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Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets

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Abstract

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 23.2 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 14.1 percent, which results in a 7.5 percent decline in production and a 3.2 percent increase in consumption. The lower domestic price leads to a 2.5 percent rise in the share of fuel ethanol in gasoline consumption. U.S. net ethanol imports increase by 192.8 percent. Brazil responds to the higher world ethanol price by increasing its production by 8.8 percent on average. Total ethanol consumption in Brazil decreases by 3.2 percent and net exports increase by 61.9 percent relative to the baseline. The higher ethanol price leads to a 4.7 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 22.5 percent increase in the world ethanol price.

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  • Amani Elobeid & Simla Tokgoz, 2006. "Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets," Center for Agricultural and Rural Development (CARD) Publications 06-wp427, Center for Agricultural and Rural Development (CARD) at Iowa State University.
  • Handle: RePEc:ias:cpaper:06-wp427
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    Cited by:

    1. Jacinto F. Fabiosa & John C. Beghin & Fengxia Dong & JAmani Elobeid & Simla Tokgoz & Tun-Hsiang Yu, 2010. "Land Allocation Effects of the Global Ethanol Surge: Predictions from the International FAPRI Model," Land Economics, University of Wisconsin Press, vol. 86(4), pages 687-706.
    2. Amani Elobeid & Simla Tokgoz & Dermot J. Hayes & Bruce A. Babcock & Chad E. Hart, 2006. "Long-Run Impact of Corn-Based Ethanol on the Grain, Oilseed, and Livestock Sectors: A Preliminary Assessment, The," Center for Agricultural and Rural Development (CARD) Publications 06-bp49, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Danny G. Le Roy & Amani E. Elobeid & K. K. Klein, 2011. "The Impact of Trade Barriers on Mandated Biofuel Consumption in Canada," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 59(4), pages 457-474, December.
    4. Blanco, Luisa & Isenhouer, Michelle, 2010. "Powering America: The impact of ethanol production in the Corn Belt states," Energy Economics, Elsevier, vol. 32(6), pages 1228-1234, November.
    5. Fridfinnson, Brooke & Rude, James, 2009. "The Effects of BioFuels Policies on Global Commodity Trade Flows," Working Papers 48119, Canadian Agricultural Trade Policy Research Network.
    6. Collantes, Gustavo, 2010. "Do green tech policies need to pass the consumer test?: The case of ethanol fuel," Energy Economics, Elsevier, vol. 32(6), pages 1235-1244, November.
    7. Sriniketh Nagavarapu, 2008. "Brazilian Ethanol: A Gift or Threat to the Environment and Regional Development?," Discussion Papers 07-039, Stanford Institute for Economic Policy Research.
    8. Zhang, Wei & Yu, Elaine A. & Rozelle, Scott & Yang, Jun & Msangi, Siwa, 2013. "The impact of biofuel growth on agriculture: Why is the range of estimates so wide?," Food Policy, Elsevier, vol. 38(C), pages 227-239.
    9. Tatum, Shaun W. & Skinner, Sarah J. & Jackson, John D., 2010. "On the economic sustainability of ethanol E85," Energy Economics, Elsevier, vol. 32(6), pages 1263-1267, November.
    10. Szklo, Alexandre & Schaeffer, Roberto & Delgado, Fernanda, 2007. "Can one say ethanol is a real threat to gasoline?," Energy Policy, Elsevier, vol. 35(11), pages 5411-5421, November.
    11. Fapri, 2007. "Economic Impacts of Not Extending Biofuels Subsidies," FAPRI-MU Report Series 42189, Food and Agricultural Policy Research Institute at University of Missouri.
    12. Fox, Glenn & Shwedel, Kenneth, 2007. "North American Ethanol Bionenergy Policies and Their NAFTA Implications," 2007 NAAMIC Workshop IV: Contemporary Drivers of Integration 163897, North American Agrifood Market Integration Consortium (NAAMIC).

    More about this item

    Keywords

    biofuels; ethanol; renewable fuels; trade liberalization.;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • Q18 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Policy; Food Policy
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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