lable at ScienceDirect

Renewable Energy 37 (2012) 9e18

Contents lists avai

Renewable Energy

journal homepage: www.elsevier .com/locate/renene

Review

Taxation of automobile fuels in Brazil: Does ethanol need tax incentives tobe competitive and if so, to what extent can they be justified by the balanceof GHG emissions?

Marcelo Cavalcanti*, Alexandre Szklo, Giovani Machado, Maurício AroucaEnergy Planning Program, Graduate School of Engineering, Federal University of Rio de Janeiro, Centro de Tecnologia, Bloco C, Sala 211, Cidade Universitária, Ilha do Fundão,Rio de Janeiro, RJ 21941-972, Brazil

a r t i c l e i n f o

Article history:Received 24 October 2010Accepted 2 June 2011Available online 1 July 2011

Keywords:Brazilian ethanolTax policiesGHG emissions

* Corresponding author. Tel.: þ55 21 2562 8760; faE-mail addresses: cbcavalcanti@gmail.com (M. C

(A. Szklo).

0960-1481/$ e see front matter � 2011 Elsevier Ltd.doi:10.1016/j.renene.2011.06.005

a b s t r a c t

This article analyzes the taxation of the liquid fuels used in light duty vehicles in Brazil (gasoline blendedwith anhydrous ethanol, known as gasohol, and hydrated ethanol). Ethanol’s success in Brazil is largelyexplained by government incentives to producers and consumers. This has created conditions forsuccessive productivity gains and cost reductions along the ethanol chain. Currently sugarcane ethanol isgenerally more competitive than gasohol in Brazil, raising the question of the continuing need to keeptaxes lower on ethanol than on gasohol. Many argue that although the environmental advantages ofethanol over gasohol can justify this differential tax treatment (Pigovian taxation), there is still room toraise taxes on ethanol. Findings of this article indicate that part of the tax revenue currently forgonebecause of tax incentives on ethanol in Brazil could be recovered without affecting its competitiveness.This revision of fuel tax rates would avoid excessive transfer of income from society to ethanol producersand internalize the external costs resulting from GHG emissions from the consumption of fossil fuels.

� 2011 Elsevier Ltd. All rights reserved.

1. Introduction

Automobile fuels are heavily taxed in nearly all countries, so thattaxes represent a large part of the final price to consumers [1].Nevertheless, since taxation is usually not the same for all auto-mobile fuels, the taxation policy is a key element in defining therelative competitiveness of fuels.

In general, taxation of fuels should satisfy four main principles:i) the fuel prices (without taxation) should cover the production,wholesale and retail costs; ii) some of the revenues raised shouldhelp finance expansion and maintenance of the road network andpublic transit systems; iii) the taxing scheme should seek tointernalize the socio-environmental externalities and encourageenergy-efficient transportation; and iv) the taxation should alsocontribute to general government revenues [1].

Taxation of fuels can serve as an instrument to raise governmentrevenue for investment on infrastructure and to improve the

x: þ55 21 2562 8777.avalcanti), szklo@ppe.ufrj.br

All rights reserved.

efficiency of the tax structure (with possible reduction of othertaxes). In addition to domestic taxation, it can involve duties onimported fuels.1 Moreover, taxation can be utilized by the import-ing country to perceive part of the scarcity rent (induced byresource depletion) [2]. For further information on these issue, seeHotelling [3] and Dasgupta & Heal [4].

Taxes on automobile fuels are an important source of revenuefor governments, often applied to finance the transport sector aswell as to provide or expand access to social services [38].According to GTZ [5], taxation of fuels represents over 25% of taxrevenue in some developing countries. According to the Ramseyrule2 governments have incentives to increase taxes on fuels [6].

The experience of countries with high fuel prices indicates thatconsumers and suppliers of transport services change theirbehavior due to policies, a fact that should stimulate countries withlow taxation to gradually increase it to promote more efficientmobility solutions (individual and collective) [1].

1 This occurs normally for reasons of energy security and to benefit localproducers. In the case of ethanol, for example, the United States not only subsidizescorn farmers and ethanol distilleries, but also taxes imported ethanol [68].

2 The Ramsey rule applies to tax policy and holds that the elasticity of demandhas a direct relation with the “dead weight” of a tax. Therefore, it would be moreefficient to impose a selective tax for each product at a rate that decreases inproportion to the increase in the good’s elasticity of demand [69]. In other words,the tax rate on any good should be inversely related to its demand elasticity.

3 Competition to ethanol for use in light vehicles in the Brazilian market isrestricted to gasoline and compressed natural gas, since the law (Law 8,723/93)restricts the use of diesel to trucks and buses.

4 For more information on the sectorial differences in fuel taxation, see Hammaret al. [70].

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e1810

Raising price of fuels through taxation changes fleet profile,alters trip planning, reduces distances traveled by private cars,increases use of public transport and diminishes traffic congestion,besides easing the pressure on other revenue sources to financepublic transit systems [7,8]. The reduced congestion and less fuelburned mean less environmental harm [9]. Yet, high fuel pricesencourage energy efficiency by stimulating the purchase of moreefficient vehicles and the development of more economical drivinghabits [10,11]. Finally, if a country is a net importer of the fuel inquestion, high prices will result in less demand and hence lowerdependence on foreign energy sources.

On the other hand, if taxes decline, economic welfare increasesmore than the government loses revenue [12]. However, govern-ment revenue, if spent effectively, can generate greater socialbenefits, and consequently forgoing this revenue can mean loss ofwell-being to society as a whole.

The adoption of a suitable tax policy optimizes consumers’ long-term choices, helps reduce investment risk and brings economicand social benefits. In short, taxation is an important instrument forachieving socio-environmental sustainability.

