An Economic Model of Brazil's Ethanol-Sugar Markets and Impacts of Fuel Policies
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. T...
| Main Authors: | , , , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2013/06/17941690/economic-model-brazils-ethanol-sugar-markets-impacts-fuel-policies http://hdl.handle.net/10986/15882 |
| 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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