IDEAS home Printed from https://ideas.repec.org/a/eee/enepol/v208y2026ics0301421525003969.html

The fuel of the future law and the Brazilian sugarcane energy sector

Author

Listed:
  • Lisbinski, Fernanda Cigainski
  • Freitas, Felipe André Oliveira
  • Burnquist, Heloisa Lee

Abstract

The Future Fuel Law (Lei do Combustível do Futuro - LCF), enacted in October 2024, represents a milestone in Brazil's energy transition. This legislation aims to decarbonize transportation, promote biofuel adoption, and strengthen the country's commitment to sustainable energy. The Brazilian sugar-energy sector may be significantly impacted by the LCF, as it incentivizes anhydrous ethanol use by raising its permissible blending limit with gasoline. This study evaluates the LCF's potential effects on the sugar-energy sector using Granger Causality Tests, a Vector Error Correction Model (VEC) with Two-Stage Least Squares (2SLS) regression, and Impulse Response Functions (IRFs) to assess how blending mandate shocks propagate through related variables. The results indicated that anhydrous ethanol blend adjustments primarily affect prices and production of anhydrous/hydrated ethanol as well as sugar prices. For the long term, IRFs show no statistically significant impacts on sugar/ethanol prices or production and export volumes. Responses converge to zero within initial periods, indicating market equilibrium restoration. Regarding policy implications, it can be considered that a gradual blend increase promotes stability, enabling smooth technological adaptation, while abrupt changes trigger price volatility and supply chain pressures. The LCF demonstrates how phased biofuel policies can balance economic stability, resource allocation efficiency, and emission reduction goals. Finally, this research provides a framework for countries implementing biofuel policies to advance sustainable energy transitions.

