"Without a doubt, Brazil could be a model for the United States," Plinio Nastari, the president of cane sector analysts Datagro, told Reuters. "Brazil is becoming self-sufficient (in oil this year) not simply because of ethanol, but it has played a part in this."

Brazil has the world's most developed biofuels market in the world. Today 30,000 filling stations across the country sell ethanol fuel distilled from sugar cane.

The fuel substitutes for 204,000 barrels of gasoline equivalent a day, or roughly 41 percent of all gasoline sold nationally, which also includes a 20 to 25 percent ethanol blend. Seven out of every 10 new cars in Brazil are now flex-fuel vehicles which can run on gasoline or ethanol or any mixture of the two.

In the United States, ethanol only accounts for 2.5 percent of the country's gasoline needs.

Brazil launched its Pro-Ethanol Program in 1976 with subsidies for mills to produce ethanol on a commercial scale, with the expressed purpose of reducing Brazil's dependence on oil imports after the first oil shock in the early 1970s.

But in the early 1980s the government ended the subsidies. Mills managed to streamline their operations to become the most efficient ethanol producers in the world and are currently experiencing a boom driven by the high price of oil.

"Ethanol is important today and its importance will be much greater," said Nastari, who expects the fuel to play an important role in fuel cell vehicles as a source of hydrogen energy to be transformed into electricity without combustion.

US OBSTACLES

Local analysts said there are challenges ahead for ethanol production in the United States, which is predominantly distilled inefficiently from corn. There are also projects to produce ethanol from grasses and cellulose but until now they have been prohibitively expensive.

They said the current cost of US ethanol production from corn is about $1.10 to $1.40 a gallon (3.785 liters), depending on the price of corn and the scale of production. But in Brazil the production cost from cane is 85 cents a gallon, up from 65 cents two years ago before the real gained against the dollar.

There will also be fewer environmental benefits from producing ethanol from corn than from cane, said Luiz Carlos Correa Carvalho, director of Canaplan consultants.

For every unit of energy of fossil fuel used in transforming corn to fuel, 1.2 to 1.4 units of energy are produced in ethanol. With cane as the base material, 8 to 10 units of energy are produced for every unit of fossil fuel.

But analysts said Bush's highlighting of ethanol production from cellulose in his energy plan was positive and should help reduce US production costs in the future, even though it was not a highly efficient means of production at present.

"With the development of this technology, the costs ought to near those of Brazil," said Carvalho.

Nastari added that, in the case of cellulose based ethanol production, the obstacle will be the collection of the primary material, which in the case of Brazil is already absorbed by the production and harvest of cane for sugar production.

Brazil is both the world's largest sugar producer and exporter. About half of its cane crop goes to sugar and the other half to ethanol production.

This is the source of one of the complaints of large oil companies in the United States. They are resistant to incorporating into their fuel mixes a product like ethanol from cane or corn, the price of which can easily be affected by swings in food demand.

Cellulose based ethanol would not be vulnerable to price fluctuations tied to food-based demand.