Spillover Effects from Oil Markets on International Ethanol Markets and Chinese Electricity Production

Luccas Attilio (), Joao Faria (), Mauro Rodrigues () and Emilson Silva ()

No 2025_06, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: The existing literature establishes a connection between oil and ethanol markets, highlighting the influence of non-renewable energy on renewable sources. This study extends the analysis to electricity production in China and explores international spillovers from oil markets. Using VAR and GVAR models from 2002 to 2023 across Brazil, China, India, and the U.S., the results show oil supply shocks reduce prices and ethanol production, while demand shocks increase them. Brazilian and Indian ethanol markets are notably sensitive, and Chinese electricity production reacts to changes in oil prices. Robustness checks confirm findings, revealing oil's broader impact on energy systems globally. As policy implications, the estimates suggest that countries could implement tax reductions on ethanol, increase taxes on fossil fuels, and offer subsidized credit to promote ethanol production and consumption during disruptions in oil markets.

Keywords: Oil shocks; Ethanol markets; Electrification; Renewable energy (search for similar items in EconPapers)
JEL-codes: F41 Q43 Q47 (search for similar items in EconPapers)
Date: 2025-07-16
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