UNDER SECRETARY BURNS'S ENERGY ROUNDTABLE IN SAO PAULO,

UNCLAS SECTION 01 OF 03 SAO PAULO 000165

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E.O. 12958: N/A
TAGS: ENRG PGOV EAGR EPET SENV BR
SUBJECT: UNDER SECRETARY BURNS'S ENERGY ROUNDTABLE IN SAO PAULO,
FEBRUARY 6, 2007


SENSITIVE BUT UNCLASSIFIED - PLEASE PROTECT ACCORDINGLY

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SUMMARY
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1. (SBU) Summary: In his February 6 meeting in Sao Paulo with
senior Brazilian energy experts, Under Secretary R. Nicholas Burns
emphasized the tremendous potential of U.S.-Brazilian cooperation on
ethanol, and solicited his interlocutors' views on developing this
partnership. Discussion centered on the foreign policy and
market-building potential of this cooperation. End Summary


2. (SBU) Under Secretary Burns was accompanied by WHA Assistant
Secretary Tom Shannon, International Energy Coordinator Greg Manuel,

SIPDIS
S/P Member William McIlhenny, and P Special Assistant Heide Bronke.
Following briefings and meetings in the Consulate, U/S Burns and his
delegation, along with Ambassador Sobel, FAS Attach Alan Hrapsky,
ATO Director Morgan Perkins, and econoff Valerie Wheat (notetaker),
met with Brazilian experts in the energy field to discuss avenues of
mutual cooperation. The discussion focused mostly on Brazil's
experiences with ethanol. Participants included Luis Carvalho,
agronomist and Chairman of the National Chamber for Ethanol and
Sugar; Plinio Nastari, Agricultural Economist and consultant; and
William Lee Burnquist, agronomist at the Cane Technology Center.

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BILATERAL BIOFUELS COOPERATION
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3. (SBU) U/S Burns opened the discussion by referring to the
potential for tremendous growth opportunities for both countries in
the area of ethanol and asking the speakers to explore the
possibilities for strengthening the U.S.-Brazilian relationship
based on cooperation in the ethanol sector. How, he asked, could
the world's two largest ethanol-producing countries, working
together, impact on the global ethanol market? Is there a
possibility for cooperation in science and technology and joint
research to stimulate alternative fuel production?


4. (SBU) Nastari described how Brazil is currently producing two
types of ethanol: a blend of 20-25 percent, and pure fuel for
dedicated fleets. Brazil produces ethanol cars and flex-fuel engine
automobiles. Currently 82 percent of new automobile sales are
flex-fuel cars. 40.4 percent of fuel consumed in Brazil is ethanol.



5. (SBU) Brazil, using sugarcane technology, is currently
converting molasses to ethanol, and this activity is expanding
rapidly. The basis for good ethanol production is agriculture.
Cost-efficient sugar cane production yields cheap sugar cane. Sixty
percent of the cost of producing ethanol is the raw material.
Brazil produces high-yield sugar cane inexpensively and can share
its expertise and technology with the rest of Latin America and
extend outward after that. Brazil has already begun to work with
other countries, e.g., Paraguay. Industry contacts noted that with
widespread sugar production throughout Latin America, development of
a regional ethanol industry would provide a broadly-based energy
supply. However, in order for this sector to develop in countries
not currently producing ethanol even though they have large
quantities of molasses, a regulatory framework is needed.

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FOREIGN POLICY POTENTIAL
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6. (SBU) Burnquist stressed ethanol's enormous potential for
foreign policy. Development of an alternative fuel source could
help counter-balance Venezuela's influence, for example, in the
Caribbean. Post-Castro Cuba could become an important producer.
Brazil could build on President Lula's "south-south" initiative by
expanding to Africa, Asia, and other parts of the developing world.
Ethanol technology for Latin America could fulfill the Summit of the
Americas goals of 1) phasing out lead, and 2) phasing out use of
MTBE.

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MAKING ETHANOL A COMMODITY
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7. (SBU) According to Carvalho, seventy-five percent of all ethanol
produced worldwide comes from the United States or Brazil. The two
countries are natural partners, able to push sustainability with
biofuels. They can produce clean energy, increase their incomes,
and establish stronger commercial ties. Ethanol should be
considered a commodity, with the U.S. and Brazil working together,
able to establish reference prices. This could reduce ethanol
costs, aid with mechanization in collection of raw materials
(tractor companies such as John Deere),and assist in increasing
trade in ethanol along the entire production chain. Japan is very
interested in maintaining a supply adequate to its needs, increasing
mandatory ethanol use from 3 to 10 percent. There are great
investment opportunities in this area, with profits virtually
guaranteed.


8. (SBU) Carvalho further elaborated that technologically, Brazil
is very advanced. Today it can produce more sugarcane per acre due
to the development of high-yield crops. Although not yet
economically feasible, cellulosic enzyme processing makes it
possible to produce 50 percent more ethanol with the same input as
currently used, if it can be transformed to sugar base.

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CREATING A MARKET
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9. (SBU) With the United States targeting greater use of ethanol
(35 billion gallons per year),the prospects for the market are
good, Burnquist said, the more so because a growing problem in the
U.S. is the amount of water available for the US-corn based ethanol
production. Brazil is not a direct competitor, Burnquist continued,
because its production is sugar-based. Growing domestic demand for
ethanol will make it a challenge for Brazilian producers to supply
enough ethanol for its own needs; they will not immediately need to
seek markets outside Brazil. However, Brazil has good R&D,
technology, and expertise, and has developed cane varieties. It can
share this knowledge to assist other nations to become economically
viable using sugar cane technology, as it has already done in
Paraguay, Ecuador, Peru and Colombia.


10. (SBU) U/S Burns asked how the Governments of Brazil and the
United States could come together to work more closely on ethanol.

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The sugar cane industry in Brazil is traditionally private, replied
Burnquist, with no formal role for the GoB, which is still
formulating its policy. This would be a propitious moment for the
two governments to work together, using ethanol as a trade incentive
and reaping the foreign policy benefits. However, there needs to be
careful joint planning to develop a proper regulatory framework.

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COMMENT
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11. (SBU) Comment: The roundtable provided a useful overview of the
issues and challenges involved in developing alternative energy
sources. During his subsequent encounters with political leaders
and media, and in his well-attended and well-received speech, U/S
Burns repeatedly called on the United States and Brazil to work
together to develop the regulatory infrastructure and technical
capacity to create an international market for ethanol. End
Comment.


12. (U) This cable was coordinated with Embassy Brasilia and
cleared by U/S Burns's delegation and Ambassador Sobel.

MCMULLEN