Brazil is reportedly planning to pump $38 billion into its ethanol sector to help increase production.

A statement from Brazil’s Ministry of Agriculture said the purpose of the government plan is to “meet growing national demand and the potential of the foreign market for ethanol” by stimulating private sector investments in the production of ethanol, which have declined due to market conditions.

In response, Growth Energy CEO Tom Buis noted that since both the Volumetric Ethanol Excise Tax Credit (VEETC) and the tariff on ethanol imports from Brazil expired at the end of 2011, Brazil’s action puts U.S. ethanol at a disadvantage.

“The American ethanol industry voluntarily gave up its tax incentives and the import tariff against Brazil, even though Brazil continues to have a tariff on the books and is pumping $38 billion toward propping up their industry. This shows the danger of unilaterally disarming, because it means that American ethanol producers are not competing just against Brazilian ethanol producers – but against the Brazilian government as well,” said Buis. “The U.S. unilateral disarmed at a time when Brazil is not just continuing to subsidize its industry, but is increasing its investment in a plan to undermine our domestic ethanol industry.”

Brazil’s ethanol output has been dropping in recent years, while U.S. ethanol exports to Brazil have been increasing. The government plan would raise the percentage of anhydrous ethanol to gasoline to 25% and provide incentives for increasing both sugarcane acreage and ethanol processing plants.