Suggested Citation

  • Lisbinski, Fernanda Cigainski & Freitas, Felipe André Oliveira & Burnquist, Heloisa Lee, 2026. "The fuel of the future law and the Brazilian sugarcane energy sector," Energy Policy, Elsevier, vol. 208(C).
    • Handle: RePEc:eee:enepol:v:208:y:2026:i:c:s0301421525003969
    DOI: 10.1016/j.enpol.2025.114889
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0301421525003969
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.enpol.2025.114889?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Tamás Mizik, 2021. "Economic Aspects and Sustainability of Ethanol Production—A Systematic Literature Review," Energies, MDPI, vol. 14(19), pages 1-25, September.
    2. Hira, Anil, 2011. "Sugar rush: Prospects for a global ethanol market," Energy Policy, Elsevier, vol. 39(11), pages 6925-6935.
    3. Rezende, Marcelo L. & Richardson, James W., 2015. "Economic feasibility of sugar and ethanol production in Brazil under alternative future prices outlook," Agricultural Systems, Elsevier, vol. 138(C), pages 77-87.
    4. Deborah Bentivoglio & Adele Finco & Mirian Rumenos Piedade Bacchi, 2016. "Interdependencies between Biofuel, Fuel and Food Prices: The Case of the Brazilian Ethanol Market," Energies, MDPI, vol. 9(6), pages 1-16, June.
    5. Jerry L. Holechek & Hatim M. E. Geli & Mohammed N. Sawalhah & Raul Valdez, 2022. "A Global Assessment: Can Renewable Energy Replace Fossil Fuels by 2050?," Sustainability, MDPI, vol. 14(8), pages 1-22, April.
    6. Lundberg, Liv & Cintas Sanchez, Olivia & Zetterholm, Jonas, 2023. "The impact of blending mandates on biofuel consumption, production, emission reductions and fuel prices," Energy Policy, Elsevier, vol. 183(C).
    7. Kwiatkowski, Denis & Phillips, Peter C. B. & Schmidt, Peter & Shin, Yongcheol, 1992. "Testing the null hypothesis of stationarity against the alternative of a unit root : How sure are we that economic time series have a unit root?," Journal of Econometrics, Elsevier, vol. 54(1-3), pages 159-178.
    8. Boldea, Otilia & Cornea-Madeira, Adriana & Hall, Alastair R., 2019. "Bootstrapping structural change tests," Journal of Econometrics, Elsevier, vol. 213(2), pages 359-397.
    9. Klaus Neusser, 2016. "Interpretation and Identification of VAR Models," Springer Texts in Business and Economics, in: Time Series Econometrics, chapter 15, pages 255-294, Springer.
    10. Karel Janda & Eva Michalikova & Luiz Célio Souza Rocha & Paulo Rotella Junior & Barbora Schererova & David Zilberman, 2022. "Review of the Impact of Biofuels on U.S. Retail Gasoline Prices," Energies, MDPI, vol. 16(1), pages 1-21, December.
    11. Jarque, Carlos M. & Bera, Anil K., 1980. "Efficient tests for normality, homoscedasticity and serial independence of regression residuals," Economics Letters, Elsevier, vol. 6(3), pages 255-259.
    12. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    13. Karel Janda & Vendula Letovska & Jan Sila & David Zilberman, 2024. "Impact of Ethanol Blending Policies on U.S. Gasoline Prices," Working Papers IES 2024/32, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Sep 2024.
    14. Dusan Drabik & Harry De Gorter & David R. Just & Govinda R. Timilsina, 2015. "The Economics of Brazil’s Ethanol-Sugar Markets, Mandates, and Tax Exemptions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(5), pages 1433-1450.
    15. Millinger, M. & Reichenberg, L. & Hedenus, F. & Berndes, G. & Zeyen, E. & Brown, T., 2022. "Are biofuel mandates cost-effective? - An analysis of transport fuels and biomass usage to achieve emissions targets in the European energy system," Applied Energy, Elsevier, vol. 326(C).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Kalaitzi, Athanasia Stylianou & Chamberlain, Trevor William, 2021. "The validity of the export-led growth hypothesis: some evidence from the GCC," LSE Research Online Documents on Economics 106586, London School of Economics and Political Science, LSE Library.
    2. Kyritsis, Evangelos & Serletis, Apostolos, 2018. "The zero lower bound and market spillovers: Evidence from the G7 and Norway," Research in International Business and Finance, Elsevier, vol. 44(C), pages 100-123.
    3. Lee, Chien-Chiang & Zeng, Jhih-Hong, 2011. "Revisiting the relationship between spot and futures oil prices: Evidence from quantile cointegrating regression," Energy Economics, Elsevier, vol. 33(5), pages 924-935, September.
    4. Manolis G. Kavussanos & Ilias D. Visvikis, 2011. "The Predictability of Non-Overlapping Forecasts: Evidence from a New Market," Multinational Finance Journal, Multinational Finance Journal, vol. 15(1-2), pages 125-156, March - J.
    5. Alizadeh, Amir H. & Nomikos, Nikos K., 2007. "Investment timing and trading strategies in the sale and purchase market for ships," Transportation Research Part B: Methodological, Elsevier, vol. 41(1), pages 126-143, January.
    6. Rodrigues, Luciano & Bacchi, Mirian Rumenos Piedade, 2017. "Analyzing light fuel demand elasticities in Brazil using cointegration techniques," Energy Economics, Elsevier, vol. 63(C), pages 322-331.
    7. Batchelor, Roy & Alizadeh, Amir & Visvikis, Ilias, 2007. "Forecasting spot and forward prices in the international freight market," International Journal of Forecasting, Elsevier, vol. 23(1), pages 101-114.
    8. Regli, Frederik & Nomikos, Nikos K., 2019. "The eye in the sky – Freight rate effects of tanker supply," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 125(C), pages 402-424.
    9. Xiaojie Xu, 2017. "The rolling causal structure between the Chinese stock index and futures," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 31(4), pages 491-509, November.
    10. Kevin S. Nell & Maria M. De Mello, 2019. "The interdependence between the saving rate and technology across regimes: evidence from South Africa," Empirical Economics, Springer, vol. 56(1), pages 269-300, January.
    11. repec:kap:iaecre:v:17:y:2011:i:2:p:157-168 is not listed on IDEAS
    12. Chen, Pei-Fen & Chien, Mei-Se & Lee, Chien-Chiang, 2011. "Dynamic modeling of regional house price diffusion in Taiwan," Journal of Housing Economics, Elsevier, vol. 20(4), pages 315-332.
    13. Jin, Xiaoye, 2015. "Volatility transmission and volatility impulse response functions among the Greater China stock markets," Journal of Asian Economics, Elsevier, vol. 39(C), pages 43-58.
    14. Mohsen Bahmani-Oskooee & Taggert Brooks, 2003. "A new criteria for selecting the optimum lags in Johansen's cointegration technique," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 875-880.
    15. Isabel Cortés-Jiménez & Manuel Artís, 2005. "The role of the tourism sector in economic development - Lessons from the Spanish experience," ERSA conference papers ersa05p488, European Regional Science Association.
    16. Soto, Raimundo, 2009. "Dollarization, economic growth, and employment," Economics Letters, Elsevier, vol. 105(1), pages 42-45, October.
    17. Islam Hassouneh & Teresa Serra & José M. Gil, 2010. "Price transmission in the Spanish bovine sector: the BSE effect," Agricultural Economics, International Association of Agricultural Economists, vol. 41(1), pages 33-42, January.
    18. Francis Ahking, 2003. "Efficient unit root tests of real exchange rates in the post-Bretton Woods era," Economics Bulletin, AccessEcon, vol. 6(7), pages 1-12.
    19. Yuan, Di & Li, Sufang & Li, Rong & Zhang, Feipeng, 2022. "Economic policy uncertainty, oil and stock markets in BRIC: Evidence from quantiles analysis," Energy Economics, Elsevier, vol. 110(C).
    20. Fredj Jawadi & Catherine Bruneau & Nadia Sghaier, 2009. "Nonlinear Cointegration Relationships Between Non‐Life Insurance Premiums and Financial Markets," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 753-783, September.
    21. Derek Bond & Michael J. Harrison & Edward J. O'Brien, 2005. "Testing for Long Memory and Nonlinear Time Series: A Demand for Money Study," Trinity Economics Papers tep20021, Trinity College Dublin, Department of Economics.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:enepol:v:208:y:2026:i:c:s0301421525003969. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/enpol .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.