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An economic model of Brazil's ethanol-sugar markets and impacts of fuel policies
 
Author:de Gorter, Harry; Drabik, Dusan; Kliauga, Erika M.; Timilsina, Govinda R.; Collection Title:Policy Research working paper ; no. WPS 6524
Country:Brazil; Date Stored:2013/06/28
Document Date:2013/06/01Document Type:Policy Research Working Paper
SubTopics:Energy Production and Transportation; Transport and Environment; Markets and Market Access; Alcohol and Substance Abuse; Renewable EnergyLanguage:English
Major Sector:Agriculture, fishing, and forestryRel. Proj ID:1W-Economics Of Biofuels -- -- P118472;
Region:Latin America & CaribbeanReport Number:WPS6524
Sub Sectors:Renewable energy; CropsTF No/Name:TF094965-KCP II - Economics of Biofuels
Volume No:1 of 1  

Summary: The lack of growth in the Brazilian sugarcane-ethanol complex since the 2008 financial crisis has been blamed on policies: lower mandate, holding gasoline prices below world levels, high fuel taxes, and inadequate fuel tax exemptions for ethanol. This paper develops an empirical model of the Brazilian fuel-ethanol-sugar complex to analyze the impacts of these policies. Unlike biofuel mandates and tax exemptions elsewhere, Brazil's fuel-ethanol-sugar markets and fuel policies are unique such that each policy, in theory, has an ambiguous impact on the market price of ethanol and hence on sugarcane and sugar prices. The results indicate two policies that seemingly help the ethanol industry do otherwise in reality: low gasoline taxes and high anhydrous tax exemptions lower ethanol prices. But higher mandates, hydrous ethanol tax exemptions, and gasoline prices had the expected impact of increasing ethanol and sugar prices. Eliminating Brazilian ethanol tax exemptions and mandates reduces ethanol prices by 21 percent. Observed changes in prices are explained by outward shifts in fuel transportation and sugar export demand curves, and bad weather reducing sugarcane supply.

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