Department of Agricultural and Resource Economics

We develop a supply model for ethanol production in Brazil with spatially disaggregated potential yield, freight costs, and pasture land available for conversion. We show that, under the assumptions of free capital markets, constant prices, and a modest increase over the current oil-equivalent price, a non-trivial amount of future global liquid fossil fuel can be profitably displaced by Brazilian ethanol production using existing pasture land. Along with policies to encourage the intensification of existing beef production, the dominant current land use, this new production can occur without the use of additional agricultural land, assuaging concerns about indirect land use change. At the current ethanol price, which includes the subsidizing eect of the mandate, the model predicts a substantial expansion of sugarcane ethanol, indicating that real-world considerations, such as capital controls and institutional, policy, and price uncertainty, are considerable barriers to investment in this context.

potential yield, freight costs, and pasture land available for conversion. We show that, under the assumptions of free capital markets, constant prices, and a modest increase over the current oil-equivalent price, a non-trivial amount of future global liquid fossil fuel can be profitably displaced by Brazilian ethanol production using existing pasture land. Along with policies to encourage the intensification of existing beef production, the dominant current land use, this new production can occur without the use of additional agricultural land, assuaging concerns about indirect land use change. At the current ethanol price, which includes the subsidizing eect of the mandate, the model predicts a substantial expansion of sugarcane ethanol, indicating that real-world considerations, such as capital controls and institutional, policy, and price uncertainty, are considerable barriers to investment in this context.