Furthermore, taxation of automobile fuels can also be placed tooffset the losses or gains resulting from the indirect effects of theactivity, the so-called negative externalities [13]. Pigou [14]proposed taxation as a means of internalizing the externalitiesgenerated by an activity. The Pigouvian solution seeks to makeprices “more correct” (“second best”), that is, to add the externalcosts to the market price, through taxation. Therefore, the socialresult will be optimal when considering the benefits and draw-backs that the productive activity generates for society [14].

Economists often argue in favor of the use of environmentaltaxation as an instrument to reduce the externalities of a giveneconomic activity [4,15e17]. For example, according to Hsu et al.[16] and Litman [18], the use of taxation of fuels is the mosteffective and desirable way to reduce vehicular emissions. Theexistence of environmental taxes can reduce the costs of environ-mental control and increase fuel quality, conveying a more positiveenvironmental image and permitting the opening of new marketsto cleaner fuels [19].

Gasoline is taxed heavily in nearly all countries [20e22]. Hightaxes on fossil fuels are essential for promoting the transition toa low-carbon economy with a more energy-efficient transportsector [1,23]. The added cost encourages replacement of fossilautomobile fuels by others that are less polluting in terms of GHGemissions [24]. Hence, externalities can motivate a differentiatedtax treatment of biofuels [25e27]. Also, according to Gowen [28]tax reductions to promote use of “cleaner” fuels tend to beaccepted by society.

The growing concern over the impacts of climate change hasprompted decisions by some governments, especially Europeanones, to introduce environmental taxation and policies to stimulatebiofuels [29]. For example, in 1999 Germany undertook an“Ecological Tax Reform” (ETR). As part of this reform, an environ-mental tax was established on fossil fuels. In addition, the countryearmarks a small portion of its general revenue for programs topromote biofuel [30].

According to IEA [31] and EIA [32], biofuels are gaining groundaround the world. The European Union’s policy of promoting bio-fuels is justified by their contribution to sustainable developmentand the reduction they allow in the net emission of greenhousegases (GHG) and use of nonrenewable energy sources [13].However, the production of biofuels is not competitive in Europeancountries, so some tax benefits are necessary, along with programssuch as control of agricultural prices [33].

The United States is theworld’s leading producer and consumerof ethanol, accounting for 50% of supply and 57% of demand in

2008 [32]. This is due to a combination of factors, among them theuse of ethanol to replace the methyl tert-butyl ether (MTBE) as anoctane booster in gasoline [34], the requirements of the EnergyPolicy Act (which has stimulated demand for biofuels [35]),favorable credit to producers, tax exemptions and direct subsidiesfor ethanol [36].

Brazil, which was the global pioneer in promoting ethanol atlarge scale as a vehicle fuel with the Proalcool program starting inthe 1970s [37], is the second world producer in this market (38.2%of global production and 30.4% of demand in 2008 [32]). Further-more, Brazil stands apart because of the matchless competitivenessof its ethanol as an automobile fuel [38] and the reduced GHGemissions over its life cycle [39e41]. Nevertheless, even in Brazil,ethanol has tax benefits in relation to other fuels.3 The main benefitis the lower tax rates on ethanol than on gasohol.

The tax benefit granted to ethanol means forgone revenue thatcould otherwise be spent on infrastructure and social programs,such as health, education and poverty eradication4 [42].

Since the Brazilian central government and state and localgovernments all face chronic shortages of funds to carry out theirfunctions and it is also socially beneficial to preserve the compet-itiveness of ethanol [43], it is important to identify what level oftaxation would mitigate the lost public revenue (appropriated bythe sugar/alcohol sector) and simultaneously keep ethanolcompetitive against gasohol, including internalizing the environ-mental advantages of this biofuel.

That is the aim of this article. To do this, we first estimate thepotential lost revenue over the next decade by continuing to grantthe same tax benefits to ethanol. Then we analyze an alternativescenario for ethanol taxation, with rates that mitigate the forgonerevenue while at the same time keeping ethanol competitive withgasohol. Next we incorporate (through the tax mechanism) thebenefit of reduced GHG emissions resulting from replacing gasoholwith ethanol and calculate the additional revenue that would beraised by introducing a Pigovian tax on gasoline. Finally, in the lastsection we present our final considerations.

2. Does BRAZIL’S Sugarcane ethanol need tax incentives to becompetitive?

To analyze the amount of tax revenue obtained and the potentialforgone revenue in Brazil in the next decade with continuance ofthe current tax policy favorable to ethanol, it is necessary to definethe prices of gasohol and ethanol, the taxes levied on them and thedemand for the two fuels.

In this case we consider two automobile fuel taxation scenariosin Brazil:

i) Reference: continuation until 2019 of the tax rates in effect inJanuary 2010;

ii) Alternative: tax rates on ethanol similar to those on gasoline(weighted by the low heating value between the two fuels).

In order to use recent official liquid fuels demand scenarios forBrazil, this study adopted the price and demand projections forautomobile fuels from the Ten-Year Energy Plan (Plano Decenal deEnergia, or PDE 2010e2019), prepared by the Energy ResearchCompany (Empresa de Pesquisa Energética, or EPE), a state-owned

Table 1Brazilian Demand for Hydrated Ethanol and Gasohol (billion liters).

Year Hydrated Ethanol Gasohol Gasohol equivalenta

2010 22.5 25.9 41.82011 25.6 24.6 42.72012 28.2 23.2 43.12013 30.7 22.1 43.82014 33.6 21.6 45.32015 36.4 21.1 46.72016 39.1 20.6 48.22017 41.7 20.4 49.82018 44.7 20.5 52.02019 47.3 20.5 53.8

Source [9].a Measure of energy demand by light vehicles, only considering demand for

gasohol, converted into equivalent gasohol.

