But as the contentious tax finally expired at year-end, American farmers' fears of being swamped by sugar-based tropical biofuel seem unfounded. With Brazil's ethanol industry struggling to meet booming local demand, it's U.S. producers instead who are shipping millions of gallons to the south.
Three factors have converged to push Brazil's ethanol distilleries to the limit. Sugarcane production fell this year for the first time in a decade, reducing supplies; global demand for sugar has remained strong; and domestic motor-fuel demand has surged, straining local gasoline and ethanol supply.
Brazilian ethanol demand outstrips supply by nearly 25 percent, according to Reuters and industry data. It may take more than two years for new investment to correct the imbalance, delaying Brazil's predicted emergence as a "biofuel Saudi Arabia".
Brazil's shortage is so acute that the world's No. 2 ethanol producer is actually importing U.S. corn ethanol, helping the United States dethrone Brazil as the world's largest exporter.
"The end of the tariff is a start, but I don't see major changes in exports over the next three years," said Antonio de Padua Rodrigues, technical director at Unica, Brazil's main sugarcane producers' association.
"We still need to sort out how to supply our own market," Padua said.
That should come as a relief to U.S. farmers who have fought to protect their subsidized corn ethanol market from producers in Brazil, whose tropical sun and cheap land allow abundant production of sugarcane, a much more efficient biofuel feedstock than corn.
Even with new U.S. environmental rules giving a big boost to ethanol demand, domestic producers have little to fear from Brazil until 2014 at the earliest, industry representatives and analysts say.
The 54-cent-a-gallon U.S. tariff on imported ethanol expired Dec. 31. Brazilian producers had hoped this development would help them meet a goal of more than doubling output by 2020.
But even if Brazilian resolves its supply shortfall, other factors will probably hinder a full-scale assault on the U.S. ethanol market. These include a lack of pipelines, tankers, port facilities and storage capacity in both countries, along with an undeveloped market for liquid ethanol futures contracts.
Work on a 6.5-billion-real ($3.5 billion), 1,300-kilometer (808 mile) ethanol pipeline linking producers with ports in Brazil began this year. Completion of the whole project is not expected until the end of 2015. By 2020, it should be moving 22 billion liters a year, an amount nearly equal to all current Brazilian output.
DECLINING BRAZIL PRODUCTION
Brazil's ethanol output fell 17 percent in the current 2011/12 harvest season, to 22.8 billion liters or about 25 percent less than potential demand. Nearly all cars sold in Brazil now burn any mix of gasoline or ethanol, allowing the driver to choose a different fuel at each service station visit.
The decline in output, mainly due to bad weather and low investment in crop replanting after the 2008 financial crisis, caught companies in the middle of ambitions expansion programs. Cane rootstock must be replaced every five to six years.
At the same time, demand for fuels in the Brazilian market surged as the economy boomed. In recent years Brazil has grown at some of its fastest rates in decades.
New investment in mills, though, failed to materialize as costs skyrocketed and producers faced "unfair" competition with gasoline prices.
The government, which has a controlling stake in Petrobras, the country's only oil refiner, has prevented the company from passing on many recent oil price rises to distributors in an effort to keep domestic inflation at bay.
Price controls have made it hard for ethanol producers lacking Petrobras' heft to compete.
Ethanol, which had become Brazil's most-used passenger vehicle fuel slipped back into second place after gasoline.
Meanwhile, Brazilian imports of U.S. ethanol could grow in 2012. This would not limit the country's ability to export ethanol to the United States. But it would minimize the benefit to Brazil's balance of trade of any growth in exports stemming from new U.S. environmental rules.
Essentially, Brazil will be importing U.S. corn-based biofuel that does not meet new EPA standards, while exporting its own, more efficient cane-based ethanol. This will be economically profitable but could pose environmental problems.
In 2010, the U.S. Environmental Protection Agency recognized sugarcane ethanol as an advanced renewable low-carbon fuel that could significantly cut greenhouse gas emissions.
The EPA's Renewable Fuel Standard sets a minimum consumption level of advanced biofuels of 500 million gallons (1.9 billion liters) in 2012, up from 300 million gallons in 2011.
Cellulosic ethanol and biomass biodiesel made in the United States are also considered advanced biofuels, but supplies of these fuels have been too low to fill demand. The resulting price increase allowed certified Brazilian ethanol to compete despite the tariff.
In 2011 Brazilian exports rose to 1.64 billion liters (433 million gallons). Imports were almost the same at 1.66 billion liters, nearly all of them from the United States.
"It is possible that these volumes of swapped ethanol rise in 2012/13," said Datagro's president, Plinio Nastari. "But this will not jeopardize the supply of the local (Brazilian) market."
At current prices, there is no economic incentive to export Brazilian ethanol to the U.S. market.
Low supplies in Brazil and a lack of infrastructure are likely to turn the end of the U.S. ethanol tariff, hailed as a great Brazilian victory, into something of a non-event, though over time that's likely to change.
With the tariff gone, traders will be more likely to sign long-term supply contracts allowing farmers to invest in land and industrial capacity. It's then that Brazil's advantages will become apparent and exports will soar, he said.