporters last week he would tell Bush, "Why make ethanol out of corn? Why don't we feed the corn to the chickens."
Bush has set a goal of 35 billion gallons a year of ethanol and other alternative fuels, such as soybean-based biodiesel, by 2017 — a fivefold increase over current requirements.
But production of ethanol from U.S. corn is expected to fall far short of meeting such an increase, and experts doubt even land-rich Brazil would be able to fill the gap along with help from Central America and the Caribbean. So Bush envisions a major speedup of research into production of "cellulosic" ethanol made from wood chips, switchgrass and other feedstocks.
Tariff obstacle
Political and energy analysts warn that any agreements reached between Brazil and the United States are unlikely to have short-term effects. And the deal itself could end up largely symbolic because of reluctance by Washington to address a key point of friction: A 53 cent-per-gallon U.S. tariff on Brazilian ethanol imports.
"For the Brazilians, the tariff has utmost priority," said Cristoph Berg, an ethanol analyst with Germany's F.O. Licht, a commodities research firm. "They will agree with developing biofuel economies around the world, but the first thing they will say is 'We want to do away with that tariff.'"
No one is expecting Bush to give ground on the tariff. The politically sensitive issue essentially subsidizes American corn growers who are rapidly ramping up ethanol production amid Washington's encouragement of renewable biofuels to ease U.S. dependence on imported petroleum.
But the visit will help Bush and Silva join forces to promote the politically popular issue of renewable energy simply by gathering in a place where ethanol is king.
Ethanol proponents hope Bush and Silva will come up with a framework to sharply boost ethanol production in the nations between Brazil and the United States, encouraging more foreign investment.
And coming up with technical standards to define quality levels for ethanol is key to turn it into a commodity that could be traded like oil.
"I think its Brazilian know how and American know how, there's a lot of cross fertilization that can take place," said Brian Dean, executive director of the Interamerican Ethanol Commission.
The commission counts among its directors Florida Gov. Jeb Bush, the president's brother, as well as former Brazilian agriculture minister Roberto Rodrigues and Luiz Moreno, president of the Inter-American Development Bank.
Increasing ethanol production in the region is also expected to be a major topic in Guatemala later this month when the bank holds its annual meeting, Latin America's top yearly economic gathering.
"We see a marketplace in ethanol that can create an enormous amount of economic growth and prosperity in the United States and the rest of the world," Dean said.
"Worldwide, especially in developing countries ... food price increases are definitely something we're going to have to come to grips with," said David Sunding, who served on former President Bill Clinton's Council of Economic Advisers.
The combination of rising energy prices and the demand for corn, which is used to produce ethanol, will continue to drive up commodity prices, he said. The resulting higher market prices could then dampen the public's support for government subsidies that are designed to help farmers reap profits when markets are down.
Energy costs will also be a factor, said Sunding, who predicted that "agricultural policy will ... become energy policy."
Remote agricultural areas such as those in Nebraska and South Dakota are particularly susceptible to rising energy prices, Sunding said, because farmers must transport their crops great distances to markets.
"The cost of water pumping could increase dramatically," Sunding said.
While poor and developing countries might suffer more because of food-price spikes, the United States would not be spared, Sunding predicted.