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

Amani Elobeid and Simla Tokgoz

Staff General Research Papers from Iowa State University, Department of Economics

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.

Keywords: biofuels; ethanol; renewable fuels; trade liberalization. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-ene
Date: 2006-08-02
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Working Paper: Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets (2006)
Working Paper: Removal of U.S. Ethanol Domestic and Trade Distortions: Impact on U.S. and Brazilian Ethanol Markets (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:12652

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