A prospective analysis of Brazilian biofuel economy: land use, infrastructure development and fuel pricing policies
Being the two largest ethanol producers in the world, transportation fuel policies in Brazil and the U.S. affect not only their domestic markets but also the global food and biofuel economy. Hence, the complex biofuel policy climate in these countries leaves the public with unclear conclusions about the prospects for supply and trade of agricultural commodities and biofuels. In this dissertation I develop a price endogenous mathematical programming model to simulate and analyze the impacts of biofuel policies in Brazil and the U.S. on land use in these countries, agricultural commodity and transportation fuel markets, trade, and global environment. The model maximizes the social surplus represented by the sum of producers' and consumers' surpluses, including selected agricultural commodity markets and fuel markets in the U.S., Brazil, Argentina, China, and the Rest-of-the-World (ROW), subject to resource limitations, material balances, technical constraints, and policy restrictions. Consumers’ surplus is derived from consumption of agricultural commodities and transportation fuels by vehicles that generate vehicle-kilometers-traveled (VKT). While in the other regional components aggregate supply and demand functions are assumed for the commodities included in the analysis, the agricultural supply component is regionally disaggregated for Brazil and the U.S., and the transportation fuel sector is regionally disaggregated for Brazil. The U.S. agricultural supply component includes production of fourteen major food/feed crops, including soybeans, corn and wheat, and cellulosic biofuel feedstocks. The Brazil component includes eight major annual crops, including soybeans, corn, wheat, and rice, and sugarcane as the energy crop. A particular emphasis is given to the beef-cattle production in Brazil and the potential for livestock semi-intensification in Brazilian pasture grazing systems as a prospective pathway for releasing new croplands. In the fuel sector of both country components, ethanol and gasoline are assumed to be perfect substitutes and combined in accordance with the specified blending regulations to generate VKT. For gasoline, an upward sloping supply function is assumed for the U.S., while in the case of Brazil a perfectly elastic supply function is used reflecting the pricing policy implemented in recent years. Consumers’ driving behavior and fuel choice are determined by the model in accordance with the composition of the vehicle fleets in both countries. The model also simulates the economic impacts of transportation infrastructure developments in Brazil, specifically the recently launched ethanol pipeline project which is expected to affect not only the price, production, consumption and trade of ethanol but also the land use changes in the country. All these factors are combined to assess the impacts on economic surplus and total direct Greenhouse Gas (GHG) emissions in the U.S. and Brazil. The model is calibrated for 2007 and markets conditions are projected to 2022 under different policy scenarios. Empirical results show that a free ethanol trade regime in the U.S. would reduce the domestic ethanol production, including both corn and cellulosic ethanol. The U.S. biofuel production would be consumed completely in the domestic market and part of the demand is met by imports. Brazil, on the other hand, would meet its domestic ethanol demand and export about half of its production to the U.S., China and the ROW to meet the biofuel mandates in those countries. With regards to the land use, the model results show that intensifying the current livestock systems in Brazil would release a significant amount of land for corn and soybean production, and sugarcane acreage would expand in the denominated “region of expansion”. The livestock semi-intensification in Brazil, driven by the high world ethanol demand and considered as the only alternative to expand sugarcane area in this study, would reduce the aggregate GHG emissions. The ethanol transportation infrastructure development in Brazil, namely the three pipelines which will connect the ethanol supply regions to major consumption areas, would further increase the Brazilian total ethanol supply. Finally, the model results highlight how the fuel policy in Brazil is a sensitive issue. Given the flexibility of Brazilian fuel consumers to switch between gasohol and E100, decreasing the ethanol blending rates under an ethanol supply shortfall would harm the light-duty vehicle users. This increases the consumption of ethanol by flex fuel vehicles, due to price effect, and the consumption of gasoline by conventional vehicles due to a larger share of gasoline in the fuel mix. In contrast, reducing the gasoline tax rate would make drivers better off, due to the increased consumption of gasohol and VKT, but this would increase GHG emissions significantly making a very costly trade-off for society and global environment.
Brazil, United States, Argentina, Biofuels, Biofuel Policy, Fuel Policy, Programming Model, Livestock Intensification, Crop and Commodity Markets, Land use, Ethanol Transportation, Greenhouse Gas Emissions
University of Illinois - Urbana-Champaign
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University of Illinois at Urbana-Champaign