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Flex cars and the alcohol price

Author

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  • Ferreira, Alex Luiz
  • de Almeida Prado, Fernando Pigeard
  • da Silveira, Jaylson Jair

Abstract

We build a model that incorporates the effect of the innovative "flex" car, an automobile that is able to run with either gasoline or alcohol, on the dynamics of fuel prices in Brazil. Our model shows that differences regarding fuel prices will now depend on the proportions of alcohol, gasoline and flex cars in the total stock. Conversely, the demand for each type of car will also depend on the expected future prices of alcohol and gasoline (in addition to the car prices). The model reflects our findings that energy prices are tied in the long run and that causality runs stronger from gasoline to alcohol. The estimated error correction parameter is stable, implying that the speed of adjustment towards equilibrium remains unchanged. The latter result is probably due to a still small fraction of flex cars in the total stock (approx. 5%), despite the fact that its sales nearly reached 100% in 2006.

Suggested Citation

  • Ferreira, Alex Luiz & de Almeida Prado, Fernando Pigeard & da Silveira, Jaylson Jair, 2009. "Flex cars and the alcohol price," Energy Economics, Elsevier, vol. 31(3), pages 382-394, May.
  • Handle: RePEc:eee:eneeco:v:31:y:2009:i:3:p:382-394
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Hector M. Nuñez and Jesús Otero, 2017. "Integration in Gasoline and Ethanol Markets in Brazil over Time and Space under the Flex-fuel Technology," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    2. de Freitas, Luciano Charlita & Kaneko, Shinji, 2011. "Ethanol demand under the flex-fuel technology regime in Brazil," Energy Economics, Elsevier, vol. 33(6), pages 1146-1154.
    3. repec:eee:eneeco:v:63:y:2017:i:c:p:314-321 is not listed on IDEAS
    4. 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.
    5. Juliano Assuncao & Joao Paulo Pessoa & Leonardo Rezende, 2013. "Flex Cars and Competition in Ethanol and Gasoline Retail Markets," CEP Discussion Papers dp1251, Centre for Economic Performance, LSE.
    6. Scaife, Mark A. & Merkx-Jacques, Alexandra & Woodhall, David L. & Armenta, Roberto E., 2015. "Algal biofuels in Canada: Status and potential," Renewable and Sustainable Energy Reviews, Elsevier, vol. 44(C), pages 620-642.

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