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Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets

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We analyze the impact of trade liberalization and removal of the federal tax credit in the United States on U.S. and Brazilian ethanol markets using a multi-market international ethanol model calibrated on 2005 market data and policies. The removal of trade distortions induces a 23.2 percent increase in the price of world ethanol on average between 2006 and 2015 relative to the baseline. The U.S. domestic ethanol price decreases by 14.1 percent, which results in a 7.5 percent decline in production and a 3.2 percent increase in consumption. The lower domestic price leads to a 2.5 percent rise in the share of fuel ethanol in gasoline consumption. U.S. net ethanol imports increase by 192.8 percent. Brazil responds to the higher world ethanol price by increasing its production by 8.8 percent on average. Total ethanol consumption in Brazil decreases by 3.2 percent and net exports increase by 61.9 percent relative to the baseline. The higher ethanol price leads to a 4.7 percent increase in the share of sugarcane used in ethanol production. The removal of trade distortions and 51¢ per gallon tax credit to refiners blending ethanol induces a 22.5 percent increase in the world ethanol price.

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Bibliographic Info

Paper provided by Center for Agricultural and Rural Development (CARD) at Iowa State University in its series Center for Agricultural and Rural Development (CARD) Publications with number 06-wp427.

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Date of creation: Oct 2006
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Handle: RePEc:ias:cpaper:06-wp427

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Keywords: biofuels; ethanol; renewable fuels; trade liberalization.;

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Cited by:
  1. Jacinto F. Fabiosa & John C. Beghin & Fengxia Dong & Amani Elobeid & Simla Tokgoz & Tun-Hsiang (Edward) Yu, 2009. "Land Allocation Effects of the Global Ethanol Surge: Predictions from the International FAPRI Model," Center for Agricultural and Rural Development (CARD) Publications 09-wp488, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  2. Elobeid, Amani & Tokgoz, Simla & Hayes, Dermot J. & Babcock, Bruce A. & Hart, Chad E., 2007. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Staff General Research Papers 12717, Iowa State University, Department of Economics.
  3. Le Roy, Danny G. & Elobeid, Amani E. & Klein, Kurt K., 2009. "The Impact of Trade Barriers on Mandated Biofuel Consumption in Canada," Trade Policy Briefs 54973, Canadian Agricultural Trade Policy Research Network.
  4. Fapri, 2007. "Economic Impacts of Not Extending Biofuels Subsidies," FAPRI-MU Report Series 42189, Food and Agricultural Policy Research Institute at University of Missouri.
  5. Fridfinnson, Brooke & Rude, James, 2009. "The Effects of BioFuels Policies on Global Commodity Trade Flows," Working Papers 48119, Canadian Agricultural Trade Policy Research Network.
  6. Tatum, Shaun W. & Skinner, Sarah J. & Jackson, John D., 2010. "On the economic sustainability of ethanol E85," Energy Economics, Elsevier, vol. 32(6), pages 1263-1267, November.
  7. Sriniketh Nagavarapu, 2008. "Brazilian Ethanol: A Gift or Threat to the Environment and Regional Development?," Discussion Papers 07-039, Stanford Institute for Economic Policy Research.
  8. Collantes, Gustavo, 2010. "Do green tech policies need to pass the consumer test?: The case of ethanol fuel," Energy Economics, Elsevier, vol. 32(6), pages 1235-1244, November.
  9. Szklo, Alexandre & Schaeffer, Roberto & Delgado, Fernanda, 2007. "Can one say ethanol is a real threat to gasoline?," Energy Policy, Elsevier, vol. 35(11), pages 5411-5421, November.
  10. Blanco, Luisa & Isenhouer, Michelle, 2010. "Powering America: The impact of ethanol production in the Corn Belt states," Energy Economics, Elsevier, vol. 32(6), pages 1228-1234, November.
  11. Fox, Glenn & Shwedel, Kenneth, 2007. "North American Ethanol Bionenergy Policies and Their NAFTA Implications," 2007 NAAMIC Workshop IV: Contemporary Drivers of Integration 163897, North American Agrifood Market Integration Consortium (NAAMIC).

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