Ethanol in Brazil

Yesterday's New York Times reported on the increased use of ethanol in Brazil as a substitute for gasoline. Apparently the Brazilian are greatly increasing their use of ethanol and are nearly energy independent as a country. Good for them.

The key technology here is flex fuel vehicles, which allow the vehicle to operate on either gasoline, an ethanol blend, or some mixture of the two. From the picture in the article, it appears that the ethanol blend sells for approximately 30% less than gasoline, so obviously people are eager to use it. What I am not sure about in this situation is how much of this progress is attributable to private innovation in the presence of a monopoly and how much of this is attributable to government intervention. Brazil has been one of the leaders in "Latin American State Capitalism", so the later would not surprise me at all.

Unfortunately, here in the United States, we are not really doing a good job of following in Brazil's lead:

But Brazilian officials and business executives say the ethanol industry would develop even faster if the United States did not levy a tax of 54 cents a gallon on all imports of Brazilian cane-based ethanol.

The farm belt sees corn based ethanol as a new market to exploit, but only if they can protect it from lower cost imports. How is that good for the US consumer? What we really need to do is drop the tax on ethanol imports and let the market develop. Since Brazil will not be able to supply all of the demand in the near term or any term, there will be a place for corn based ethanol along side the cheaper imports. We need to get smarter about energy policy and by that I mean let the market figure it out.