Fig. 1. Comparison of the log differences of gasoline prices: historical data versuspoints plotted from Brent prices in the first difference model with semiannual meanNote: In the axes of Fig. 1, both d_gasoline and d_brent are, respectively, the logarithmsof the differences of ex-refinery gasoline and Brent prices between two consecutivesperiods. Source [49,72,79].

7 The flex-fuel technology in Brazil gives users a freedom of choice, whether touse only hydrated alcohol or gasohol in their cars, or a mixture of these fuels in anyconcentration [73]. In 2009, flex-fuel vehicles accounted for 95.4% of sales and 37.1%of the country’s light vehicle fleet [44].

8 The low heating values of hydrated ethanol, pure gasoline and anhydrousethanol are respectively 5.0 Mcal/L, 7.7 Mcal/L and 5.3 Mcal/L [74]. Therefore,consumers are indifferent between ethanol and gasohol as long as the price ofhydrated ethanol is 70.5% that of gasohol. This hypothesis is based strictly oneconomic parameters, with no consideration of other aspects that can influence therelative use of one fuel or the other in flex-fuel cars (such as confidence in thetechnology, distance between fill-ups, income level, environmental sensitivity ofthe consumer, etc.). These considerations can at times outweigh the fuel cost inconsumers’ decisions.

9 The Brazilian Constitution establishes the taxing powers of the federal, state

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e18 11

company linked to the Ministry of Mines and Energy (MME) [44] esee Table 1 for demand projections.

2.1. Price estimates of gasohol and ethanol

The price projections by EPE [44] are in line with the baselinescenario for the petroleum price disclosed by the U.S. Departmentof Energy (DOE), particularly until 2017 [45]. These figures werecorrected by the PPI5 from May 2008 to January 2010.

Our estimate of the gasoline price in Brazil for the 2010e2019period mainly comes from the projected international price ofBrent crude [44]. This estimates sought to smooth out the fluctu-ations of the international Brent price and their interference in therealization price of Brazilian gasoline. In this case we utilized theaverage of the prices charged every half year. This estimate tookinto consideration the econometric relation between the variations(or differences) of the logarithms of the six-month means of theseprices in the period from 1999 to 2009. Interestingly, on a semi-annual basis, the first difference model is well specified, becausethere is no autocorrelation. Fig. 1 depicts this correlation.

From the correlation presented in Fig. 1, we prepared therefinery price of gasoline in Brazil without taxes, as indicated inFig. 2.

To project the gasohol price to final Brazilian consumers, it wasnecessary to estimate the margin along the wholesale and retailchain. For this purpose, we used the historic values (average fromJanuary 2002 to December 2009) of the wholesale and retailmargins, shown in Fig. 3. The gasohol sold in Brazil over this periodcontained from 20 to 25% (by volume) anhydrous ethanol, but sincein recent years it has been 25% [46], we used this fixed percentageto calculate the projections in this article.

From the scenario for gasoline ex-refinery price, the wholesaleand retail margins, transport costs and taxation, we estimated thefinal consumer price of gasohol in Brazil over the horizon from 2010to 2019 (Fig. 46).

From the final price of gasohol, we established the price ofhydrated ethanol to calculate the future tax revenue loss if thecurrent regime is maintained. The price of ethanol is formed byproduction costs, margins and taxes, but the margins vary infunction of the opportunity cost of the fuel and its inputs. Thus,variations in the sugar price can change the supply of ethanol asmore or less cane is used to distill ethanol rather than refine sugar,and hence can alter the ratio between the prices of ethanol andgasoline [47,48]. Fig. 5 shows the tendency of the price of hydratedethanol to follow the price of gasohol (opportunity cost of ethanol).

5 The PPI (Producer Price Index) utilized covers all commodities [71].6 Exchange rate of January 2010: R$ 1.78/US$ [72].

In the period analyzed (2002e2009), the ratio between theaverage prices per liter of hydrated ethanol and gasohol in thecountry remained between 52.1% and 76.9%. In 2009, according tothe National Petroleum, Natural Gas and Biofuels Agency [49], thefinal consumer price per liter of hydrated ethanol represented60.7% of the per liter price of gasohol, reaching 67.8% in December.However, this price ratio is conservative, by maintaining thefavorable competitiveness of ethanol, because owners of flex-fuelvehicles7 (which can consume any proportion of ethanol andgasohol) are indifferent as long as the price of hydrated ethanol is70.5% that of gasohol, based on the difference in low heating valueof the two fuels.8 Therefore, we opted for a projection of thehydrated ethanol price based on the price of gasohol.

Since the fuel distributor in Brazil is responsible for paying allthe state value-added tax on ethanol (under the so-called substi-tute taxation regime),9 it is necessary to estimate the price from thewholesaler to utilize the price formation methodology [50].

The correlations allow projecting the following hydratedethanol prices, which are compared to the gasohol prices projectionin Table 2:

To obtain the ethanol producer’s price, the wholesaler’s marginand transport cost (which together account for about 7.5% of the

and municipal governments and sets the minimum and maximum rates that can becharged [75]. The main tax on fuels is ICMS, a state value-added tax usually paid oneach step of the wholesale chain of products, through a system of offsetting creditsand debits. However, in the case of fuels it is paid all at once, under a regime called“substitute taxation”.

Fig. 2. Projection for Brent Price and Gasoline Ex-Refinery Price (2010-2019) Source[44,71,72].

Fig. 3. Historic Gasohol Prices (2002e2009) Source [49,72].

