The Global Ethanol Market

By Robert Vierhout | July 08, 2009
Every time I meet with my Brazilian colleagues, they complain about the absence of a global market for ethanol. They say that American and European import tariffs, plus additional non-tariff barriers in Europe, make a global market impossible.

Their view puzzles me. First of all, it would suggest that no ethanol trade takes place between countries, and this is not the case. Secondly, their view seems to suggest that a global market only exists when a certain tonnage of product is being shipped around the globe or when a product can be traded freely at any volume with no border restrictions.

In 1998, Brazil exported a mere 3 million liters (800,000 gallons) of ethanol to the European Union. Last year, Brazilian ethanol exports to the EU totaled an overwhelming 1.5 billion liters. Add to that the nearly 3 billion liters (800 million gallons) of Brazilian ethanol that entered the U.S. in 2008, and I would say that it is difficult to argue there is no global market.

Apparently this does not convince Brazil. At the June 2009 ethanol summit in So Paulo, the issue of the global market was the most important recurring theme. The audience was told over and over that as long as there is any kind of trade barrier, tariff or non-tariff, free trade is absent and therefore no global market is possible. There are political and economic realities that make that stance untrue.

The economic reality is that tariffs are not at a level that makes market access impossible. Brazil's share of ethanol imports to the EU last year was 77 percent. The EU's total 2008 ethanol production was approximately 3.7 billion liters, and we imported nearly 2 billion liters.

It is important to recognize the political reality that import tariffs serve a very legitimate purpose: to help develop and build a domestic biofuel industry. Brazil should understand that notion better than any other country in the world. After all, Brazil has a 30-year track record of government support and intervention. Even though government involvement was pushed to the background a few years ago, the Brazilian government still carefully monitors what is happening in the domestic fuel market and intervenes when deemed necessary.

For example, less than 5 years ago, the Brazilian government reduced the maximum blending ratio from 25 percent to 20 percent and threatened to install export duties because ethanol producers were neglecting domestic demand and giving preference to boosting exports.

A second political reality is that biofuel trades with the EU are only allowed if it can be demonstrated beyond any doubt that the biofuel supplied is produced in a sustainable way.

One could argue that this is a non-tariff barrier. However, criteria in the European law apply to each batch of biofuel, whether produced inside or outside of the EU. Because there is a level playing field between all biofuels, whatever the origin, it is legally not a barrier to trade. But this is not the real problem. Arguing against sustainability criteria because it hampers creating a world market makes it clear that one does not understand the crucial role of these criteria in bringing about a market at all.

The key to a global market is regaining public acceptance for the use of biofuels. European decision-makers felt so much public pressure from concerned society members last year that mandating biofuel use could only be justified by creating an environmental and social sustainability scheme. Without such a scheme, EU governments would not have mandated biofuel use whether the biofuel was produced inside or outside the EU.

Brazilian producers need to understand and accept that compliance with these standards will eventually boost the market for biofuel use. And the more that biofuel can be used, the more export opportunities there will be, resulting in a greater opportunity for a global market. It is just a matter of time.

Robert Vierhout is the secretary-general of eBIO, the European Bioethanol Fuel Association. Reach him at