Another major oil company has entered the Brazilian ethanol market – Shell. According to Brazilian newspaper Valor Econômico, Shell and Cosan S.A., Brazil’s largest producer of ethanol, signed a Memorandum of Understanding. Moving forward, the two companies hope to create several new joint ventures to the tune of $12 billion that will produce sugar-based ethanol as well as electricity and focus on retail distribution.

According to Green Car Congress, Cosan is the third largest sugar producer in the world, fifth largest ethanol producer in the world and the largest ethanol exporter in the world. Cosan owns and operates 23 ethanol plants.

In an article in the Financial Times, Mark Williams, Shell’s Director of downstream operations said, “Cosan represents the best entry to sustainable biofuels in the market – the best entry of scale…we will take the lowest-carbon, least-impact form of ethanol and leverage that into a worldwide opportunity.”

There are currently trade barriers in the form of a 54 cent tariff on Brazilian ethanol entering the U.S. marketplace, and another current barrier to “worldwide exports” was created when the country reduced is mandatory ethanol blend to 20 percent, down from 25 percent. The temporary mandate was put in place in response to a smaller sugarcane harvest than expected due to excessive rain.

This action, in conjunction with the public call for “Brazilian ethanol” from many politicians and citizens alike spurred Growth Energy‘s CEO Tom Buis to respond, “This is the perfect illustration of why it makes no sense to become dependent on any foreign source of energy – whether it’s Middle East oil or Brazilian sugarcane ethanol. Between high sugar prices and a sugarcane crop shortage, Brazil can’t meet its own ethanol needs – let alone the ethanol needs of the United States.”

“Yet time and time again we hear from critics of American ethanol that Brazilian ethanol is the solution…We can produce more than enough ethanol in this country using domestic feedstock, and we should. It makes no sense to replace our dependence on foreign oil with a dependence on foreign ethanol, especially if it forces job losses and would drive up prices if Brazil has another sugarcane crop shortage,” concluded Buis.