Fig. 4. Gasohol Price Projection.

Fig. 5. Average Price of Gasohol and Hydrated Ethanol in Brazil Source [49,72].

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e1812

price charged by the wholesaler10) must be deducted, along withthe taxes. The producer’s margin is the difference between theproduction cost and the price paid to the producer. As indicated bythe National Bank for Economic and Social Development (BNDES)and the Center for Management and Strategic Studies (CGEE) [51],the cost of raw material, capital, operation and maintenance toproduce ethanol in Brazil is betweenUS$ 0.35 and US$ 0.41 per liter.Based on this cost range, the upper and lower producer marginlimits are those shown in Table 3.

Some factors can put upward or downward pressure on thedomestic ethanol price in the projection period. For example, thepossible development of an international market for fuel ethanolcould increase Brazilian exports and thus make the domesticdearer. On the other hand, increased production of sugarcane couldreduce the domestic ethanol price. However, these parameters arehard to assess, so we did not consider them in our projection.11

2.2. Alternative ethanol taxation scenario e Equal taxation as onGasohol

In the alternative scenario, we considered the producer price ofethanol assuming the same tax burden as on gasohol and mainte-nance of thewholesale and retail margins, to reach the final price ofhydrated ethanol in Brazil. We adjusted the specific taxes according

10 This percentage is the average for 2002e2009 and is near the average whole-sale margin in 2009 (7.9%).11 Nevertheless, it is important to note that the parameters not evaluated work inopposite directions, so it is not unreasonable to assume the net effect will be nil.

to the relative low heating value between ethanol and gasohol,while we assumed the same ad valorem tax rates as on gasohol.

In turn, we did not change the producer margins and onlyslightly changed the wholesale and retail margins. The resultingtaxes are shown in Table 4, and the final price to consumers can beseen in Table 5.

The relative price (ethanol/gasohol), based on the scenarios ofthe EIA, reaches the floor of 52.3% and the roof of 90.0%. Therefore,ethanol becomes competitive even with the same tax rates asgasoline at high Brent prices, but at low Brent prices there is a needfor lower tax rates on ethanol to keep it competitive in the domesticmarket.

In the alternative scenario, indicated in Table 5, ethanol losescompetitiveness because of equal taxation with gasohol. The rela-tive ethanol-gasohol price exceeds the energy ratio, which favorsthe former, showing that on average, gasohol would be morecompetitive than ethanol if the taxation of the two fuels were thesame.

This result also indicates that there are no economic reasons tocontinue the current extremely favorable tax rates on ethanol overthe 2010e2019 horizon (in 2009 this differential was more thanUS$0.18 per liter of ethanol). Moreover, we did not consider somefactors in the analysis, such as reduction of the producer marginand costs (learning curve12), which could reduce the need for taxbreaks for ethanol even more.

Therefore, although in this scenario there still is an economicneed for favorable taxation of ethanol, this tax incentive could be

12 For more information, see Goldemberg et al. [76].

Table 2Fuel Price Projections (US$ of Jan. 2010/L).

Year Gasohol Hydrated Ethanol

Retail Retail Wholesale Producer (ex-taxes)

2010 $1.37 $0.82 $0.67 $0.402011 $1.41 $0.86 $0.71 $0.432012 $1.48 $0.94 $0.80 $0.492013 $1.55 $1.02 $0.88 $0.552014 $1.61 $1.09 $0.95 $0.602015 $1.66 $1.13 $0.99 $0.632016 $1.67 $1.13 $1.00 $0.632017 $1.68 $1.12 $0.99 $0.622018 $1.68 $1.11 $0.97 $0.612019 $1.70 $1.12 $0.98 $0.61

Table 3Producer Margin Projections for Hydrated Ethanol (US$ of Jan. 2010/L).

Year Producer margins

Upper bound Lower bound

2010 $0.05 �$0.012011 $0.08 $0.022012 $0.14 $0.082013 $0.20 $0.142014 $0.25 $0.192015 $0.28 $0.222016 $0.28 $0.222017 $0.27 $0.212018 $0.26 $0.202019 $0.27 $0.20

Table 4Taxes on Hydrated Ethanol in the Alternative Scenario (US$ of Jan. 2010/L).

Year ICMSa PIS and COFINSb CIDEc Total

2010 $0.26 $0.08 $0.07 $0.412011 $0.27 $0.08 $0.07 $0.422012 $0.30 $0.08 $0.07 $0.452013 $0.32 $0.08 $0.07 $0.472014 $0.33 $0.08 $0.07 $0.492015 $0.35 $0.08 $0.07 $0.502016 $0.35 $0.08 $0.07 $0.502017 $0.35 $0.08 $0.07 $0.502018 $0.34 $0.08 $0.07 $0.492019 $0.34 $0.08 $0.07 $0.49

a The Tax on the Circulation of Goods and Services is a state value-added tax(VAT).

b PIS is the Contribution to the Social Integration Program and COFINS is theContribution to Finance Social Security. These are federal levies aimed to helpfinance unemployment insurance, the pension system and other social benefits.Contributions are taxes whose revenues are earmarked for specific purposes insteadof going into the general fund.

c CIDE means Contribuição para Intervenção no Domínio Econômico, or Contri-bution for Intervention in the Economic System. It is a sector-specific levy. In thecase of CIDE on fuels, the revenues are earmarked for expansion or improvement oftransportation infrastructure, environmental compensation and ethanol and naturalgas subsidies.

Table 5Alternative Projection of the Final Price of Hydrated Ethanol (US$ of Jan. 2010/L).

