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

James Giesecke, Jonathan Mark Horridge () and Jose Antonio Scaramucci ()

Centre of Policy Studies/IMPACT Centre Working Papers from Victoria University, Centre of Policy Studies/IMPACT Centre

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.

Keywords: CGE models; energy; ethanol; Brazil (search for similar items in EconPapers)
JEL-codes: D58 Q13 Q42 R11 R49 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-cmp, nep-ene and nep-env
Date: 2007-12
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Published in 'Brazilian Regional Structural Adjustment to Rapid Growth in Global Ethanol Demand', Studies in Regional Science, 2009, Vol. 39(1), pp. 189-207.

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Persistent link: http://EconPapers.repec.org/RePEc:cop:wpaper:g-169

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