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

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