An Economic Model of Brazil's Ethanol-Sugar Markets and Impacts of Fuel Policies

50 Pages Posted: 20 Apr 2016

See all articles by Harry de Gorter

Harry de Gorter

Cornell University - School of Applied Economics and Management

Dusan Drabik

Cornell University - Charles H. Dyson School of Applied Economics and Management

Erika Kliauga

Cornell University - Dyson School of Applied Economics and Management

Govinda R. Timilsina

World Bank - Development Research Group (DECRG)

Date Written: June 1, 2013

Abstract

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.

Keywords: Energy Production and Transportation, Markets and Market Access, Transport and Environment, Renewable Energy, Alcohol and Substance Abuse

Suggested Citation

de Gorter, Harry and Drabik, Dusan and Kliauga, Erika and Timilsina, Govinda R., An Economic Model of Brazil's Ethanol-Sugar Markets and Impacts of Fuel Policies (June 1, 2013). World Bank Policy Research Working Paper No. 6524. Available at SSRN: https://ssrn.com/abstract=2287057

Harry De Gorter

Cornell University - School of Applied Economics and Management ( email )

248 Warren Hall
Ithaca, NY 14853
United States
607-255-8076 (Phone)

Dusan Drabik

Cornell University - Charles H. Dyson School of Applied Economics and Management ( email )

331 Warren Hall
Ithaca, NY 14853
United States

HOME PAGE: http://https://sites.google.com/site/dusandrabik83/Home

Erika Kliauga

Cornell University - Dyson School of Applied Economics and Management ( email )

Ithaca, NY
United States

Govinda R. Timilsina

World Bank - Development Research Group (DECRG) ( email )

1818 H Street NW
MSN3-311
Washington, DC 20433
United States

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