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An economic analysis of transportation fuel policies in Brazil: Fuel choice, land use, and environmental impacts

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  • Nuñez, Hector M.
  • Önal, Hayri

Abstract

Brazil uses taxes, subsidies, and blending mandates as policy instruments to manage and stabilize its transportation fuel markets. The fuel sector has been very dynamic in recent years due to frequent policy adjustments and variable market conditions. In this paper, we use a price endogenous economic simulation model to analyze the impacts of such policy adjustments under various challenging conditions in the global ethanol and sugar markets. Our analysis specifically focuses on Brazilian producers' supply responses, consumers' driving demand and fuel choice, ethanol trade, land use, greenhouse gas emissions, and social welfare. The model results show that (i) under a low ethanol blending rate, conventional vehicles would be driven significantly less while flex-fuel and ethanol-dedicated vehicles would not be affected significantly; (ii) lowering the fuel taxes adversely affects the competitiveness of sugarcane ethanol against gasoline blends, thus lowering producers' surplus; and (iii) while a reduction in fuel taxes is advantageous in terms of overall social welfare, it has serious environmental impacts by increasing the GHG emissions from transportation fuels consumed in Brazil.

Suggested Citation

  • Nuñez, Hector M. & Önal, Hayri, 2016. "An economic analysis of transportation fuel policies in Brazil: Fuel choice, land use, and environmental impacts," Energy Economics, Elsevier, vol. 55(C), pages 319-331.
  • Handle: RePEc:eee:eneeco:v:55:y:2016:i:c:p:319-331
    DOI: 10.1016/j.eneco.2016.02.013
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    Cited by:

    1. Nuñez, Hector M., 2016. "Biofuel Potential in Mexico: Land Use, Economic and Environmental Effects," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 236067, Agricultural and Applied Economics Association.
    2. Nunez, H., 2018. "Building a Bioethanol Market in Mexico," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 275921, International Association of Agricultural Economists.

    More about this item

    Keywords

    Brazil fuel policies; Fuel markets; Social welfare; Greenhouse gas emissions;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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