Year Hydrated Ethanol Relative price (Pethanol/Pgasohol)

2010 $1.43 71.1%2011 $1.49 71.8%2012 $1.62 74.0%2013 $1.74 75.5%2014 $1.83 76.3%2015 $1.88 76.8%2016 $1.90 76.4%2017 $1.89 75.7%2018 $1.87 74.9%2019 $1.87 74.3%

Table 6Forgone Tax Revenue 2010e2019 (billions of dollars e January 2010).

Year ICMS PIS and COFINS CIDE Total

2010 $3.03 �$0.27 $1.54 $4.30

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e18 13

lower than in 2009. Maintenance of the current tax differentialwould benefit producers and consumers of hydrated ethanol, butwould be in detriment to society as a whole, which would benefitfrom higher tax revenues that could be spent on programs toproduce socio-environmental improvements, including for peoplewho do not own cars.

This fact per se is not a problem, if the government wants topromote a determined sector of the economy. But it is a publicpolicy instrument that should be transparent to society.13

2.3. Forgone revenue due to tax incentives for ethanol

Table 6 presents the projection of lost tax revenue (overall andfor each tax) under the scenario of maintenance of the current taxincentives for ethanol in Brazil.

From the figures presented and considering the lack ofeconomic reasons to justify such a large tax differential (observedin subsection 2.2), we can conclude that governments in Brazil(federal and state) would forgo revenues of approximately US$ 70.4billion over ten years by maintaining the current rates. This is 4.5%of the nation’s GDP [52], 966.4% of spending on the Bolsa Família14

program and 217.5% of health expenditures [53] in 2009, and 191.7%of public investments in transportation between 2007 and 2010[54].

Nevertheless, the tax differential can be left unchanged, if dulyjustified, as a mechanism to internalize the different externalitiesgenerated along the production and consumption chains of fuels.15

13 To a certain extent both tax revenue levels and the efficiency of public spendingare fundamental themes for transparency of public management to society and theagents that compose the automobile fuels market.14 Bolsa Família is a conditional income transfer program that benefits poorfamilies [77].15 Other externalities include: national energy security,technological spillovers,indirect and induced economic impacts, shadow price of foreign currency, and jobcreation.

On the other hand, as shown before, tax equality betweenethanol and gasohol wouldmake the former uncompetitive againstthe latter most of the time over the horizon studied. In short, thecurrent tax incentives for ethanol in Brazil are excessive (i.e.,unnecessary to keep it competitive), but they cannot be completelyremoved, based on the production costs, without impairing itscompetitiveness.

In other words, additional revenue could be obtained byincreasing taxes on ethanol, but short of making them equal togasohol taxes. The increase that would make ethanol marginallycompetitive with gasohol would be responsible for 60.1% of theUS$70.4 billion, as indicated in Table 7.

2011 $3.49 �$0.31 $1.75 $4.932012 $3.97 �$0.34 $1.93 $5.562013 $4.41 �$0.37 $2.10 $6.142014 $4.88 �$0.40 $2.30 $6.772015 $5.35 �$0.44 $2.49 $7.402016 $5.78 �$0.47 $2.67 $7.982017 $6.18 �$0.50 $2.85 $8.532018 $6.63 �$0.54 $3.05 $9.152019 $7.02 �$0.57 $3.23 $9.692010e2019 $50.74 �$4.20 $23.90 $70.44

Fig. 6. GHG Emissions in the Ethanol Life Cycle (disregarding byproducts) Source [61].

Table 7Additional Tax Revenue while Keeping Ethanol Competitive (billion dollars ofJanuary 2010).

Additional revenue fromethanol taxation

2010 $4.092011 $4.392012 $3.962013 $3.512014 $3.262015 $3.212016 $3.672017 $4.462018 $5.472019 $6.31Total $42.34

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e1814

From an economic perspective, by internalizing the environ-mental benefit, this scenario approaches a situation of sustainabledevelopment, which involves three dimensions (economic, socialand environmental) [55]. It should be recalled that forgone taxrevenue that is not justified on economic or environmental groundsundermines the ability of the Brazilian public sector to increase thesupply and quality of other goods and services, for instance i)higher accessibility and affordability of good-quality mass transit,which particularly benefits the low-income population; ii) addi-tional investment on ethanol to expand and guarantee its produc-tion; and iii) investment on other biofuels which are in the earlyphases of learning curve yet, such as biodiesel or bio-jet fuels).

In the third section we estimate the tax difference that wouldinternalize the environmental benefit of reducing greenhouse gas(GHG) emissions from consuming ethanol instead of gasohol.

3. To what extent can tax incentives for ethanol be justifiedby the balance of ghg emissions?

The next step is to estimate the tax difference that wouldinternalize the environmental benefit of reducing GHG emissionsfrom consuming ethanol instead of gasohol.

According toMaibachet al. [56], themost important external costsof roadway transportationaredue tovehicle emissions,which in largepartdependonvehicle age, alongwithspeed, typeof fuel, combustiontechnologies, engine size, driving style and road pavement condition.

Technological innovations in cars and trucks and the use ofcleaner fuels have been producing significant reductions in emis-sions per kilometer traveled. However, the growing number ofvehicles and greater distances traveled have more than offset theseeffects, leading to an increase in emissions [57].

