Brazil, US seal 'world-changing' ethanol deal

Brazil and the US, which together produce 70 per cent of the world's ethanol, sealed a major commitment to promote and produce the biofuel which they said could change the world.

US President George W Bush and his Brazilian counterpart Luiz Inacio Lula da Silva donned white hardhats and coats to visit an ethanol plant outside the Latin American country's commercial and financial capital to celebrate the agreement signed on Friday - described as an "OPEC" for biofuel.

The strategic association would provide for cooperation in bio-fuels in the private sector and aim to exploit third markets, starting with those in Central America. The long-term goal is to turn ethanol into a global commodity.

For both leaders, the prospect of expanded ethanol use is politically important - for Lula because of the leverage it would give him over the growing hegemony of oil-rich Venezuela, and for Bush as an image correction of his anti-Kyoto policies and also a wedge against the anti-US leftist leader of Venezuela, Hugo Chavez.

Chavez was not sitting idly during Bush's five-country visit to Latin America, but rather was in Buenos Aires on Friday sealing an agreement with Argentine President Nestor Kirchner for natural gas cooperation.

The US, which produces mainly corn-based ethanol, just recently pulled ahead of Brazil, which uses sugarcane, as the world's largest producer of ethanol.

But Brazil led the way in developing production methods and ethanol-burning car motors, having spent 30 years building a system to stave off a repeat of the fuel disaster of the 1970s. That's when soaring fuel prices eroded Brazil's fledgling economic gains and inspired the successful effort for energy independence.

Earlier this week, Japan companies signalled a $8 billion deal with Brazil's state energy company Petrobras to boost ethanol production and deliver much of it to Japan.

The deal establishes bilateral cooperation for the production of ethanol from cellulose, defines international guidelines to turn the product into commodity and plans for a technology transfer to Latin American and Caribbean countries that may be interested in producing ethanol.

The ethanol deal - which has raised eyebrows among environmentalists worried about the prospect of increasing wilderness areas plowed under for sugarcane and corn, and among economists who worry about upward price pressure on the human staple crop of corn - also gave Lula an opening to taunt Bush about the struggling Doha round of world trade talks.

Lula suggested that Bush should guarantee that the US lower its excise tax on imported ethanol, but Bush said that issue was in control of the US Congress.

Lula has been a thorn in the side of the US and European Union on free trade issues, taking a lead role in the so-called G-20 of developing nations that have blocked a World Trade Organisation deal.

Lula has also blocked Bush's efforts to seal a free trade region of the Americas. But he was optimistic that the joint ethanol agreement would spread energy sufficiency and development to "South Africa, China, India and European countries."

When "richer countries buy biodiesel" produced in poorer countries, "then we'll see that investments put into those countries have generated jobs," Lula said.