Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil
AbstractUnlike regular cars, ex-fuel vehicles (FFVs) allow motorists to fuel on motor blends that contain between zero and one hundred percent of ethanol. This paper investigates how motorists arbitrage between hydrous ethanol and gasoline using aggregate fuel consumption data in Brazil. The ability of FFV motorists to arbitrage between fuel blends shapes of aggregate demands for hydrous ethanol and gasoline. I estimate using nonlinear seemingly unrelated regressions the demands for hydrous ethanol and gasoline in Brazil, and motorists preferences for hydrous ethanol. I nd that on average, accounting for the relative energy contents of the two fuels, FFV motorists in Brazil slightly discount hydrous ethanol over gasoline. Most consumers switch between fuels when their relative prices are at near parity. I nd that 20% of consumers still purchase hydrous ethanol when its price is about 10% above the price of gasoline. The distribution of preferences is not symmetric as 20% of consumers still purchase gasoline when there is a 15% discount on the price of hydrous ethanol.
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Bibliographic InfoPaper provided by Agricultural and Applied Economics Association in its series 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. with number 150964.
Date of creation: 03 Jun 2013
Date of revision:
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Ethanol; Gasoline; Preferences; Flexible-fuel vehicles; Arbitrage; Consumer/Household Economics; International Development; International Relations/Trade; Research and Development/Tech Change/Emerging Technologies; Resource /Energy Economics and Policy;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-05 (All new papers)
- NEP-ENE-2013-07-05 (Energy Economics)
- NEP-TRE-2013-07-05 (Transport Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Iootty, Mariana & Pinto Jr., Helder & Ebeling, Francisco, 2009. "Automotive fuel consumption in Brazil: Applying static and dynamic systems of demand equations," Energy Policy, Elsevier, vol. 37(12), pages 5326-5333, December.
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"The demand for ethanol as a gasoline substitute,"
Journal of Environmental Economics and Management,
Elsevier, vol. 63(2), pages 151-168.
- Du, Xiaodong & Carriquiry, Miguel A., 2013. "Flex-fuel vehicle adoption and dynamics of ethanol prices: lessons from Brazil," Energy Policy, Elsevier, vol. 59(C), pages 507-512.
- Hira, Anil & de Oliveira, Luiz Guilherme, 2009. "No substitute for oil? How Brazil developed its ethanol industry," Energy Policy, Elsevier, vol. 37(6), pages 2450-2456, June.
- Salvo, Alberto & Huse, Cristian, 2013. "Build it, but will they come? Evidence from consumer choice between gasoline and sugarcane ethanol," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 251-279.
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