In addition to the direct emissions from driving, atmosphericpollution is also caused by pre-combustion processes. Therefore,the analysis must consider the entire life cycle of fuels. According toÁlvares Jr. & Linke [58], CO2 is responsible for 97.0% of total GHGemissions from non-stationary sources, assuming an uncertainty of5.0% due mainly to vehicle operation patterns. Brazil is among thetwenty main countries producing carbon dioxide from burningfossil fuels [59]. In 2007, Brazil accounted for 1.3% of total global CO2emissions, or some 368.3 million tonnes, with the main two sour-ces being deforestation and burning fossil fuels (the latter with100.4 million tonnes) [59]. Approximately 66.6% of Brazil’s fossilfuel emissions come from liquid fuels, particularly diesel andgasoline. Therefore, Brazil produces roughly 3.3% of all the CO2

emitted by liquid fuels in the world [59].In this respect, the use of ethanol is of particular importance for

reducing GHG emissions from the transportation sector. This is dueto the phase of growing sugarcane, which captures CO2 duringphotosynthesis, resulting in virtually zero net CO2 emissions [60].

3.1. GHG emissions from burning hydrated ethanol and gasohol byautomobiles in Brazil

As pointed out by Macedo et al. [40], all the CO2 released byburning ethanol is recycled by photosynthesis during the growth ofsugarcane, but the use of fossil fuels during the cycle of producingand consuming ethanol, the burning of cane fields before harvestand the emissions from soil cultivation practices all release GHGsinto the atmosphere. Seabra [61] identified this balance, which isreproduced in Fig. 6.

The study by Macedo et al. [62] identifies net environmentalbenefits of fuel ethanol, when considering the lower emissions fromburning ethanol and the “absorption” from growing sugarcane,resulting in elimination of CO2 from the atmosphere in comparisonto the cycle of gasoline. Each liter of anhydrous ethanol consumedreduces the net emissions in relation to gasoline by approximately2.1 kg of CO2 equivalent, while the corresponding reduction forhydrated ethanol is 2.0 kg of CO2 equivalent [62]. These figures donot consider the use of cane byproducts, such as burning bagasse togenerate electricity, which can diminish the pollutants emitted evenmore from the generation and use of energy.

The sum of the emissions from production until distribution ofethanol with the emissions avoided by its use gives the reduction inGHG emissions from burning ethanol instead of gasoline. However,the comparative analysis of the above study refers to gasoline,while in reality the fuel to be substituted is gasohol.

As stated in subsection 2.1, in our estimates we assumed that thecurrent 25% blend of anhydrous ethanol in gasohol will continueuntil 2019. Thus, the net reduction in emissions from gasoholdeclines to 0.4 kg of CO2 equivalent per liter in comparison withgasoline. Notwithstanding, what matters is the comparison ofemissions, and for this purpose the emissions indicator must beadjusted to the same energy base. Multiplying the emissions fromgasohol by 70.5% produces an indicator of 0.3 kg of CO2 equivalentper liter of hydrated ethanol equivalent. On balance then, in rela-tion to gasohol the use of hydrated ethanol avoids 1.3 kg of CO2 perliter. Table 8 presents the numbers, adapted fromMacedo et al. [62].

In this subsection we identified the net GHG emissions reduc-tions when hydrated ethanol replaces gasohol in Brazil. In the nextsubsection we place a value on this difference to consider it in theprice formation process of these fuels.

3.2. Value of the environmental benefit from substitution of fuels

Internalization of environmental costs is necessary to inducechanges in the patterns of using natural resources [9,33]. To do this

Table 8Indicators of CO2 Emissions of Hydrated Ethanol.

Emissions (kg CO2 eq./m3) Hydrated Ethanol

Avoided emissions 1772Additional biomass use 117Electricity surplus 48Ethanol Use 1607Net emissionsa �1432Net emissions from Ethanol usea �1267

Source: Adapted from Macedo et al. [58].a Net Emissions in Relation to Gasohol.

Table 9GHG Emission Costs (US$ of Jan. 2010/tCO2 equivalent).

Greenhouse gases Low Medium High

Valuationa 26.4 42.9 104.0

Source [4,40].a Updating of inflation in Europe, according to the Harmonized Index of Consumer

Prices (HICP), whichmeasures the prices households pay for goods and services [28].The exchange rate used is US$ 1.43 per euro, referring to January 2010 [4].

Table 10Final Ethanol Price under Different Tax Scenarios (US$ of Jan. 2010/L).

Year Hydrated Ethanol price

Currenttaxes

Isonomytaxesa

CompetitiveEthanolb

Environmental taxesc

Low Medium High

2010 $0.82 $1.01 $1.00 $0.98 $0.96 $0.882011 $0.86 $1.05 $1.03 $1.02 $1.00 $0.922012 $0.94 $1.15 $1.09 $1.11 $1.09 $1.012013 $1.02 $1.22 $1.14 $1.19 $1.17 $1.092014 $1.09 $1.29 $1.19 $1.26 $1.24 $1.162015 $1.13 $1.33 $1.22 $1.30 $1.28 $1.202016 $1.13 $1.34 $1.23 $1.30 $1.28 $1.212017 $1.12 $1.33 $1.24 $1.30 $1.28 $1.202018 $1.11 $1.32 $1.24 $1.29 $1.27 $1.192019 $1.12 $1.32 $1.25 $1.29 $1.27 $1.19

a Taxes that could be applied to ethanol to equalize liquid fuel tax policies inBrazil.

b Taxes that could be applied to ethanol without compromising its pricecompetitiveness over gasohol.

c Scenario with environmental taxes.

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e18 15

it is necessary to create an economic instrument that incorporatesthe environmental costs of various activities. In section 1 wedescribed the use of taxation as a mechanism to internalize theseexternalities.

The costs of climate changes are hard to assess because of thehuge range of impacts [63]. Nevertheless, these costs need to beestimated so that they can be internalized. But according toHsu et al.[23], even in themost environmentally concerned countries there isreluctance to accept environmental taxation, mainly because to theunreliability of applying measures for environmental improvementor compensation. There are also distributive aspects related to thelow acceptance of environmental taxation [13,30].

