TITLE

WHEN IS PURE ETHANOL ATTRACTIVE AS A FUEL OPTION? QUANTIFYING THE GASOLINE VS ETHANOL DILEMMA FACED BY CONSUMERS IN BRAZIL

AUTHOR(S)
Da Silva Filho, Antônio Carlos; Pacini, Henrique; De Oliveira Silva, Giulia; Lima, Fabiano Guasti
PUB. DATE
July 2011
SOURCE
Journal of the Academy of Business & Economics;2011, Vol. 11 Issue 3, p109
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
The Brazilian light vehicle fleet runs mainly on two energy carriers: Gasoline and Ethanol (E100). While in Brazil bioethanol is used both as a low blend with gasoline (E20-25) and in a pure, separate option (E100), a large share of the fleet is flex-fuel capable, meaning cars can take pure ethanol, gasoline or any mixture of both. The choice on which fuel to use depends on consumer preferences when presented with both choices at the pump. Previous research indicates that prices are a major factor influencing the fuel choice at any given moment. Gasoline prices were relatively stable between 2005 and 2011, while ethanol prices experienced strong fluctuations based on sugarcane harvest seasons, suboptimal regulatory stocks and increasing demand due to the rising share of flex-fuel cars as well as exports to the US and European Union markets. Therefore, depending on relative prices between ethanol and gasoline, the consumer appears to decide on the economic attractiveness of each fuel. The limit ratio between ethanol and gasoline prices is considered to lie between 0.6 and 0.7 (due to different energy content and engine efficiencies characteristic to ethanol and gasoline). This study enhances previous investigations on consumer behavior in face of high biofuels blends, in form of an in-depth statistical analysis of the choice phenomenon. The study focuses on the price-trigger which leads to fuel shift based on demand and price data from the Brazilian Agency for Oil, Natural Gas and Biofuels (ANP), the Ministry of Agriculture and the Brazilian Statistical Institute (IBGE) for the period between January 2005 and January 2011, with monthly resolution. Relative prices and consumption between ethanol and gasoline prices were calculated for all 27 Brazilian states (1971 observations). The analysis proceeded in form of correlations and non-linear regressions in order to determine the quantitative reaction from the market in face of different price variations faced by consumers at the pump, in different seasons of the year. The resulting regressions from the Brazilian case serve as a tool for policy-makers to seek efficient biofuels promotion strategies, which specially guarantee the economic sustainability of the competing fuels, specially the attractiveness of biofuels when used as high-blends.
ACCESSION #
76481477

 

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