Ethanol vs. gasoline: conventional policies and the slow uptake

Despite significant government interventions over the past five decades in Brazil, the adoption of ethanol as an alternative to gasoline remains well below the expected level. We utilise a novel dataset that covers all municipalities with operational gas stations, including data on ethanol and gasoline consumption, prices, socio-demographics, and state characteristics, to assess the impact of economic, demographic, and local factors (in the period 2020/9–2021/12), and to investigate the factors influencing fuel choice and the likely existence of barriers to ethanol adoption. Results indicate that non-economic factors, including education and age, influence ethanol adoption. State-level fiscal policies and economic vocations, such as sugarcane and oil production, also influence adoption. We argue that policies should go beyond traditional economic incentives and, instead, take a more comprehensive approach that addresses local conditions and promotes pro-social behaviours. In this vein, we propose several policy interventions inspired by behavioral economics to increase adoption, particularly among wealthier, younger, and less-educated citizens. Ultimately, the study recommends further research into the social and cognitive factors that influence fuel choice and the effectiveness of policy.