Heightened perception of the impacts of global warming hasbeen prompting more detailed estimates of the costs. The study byHEATCO [64] recommended a price per tonne of CO2 equivalentdepending on the year of emission, separating emissions from 2010to 2019 into three paths: i) Lower (V2002 16.0); ii) Recommended(V2002 26.0); and iii) Upper (V2002 63.0). Table 9 converts theemission cost into dollars of January 2010.

Because of the absence of such studies for Brazil, we used thevalues presented by HEATCO [64], supported by Litman [65], Mai-bach et al. [56] andWatkiss et al. [66]. It should be noted that unlikelocal impacts, the cost of global effects tend to have similar esti-mates in various countries. This is mainly due to the fact theaccumulation of greenhouse gases affects the world as a whole.

Once the price per tonne of CO2 equivalent emitted is estimated,this is multiplied by the emission reduction factor (based on fuelsubstitution) to obtain the difference in external cost by volume ofethanol. This external cost gives the highest taxation justifiable bythe reduction of GHG emissions. The result of this multiplicationvaries: US$ 0.03 (in the lower scenario), US$ 0.05 (medium) andUS$ 0.13 (upper) per liter of hydrated ethanol.

From these values, we now try to identify the internalizationsystem (through taxation) that would have the least impact on thefuel market in Brazil and that is in line with the country’s tax lawprinciples. In this case, the difference in externalities resulting fromGHGemissions over theproduction and consumption chain is valuedand incorporated in the price formation process through the reduc-tion in tax rates on ethanol (least polluting fuel in terms of GHG).

The specific rate makes more sense in this respect than an advalorem rate, since GHG emissions are related to the volume of fuelconsumed instead of the cost.16

As said previously, environmental taxation induces the use ofcleaner technologies, reducing pollution at the source, since the costof making a product less polluting can be offset by the tax saving.This change in behavior alters the market structure by introducingthe costs associated with pollution in the price formation process,making it an intervention in the economic system.

16 For more information, see EPA [78].

Hence, the current Brazilian tax that is the best option tointernalize the environmental costs of gasohol (or analogously, theenvironmental benefits of ethanol) is CIDE, due to its justification(intervention in the economic system), calculation method(charged per liter of fuel consumed) and specific purposes (envi-ronmental improvements17 and other measures that can positivelyaffect the environment18). The use of the revenue from this levy forenvironmental projects and improved efficiency tends to diminishthe environmental impact, reducing the rates and making thisenvironmental taxation policy successful.

3.3. Current taxation versus environmental taxation

In this subsection we follow the same methodology applied insubsection 2.2, to obtain the prices in the tax isonomy (equaliza-tion) scenario between ethanol and gasohol, discounting theenvironmental tax that would favor ethanol within the CIDE, asindicated earlier. Table 10 shows the consumer prices of hydratedethanol in the scenarios analyzed in this article.

In the scenario with highest GHG emission value, the finalconsumer price of ethanol exceeds that in the scenario of main-taining the current taxation. Therefore, continuing the current taxpolicy cannot be fully justified by the environmental advantages ofethanol (in terms of GHG emissions). In short, if one accepts theenvironmental premises presented, there is no economic or envi-ronmental justification for the current tax incentive for ethanol inBrazil.

Notwithstanding, the price under the medium environmentaltaxation path keeps ethanol competitive with gasohol. In this

17 For more information, see Law 10,363/02.18 For example, improved highways tend to increase fuel efficiency, and invest-ments in other means of transport bring efficiency gains that are reflected in lowerpollution emissions. 23.

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e1816

respect, it can be said that by internalizing the differences in GHGemissions, ethanol would be competitive in relation to gasohol(except in 2010).

From the values presented, the additional tax revenue in rela-tion to the current tax scenario is summarized in Table 11, accordingto the three GHG emission value scenarios.

Table 11 indicates that the additional tax revenue would varyfrom 24.5 to 58.8 billion dollars up to 2019, between 34.7% and83.5% of the forgone revenue calculated in subsection 2.3, or from31.8% to 217.1% more than total tax revenue from ethanol andgasohol in 2009. As said before, the medium value path of GHGemissions is the one closest to the tax scenario that keeps ethanolcompetitive e i.e., the scenario that increases the taxation ofethanol but not to the extent of making it uncompetitive withgasohol. In this scenario, 70.7% of the forgone revenue could berecovered (with environmental justifications for not recovering theother 29.3%).

4. Final comments

The option to use tax incentives to encourage an alternative fuelaffects the state because it reduces the revenues that can be spenton social programs and/or requires placing a greater tax burden onother products. In Brazil this forgone revenue will tend to increaseover time as the share of flex-fuel cars in circulation rises.

Our proposal is not to eliminate the current tax incentives toreplace fossil fuels with biofuels, but rather to revise them, sincethe greater participation of biofuels in a country’s energy mix canlead to more lost revenue and thus available funds to spend onsociety as a whole. A large portion of biofuels, especially ethanol inBrazil, is used in private cars, while a considerable part of thepopulation (particularly low-income people) in Brazil and otherdeveloping countries depend on public investments onmass transitto assure their mobility.

Transparency in the objectives of energy and tax policies isessential, because it makes them mutually consistent. Targetsassociated with adoption of new technologies, limits on local andglobal pollutant emissions, energy security and regional develop-ment may or may not be compatible with the needs of the state totax fuels to increase revenues.

This article showed that raising the tax burden on ethanol inBrazil is not able to fully offset the forgone revenue due to substi-tution of gasohol consumption without making ethanol uncom-petitive. This occurs even though Brazil has the world’s lowestethanol production cost [33,67]. Nevertheless, part of the forgonerevenue could be compensated by increasing taxation of ethanolwhile still keeping it competitive.

