Dallas, TX –
With national security on everyone's mind and the average retail price of gasoline at all-time inflation-adjusted high of more than $3.50 a gallon, in recent years analysts have touted Brazil as an example the U.S. should follow on the path to "energy independence."
Unfortunately, the analysts misunderstand both the differences between the energy markets in the United States and Brazil and the underlying reason for Brazil's success. Brazil's success is often attributed to its thriving ethanol market, but this is at most only a small part of the story.
In 2006, according to the Energy Information Administration (EIA), ethanol made up 20 percent of the total fuel consumed by automobiles and trucks on Brazilian highways. Despite the fact that in absolute terms the U.S. now produces more total ethanol than Brazil, at less than 3 percent of the fuel used in cars and trucks, we still lag far behind our southern neighbor.
And it is unlikely, absent imposing a huge price hike on drivers and doing horrific damage to the environment, that we can ever reach a goal of ethanol providing 20 percent of our fuel supply. Why?
First, Brazil uses much less gasoline and diesel than the U.S. While Brazil consumes 20 billion gallons of ethanol, gasoline and diesel combined each year, the United States uses 182 billion gallons a year over 9 times as much.
Second, Brazil's climate is suited to growing sugarcane, which requires half as much land as corn per gallon of ethanol produced. Also, sugarcane-based ethanol provides 800 percent more energy than the fossil fuel used to make it, while America's corn-based ethanol at most provides only 30 percent more energy than is used to produce it. Further, production costs in Brazil are far lower than in the United States.
While Brazil's embrace of ethanol doesn't have much to teach the U.S., its policies with regard to domestic oil and gas production do provide an instructive lesson. In the 1980s, despite huge subsidies Brazil began experiencing ethanol shortages. As a result, it started promoting policies to boost domestic oil production. Indeed, increased production and new oil discoveries played the biggest role in liberating Brazil from dependence on foreign energy.
Brazil increased domestic crude oil production an average of more than 9 percent a year from 1980 to 2005, to 1.6 million barrels of oil per day. Most notably, in 2007, Brazil announced a huge oil discovery off its coast that could increase its oil reserves by 8 billion barrels, or 40 percent.
By contrast, from 1980 to 2005, U.S. crude oil production fell about 2 percent a year or 40 percent overall.
This is one lesson we could learn from Brazil's push for energy independence: make oil production a priority. And the U.S. has significant reserves: the government estimates that Alaska and the Outer Continental Shelf could contain more than 100 billion barrels of oil combined more than four times as much as current U.S. reserves. New domestic oil production will do far more to alleviate America's dependence on foreign oil supplies than even the most efficient production of ethanol. Tapping this oil only requires Congress to remove legislative barriers to domestic production - no subsidies, no mandates.
H. Sterling Burnett is a Senior Fellow with the National Center for Policy Analysis in Dallas, Texas.
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