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Flex-fuel vehicle adoption and dynamics of ethanol prices: lessons from Brazil

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  • Du, Xiaodong
  • Carriquiry, Miguel A.

Abstract

Focusing on dynamics of the relative prices of substitute fuels, namely ethanol and gasoline, this study quantifies the impact of the increase in shares of flex-fuel vehicles (FFVs) in the vehicle fleet on the domestic ethanol prices in Brazil. A modified partial adjustment model is employed. Estimation results provide strong support for our research hypotheses: (i) when consumers can choose between the fuels the relative ethanol and gasoline prices converge to a long-run equilibrium level, which is determined by the fuel economy, and (ii) price dynamics are largely determined by market supply and demand factors including the price of sugar, ethanol exports, and composition of vehicle fleet. Furthermore, the impacts of demand factors such as ethanol exports are strengthened by the increasing proportion of FFVs in the vehicle fleet.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:enepol:v:59:y:2013:i:c:p:507-512
    DOI: 10.1016/j.enpol.2013.04.008
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    2. Krishnendra Meena, 2021. "Environmental Standards in the BRICS: An Analysis of Vehicular Pollution," International Studies, , vol. 58(3), pages 397-408, July.
    3. Martin-Valmayor, Miguel A. & Gil-Alana, Luis A. & Martín, Asís Pardo, 2023. "US biofuel market persistence and mean reversion properties," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 648-660.
    4. Gabriel E Lade & C -Y Cynthia Lin Lawell & Aaron Smith, 2018. "Policy Shocks and Market-Based Regulations: Evidence from the Renewable Fuel Standard," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(3), pages 707-731.
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    6. Pouliot, Sébastien, "undated". "Arbitrage between ethanol and gasoline: evidence from motor fuel consumption in Brazil," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150964, Agricultural and Applied Economics Association.
    7. Palacios-Bereche, M.C. & Palacios-Bereche, R. & Gallego, A.G. & Rossell, C.E.V. & Serra, Luis M. & Lozano, Miguel A. & Ensinas, A.V. & Nebra, S.A., 2025. "Energy, exergy and economic assessment of the introduction of VHG fermentation in conventional bioethanol production process from sugarcane," Energy, Elsevier, vol. 337(C).
    8. Ghoddusi, Hamed, 2017. "Price risks for biofuel producers in a deregulated market," Renewable Energy, Elsevier, vol. 114(PB), pages 394-407.
    9. Avelino Gonçalves, Fabiano & dos Santos, Everaldo Silvino & de Macedo, Gorete Ribeiro, 2015. "Use of cultivars of low cost, agroindustrial and urban waste in the production of cellulosic ethanol in Brazil: A proposal to utilization of microdistillery," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1287-1303.
    10. Rômulo N. Ely & Michael L. Lahr, 2024. "How far should we go to sugarcoat the path to global energy security?," Annals of Operations Research, Springer, vol. 333(1), pages 361-392, February.
    11. Sebastien Pouliot & Bruce A. Babcock, 2014. "Impact of Ethanol Mandates on Fuel Prices when Ethanol and Gasoline are Imperfect Substitutes," Center for Agricultural and Rural Development (CARD) Publications 14-wp551, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    12. Aloisio S. Nascimento Filho & Rafael G. O. dos Santos & João Gabriel A. Calmon & Peterson A. Lobato & Marcelo A. Moret & Thiago B. Murari & Hugo Saba, 2022. "Induction of a Consumption Pattern for Ethanol and Gasoline in Brazil," Sustainability, MDPI, vol. 14(15), pages 1-11, July.
    13. Tabak, Benjamin Miranda & e Silva, Igor Bettanin Dalla Riva & Quintino, Derick David & Silva, Thiago Christiano, 2025. "Fuel prices connectedness across Brazilian capitals: The case of ethanol and gasoline," Renewable and Sustainable Energy Reviews, Elsevier, vol. 210(C).
    14. Laurini, Márcio Poletti, 2017. "The spatio-temporal dynamics of ethanol/gasoline price ratio in Brazil," Renewable and Sustainable Energy Reviews, Elsevier, vol. 70(C), pages 1-12.
    15. Oliveira, Sydnei Marssal de & Ribeiro, Celma de Oliveira & Cicogna, Maria Paula Vieira, 2018. "Uncertainty effects on production mix and on hedging decisions: The case of Brazilian ethanol and sugar," Energy Economics, Elsevier, vol. 70(C), pages 516-524.
    16. Hector M. Nunez & Jesus Otero, 2017. "Integration in Gasoline and Ethanol Markets in Brazil over Time and Space under the Flex-fuel Technology," The Energy Journal, , vol. 38(2), pages 1-26, March.
    17. Pouliot, Sébastien & Babcock, Bruce A., 2014. "The demand for E85: Geographical location and retail capacity constraints," Energy Economics, Elsevier, vol. 45(C), pages 134-143.

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