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Removing Distortions in the U.S. Ethanol Market: What Does It Imply for the United States and Brazil?

  • Elobeid, Amani E.
  • Tokgoz, Simla

We analyze the impact of trade liberalization and removal of the federal tax credit in the United States on U.S. and Brazilian ethanol markets using a multi-market international ethanol model calibrated on 2005 market data and policies. The removal of trade distortions induces a 23.9 percent increase in the price of world ethanol on average between 2006 and 2015 relative to the baseline. The U.S. domestic ethanol price decreases by 13.6 percent, which results in a 7.2 percent decline in production and a 3.8 percent increase in consumption. The lower domestic price leads to a 3.7 percent rise in the share of fuel ethanol in gasoline consumption. U.S. net ethanol imports increase by 199 percent. Brazil responds to the higher world ethanol price by increasing its production by 9.1 percent on average. Total ethanol consumption in Brazil decreases by 3.3 percent and net exports increase by 64 percent relative to the baseline. The higher ethanol price leads to a 4.9 percent increase in the share of sugarcane used in ethanol production. The removal of trade distortions and 51¢ per gallon tax credit to refiners blending ethanol induces a 16.5 percent increase in the world ethanol price.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2007 Annual Meeting, July 29-August 1, 2007, Portland, Oregon TN with number 9808.

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Date of creation: 2007
Date of revision:
Handle: RePEc:ags:aaea07:9808
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