An Economic Model of Brazil's Ethanol-Sugar Markets and Impacts of Fuel Policies

de Gorter, Harry; Drabik, Dusan; Kliauga, Erika M.; Timilsina, Govinda R.

An Economic Model of Brazil's Ethanol-Sugar Markets and Impacts of Fuel Policies

Autores

de Gorter, Harry

Drabik, Dusan

Kliauga, Erika M.

Timilsina, Govinda R.

Descripción

The lack of growth in the Brazilian sugarcane-ethanol complex since the 2008 financial crisis has been blamed on policies: lower mandate, holding gasoline prices below world levels, high fuel taxes, and inadequate fuel tax exemptions for ethanol. This paper develops an empirical model of the Brazilian fuel-ethanol-sugar complex to analyze the impacts of these policies. Unlike biofuel mandates and tax exemptions elsewhere, Brazil's fuel-ethanol-sugar markets and fuel policies are unique such that each policy, in theory, has an ambiguous impact on the market price of ethanol and hence on sugarcane and sugar prices. The results indicate two policies that seemingly help the ethanol industry do otherwise in reality: low gasoline taxes and high anhydrous tax exemptions lower ethanol prices. But higher mandates, hydrous ethanol tax exemptions, and gasoline prices had the expected impact of increasing ethanol and sugar prices. Eliminating Brazilian ethanol tax exemptions and mandates reduces ethanol prices by 21 percent. Observed changes in prices are explained by outward shifts in fuel transportation and sugar export demand curves, and bad weather reducing sugarcane supply.

Palabras clave

AGGREGATE DEMAND, ALTERNATIVE ENERGY, ALTERNATIVE ENERGY SOURCES, ALTERNATIVE FUEL, ANHYDROUS ETHANOL, APPROACH, BAGASSE, BIOENERGY, BIOFUEL, BIOFUELS, BIOMASS, BOILERS, CO, COLLECTION COSTS, COMMODITY PRICES, COMPETITIVENESS, CONSUMER PRICE, CONSUMER PRICES, CONSUMPTION OF FUEL, CONVENTIONAL GASOLINE, CORN, CORN ETHANOL, COST OF ETHANOL, COST OF FEEDSTOCK, COST OF SUGARCANE, CRUDE OIL, DEMAND CURVE, DEMAND CURVES, DEMAND FOR ETHANOL, DEMAND FOR GASOLINE, DEMAND FUNCTIONS, ELECTRICITY, ELECTRICITY COGENERATION, ELECTRICITY GENERATION, ELECTRICITY PRICES, ELECTRICITY PRODUCTION, ENERGY ECONOMICS, ENERGY MARKETS, ENERGY SOURCES, ENVIRONMENTAL IMPACTS, ETHANOL, ETHANOL CONSUMPTION, ETHANOL DEMAND, ETHANOL FROM SUGARCANE, ETHANOL FUEL, ETHANOL INDUSTRY, ETHANOL MARKET, ETHANOL MARKET PRICES, ETHANOL MARKETS, ETHANOL PRICE, ETHANOL PRICES, ETHANOL PRODUCER, ETHANOL PRODUCERS, ETHANOL PRODUCTION, ETHANOL PROGRAM, ETHANOL YIELD, ETHANOL YIELDS, EXCESS ELECTRICITY, EXPORT MARKET, FEEDSTOCKS, FREE MARKET, FUEL, FUEL CONSUMPTION, FUEL DEMAND, FUEL MARKET, FUEL PRICE, FUEL PRICES, FUEL QUANTITIES, FUEL TAX, FUEL TAXES, FUEL VOLUME, GASOLINE, GASOLINE CONSUMPTION, GASOLINE EQUIVALENT, GASOLINE MARKET, GASOLINE PRICE, GASOLINE PRICE INCREASES, GASOLINE PRICES, GASOLINE SUPPLY, GASOLINE TAX, GRAIN PRICES, GREENHOUSE GAS, HIGH ETHANOL, HIGHER ETHANOL, INFLATION, INTERNATIONAL TRADE, KILOWATT HOURS, MARKET CONDITIONS, MARKET DEMAND, MARKET DEVELOPMENTS, MARKET EQUILIBRIUM, MARKET PRICE, MARKET SHARE, MARKETING, MERCHANDISE, NATURAL GAS, OIL PRICES, PETROLEUM, PH, PRICE CHANGE, PRICE CHANGES, PRICE DECREASE, PRICE INCREASE, PRICE LEVELS, PRICE OF ELECTRICITY, PRICE OF ETHANOL, PRICE OF FUELS, PRICE OF GASOLINE, PRICE VOLATILITY, PRODUCER PRICE, PURCHASING, QUANTITY OF FUEL, RELEVANT MARKETS, RETAIL, SALES, SOURCE OF ETHANOL, SPOT PRICE, SUGAR, SUGAR CANE, SUGARCANE, SUGARCANE ETHANOL, SUGARCANE PRODUCTION, SUGARCANE-ETHANOL, SUPPLIES OF ETHANOL, SUPPLY CURVE, SUPPLY CURVES, SUPPLY ELASTICITY, SUPPLY OF ELECTRICITY, TAX BREAKS, TAX CREDIT, TAX CREDITS, TAX EXEMPTION, TAX EXEMPTIONS, TRANSPORTATION FUEL, TRANSPORTATION FUELS, VEHICLE, VEHICLES, WHOLESALE GASOLINE, WHOLESALE GASOLINE PRICE, WHOLESALE PRICE, WORLD MARKET, flex-plant, blend mandate