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An economic analysis of transportation fuel policies in Brazil: Fuel choice, land use, and environmental impacts

Hector Nuñez () and Hayri Onal ()

Energy Economics, 2016, vol. 55, issue C, 319-331

Abstract: Brazil uses taxes, subsidies, and blending mandates as policy instruments to manage and stabilize its transportation fuel markets. The fuel sector has been very dynamic in recent years due to frequent policy adjustments and variable market conditions. In this paper, we use a price endogenous economic simulation model to analyze the impacts of such policy adjustments under various challenging conditions in the global ethanol and sugar markets. Our analysis specifically focuses on Brazilian producers' supply responses, consumers' driving demand and fuel choice, ethanol trade, land use, greenhouse gas emissions, and social welfare. The model results show that (i) under a low ethanol blending rate, conventional vehicles would be driven significantly less while flex-fuel and ethanol-dedicated vehicles would not be affected significantly; (ii) lowering the fuel taxes adversely affects the competitiveness of sugarcane ethanol against gasoline blends, thus lowering producers' surplus; and (iii) while a reduction in fuel taxes is advantageous in terms of overall social welfare, it has serious environmental impacts by increasing the GHG emissions from transportation fuels consumed in Brazil.

Keywords: Brazil fuel policies; Fuel markets; Social welfare; Greenhouse gas emissions (search for similar items in EconPapers)
JEL-codes: C61 D60 H2 Q42 Q48 Q54 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1016/j.eneco.2016.02.013

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Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

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