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An Economic Analysis of Transportation Fuel Policies in Brazil

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  • Nunez, Hector
  • Onal, Hayri

Abstract

In this paper, we simulate the Brazilian agriculture and transportation fuel sectors using a price endogenous mathematical programming model to analyze the impacts of recent changes in fuel policies and strong demand in world sugar markets on producers’ supply responses, consumers’ driving demand, fuel choice, and ethanol trade with the rest of the world. We also determine the land use change, Greenhouse Gas (GHG) emissions, and economic surplus implications. The analysis considers various blending rates and taxation of different types of fuels. The model results show that when the ethanol blending rate is reduced in response to the increased sugar demand and resulting short supply of ethanol, the driving demand by conventional vehicles would be reduced significantly. When the tax rate is dropped by 7.5% and the blending rate remains at high levels, flex-fuel car users would switch from E100 to gasohol. Despite the reduction in driving demand, the total direct GHG emissions from Brazil would increase significantly due to the consumption of a more carbon intensive fuel blend.

Suggested Citation

  • Nunez, Hector & Onal, Hayri, 2013. "An Economic Analysis of Transportation Fuel Policies in Brazil," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 149973, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea13:149973
    DOI: 10.22004/ag.econ.149973
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    1. Bruce A. Babcock & Marcelo Moreira & Yixing Peng, 2013. "Biofuel Taxes, Subsidies, and Mandates: Impacts on US and Brazilian Markets," Center for Agricultural and Rural Development (CARD) Publications 13-sr108, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    2. Pacini, Henrique & Silveira, Semida, 2011. "Consumer choice between ethanol and gasoline: Lessons from Brazil and Sweden," Energy Policy, Elsevier, vol. 39(11), pages 6936-6942.
    3. de Freitas, Luciano Charlita & Kaneko, Shinji, 2011. "Ethanol demand under the flex-fuel technology regime in Brazil," Energy Economics, Elsevier, vol. 33(6), pages 1146-1154.
    4. Schmitt, William F. & Szklo, Alexandre & Schaeffer, Roberto, 2011. "Policies for improving the efficiency of the Brazilian light-duty vehicle fleet and their implications for fuel use, greenhouse gas emissions and land use," Energy Policy, Elsevier, vol. 39(6), pages 3163-3176, June.
    5. de Gorter, Harry & Drabik, Dusan & Kliauga, Erika M. & Timilsina, Govinda R., 2013. "An economic model of Brazil's ethanol-sugar markets and impacts of fuel policies," Policy Research Working Paper Series 6524, The World Bank.
    6. Hector M. Nuñez & Hayri Önal & Madhu Khanna, 2013. "Land use and economic effects of alternative biofuel policies in Brazil and the United States," Agricultural Economics, International Association of Agricultural Economists, vol. 44(4-5), pages 487-499, July.
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    More about this item

    Keywords

    Environmental Economics and Policy; Resource /Energy Economics and Policy;

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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