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The Downside of Domestic Substitution of Oil with Biofuels: Will Brazil Catch the Dutch Disease?

Author

Listed:
  • James A. Giesecke
  • J. Mark Horridge
  • Jose A. Scaramucci

Abstract

In response to oil price rises and carbon emission concerns, policies promoting increased ethanol usage in gasoline blends are being implemented by many countries, including major energy users such as USA, EU and Japan. As a result, Brazil, as the largest ethanol producer and exporter in the world, can expect growing foreign demand for ethanol exports. Also, the introduction of flex-fuel vehicles in Brazil is causing domestic sales of ethanol to increase steadily. In this paper, we investigate the regional and industrial economic consequences of rapid growth in Brazilian ethanol consumption and exports. For this, we use a disaggregated multi-regional computable general equilibrium (CGE) model with energy industry detail. Our modelling emphasises a number of features of ethanol production in Brazil which we expect to be important in determining the adjustment of its regional economies to a substantial expansion in ethanol production. These include regional differences in ethanol and sugar production technologies, sugarcane harvesting methods and the elasticity of land supply to sugarcane production.

Suggested Citation

  • James A. Giesecke & J. Mark Horridge & Jose A. Scaramucci, 2007. "The Downside of Domestic Substitution of Oil with Biofuels: Will Brazil Catch the Dutch Disease?," Centre of Policy Studies/IMPACT Centre Working Papers g-169, Victoria University, Centre of Policy Studies/IMPACT Centre.
    • Handle: RePEc:cop:wpaper:g-169
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    References listed on IDEAS

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    1. W. Jill Harrison & J. Mark Horridge & K.R. Pearson, 2000. "Decomposing Simulation Results with Respect to Exogenous Shocks," Computational Economics, Springer;Society for Computational Economics, vol. 15(3), pages 227-249, June.
    2. repec:aen:journl:2007v28-04-a07 is not listed on IDEAS
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    1. Ferreira Filho, Joaquin Bento de Souza, 2011. "The rise in global demand for ethanol and poverty in Brazil," Documentos de Proyectos 3873, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    2. Sievers, Luisa & Schaffer, Axel, 2016. "The impacts of the German biofuel quota on sectoral domestic production and imports of the German economy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 497-505.
    3. Chemingui, Mohamed Abdelbasset & Bchir, Mohamed Hedi, 2009. "Does Multilateral Trade Liberalization Matters for Poverty Reduction in Africa," Conference papers 331912, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Grant J. Allan, 2015. "The Regional Economic Impacts of Biofuels: A Review of Multisectoral Modelling Techniques and Evaluation of Applications," Regional Studies, Taylor & Francis Journals, vol. 49(4), pages 615-643, April.

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    Keywords

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    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes
    • R49 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Other

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