DEPARTMENT OF ENERGY'S A/S KARSNER VISITS BRAZIL TO JUMP

UNCLAS SECTION 01 OF 04 BRASILIA 000905

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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
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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

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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
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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

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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
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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

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transmission.

SOBEL