Although the current tax rates do not lead to fuel prices thatexactly reflect the difference in external costs of GHG emissionsfrom gasohol, they change the market equilibrium and make

Table 11Additional Tax Revenue (US$ of Jan. 2010/L).

Period Low valuation Medium valuation High valuation

2010 $3.55 $3.08 $1.332011 $4.08 $3.54 $1.562012 $4.62 $4.01 $1.812013 $5.10 $4.45 $2.062014 $5.66 $4.95 $2.362015 $6.20 $5.43 $2.632016 $6.69 $5.86 $2.862017 $7.15 $6.27 $3.072018 $7.66 $6.73 $3.292019 $8.12 $7.13 $3.49Total $58.84 $51.45 $24.46

ethanol more competitive. The results of our estimations show thatthe current tax incentives exceed the value of the external benefitof reduced GHG emissions. Hence, we conclude that Brazilianethanol receives incentives that go beyond the environmentalbenefit they generate by reducing GHG emissions. The resultsindicate that up to 60.1% of the current forgone revenue could berecovered while keeping ethanol completive and still having a taxpolicy with an environmental bias. Finally, it is important to stressthat by incorporating the economic perspective and internalizingthe environmental benefit, this scenario approximates a situationof sustainable development, which involves the economic, socialand environmental dimensions. This study focused only on theenvironmental costs related to CO2 emissions. Actually, the ClimateChange policy is one of the main reasons for promoting liquidbiofuels, as of today. However, the study lacks the analysis of otherexternalities, which could ramp ethanol production in Brazil. Forinstance, Brazil’s ethanol tax incentive could be justified by nationalenergy security reasons, technological spillovers, indirect andinduced economic impacts generated along ethanol productionchain, shadow price of foreign currency, and job creation. Futurestudies could well analyze these externalities following the meth-odological procedure proposed in this paper, aiming at finding ifBrazil’s ethanol fiscal incentives could also be explained by otherdriving factors then CO2 emissions.

In addition, the ethanol producers’ costs presented by thescientific literature and adopted by us in our study includeproducers’margins. Notwithstanding, future studies could evaluatefurther possible negative impacts on ethanol producers’ willing-ness to invest on the industry if their margins are affected by taxincentive changes.

Finally, it is worth stressing that our findings depend on thegasoline price scenario and even on the carbon price assumption.We decided to base our estimates on the Brazilian official scenarioand on three carbon prices forecasted in the scientific literature.Both represent reliable and plausible figures, although usuallyBrazil’s ex-refinery gasoline prices are not perfectly connected withBrent crude price variations, as shown by our statistical analysis.

The main result here is not the exact final quantitative esti-mates, but the qualitative assertion, which was proved by theestimates that shows that tax incentives to liquid biofuels should beadopted even in countries such as Brazil, which present the lowestcost for producing it. Nevertheless, these incentives should bealways carefully reviewed as they represent an increasing loss ofState revenue that can undermine public policies for mass transitoptions, as well as for promoting other biofuels (such as biodieseland bio-jet fuel).

Acknowledgments

We thank Bruno Borba, Rachel Souza and Roberto Schaeffer fortheir contribution during earlier stages of this paper. We alsoacknowledge the financial support from the National ResearchCouncil (CNPq). Finally, we thank several anonymous reviewers fortheir useful comments on the original draft. The conclusionsexpressed in this manuscript are solely our own.

References

[1] GTZ. International fuel prices. Deutsche Gesellschaft Für Technische Zusam-menarbeit. available at. 6th ed. Eschborn: GTZ, http://www.gtz.de/de/dokumente/gtz2009-en-ifp-full-version.pdf; 2010. accessed in august 21.

[2] Strand J. Importer and Producer Petroleum Taxation: a Geo-political model.IMF Working Paper, WP/08/35, Fiscal Affairs Department, available at. Inter-national Monetary Fund, http://www.imf.org/external/pubs/ft/wp/2008/wp0835.pdf; 2010. accessed in July 25.

[3] Hotelling H. The economics of Exhaustible resources. J Political Econ 1931;39:137e75.

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e18 17

[4] Dasgupta P, Heal G. Economic Theory and Exhaustible resources. New York:Cambridge University Press; 1979.

[5] GTZ. Liquid Biofuels for Transportation in Brazil: potential and implications forsustainable agriculture and energy in the 21st century. Available at, http://www.fbds.org.br/4DF01EF4-54FB-484E-BCA7-D26687F08386/FinalDownload/DownloadId-3C70919F547B17BD05101CB86F354EC0/4DF01EF4-54FB-484E-BCA7-D26687F08386/IMG/pdf/doc-116.pdf; 2010. accessed in may.

[6] Ramsey F. A contribution to the Theory of taxation. Econ J 1927;37:47e61.[7] Litman T. Appropriate Response to rising fuel prices. available at. Canada:

Victoria Transport Policy Institute, http://www.vtpi.org/fuelprice.pdf; 2010.accessed in August 11.

[8] Storchmann K. The impact of fuel taxes on public transport e an empiricalAssessment for Germany. Transp Policy 2001;8:19e28.

[9] Wing-Tat H. Taxation on vehicle fuels: Its impacts on Switching to cleanerfuels. Energy Policy 2004;34:2566e71.

[10] Greene D, Patterson P, Singh M, Li J. Feebates, Rebates and Gas-guzzler Taxes:a study of incentives for increased fuel economy. Energy Policy 2005;33:757e75.

[11] Klemm A, Parys S. Empirical Evidence on the effects of tax incentives. Inter-national Monetary Fund; 2009. IMF Working Paper, WP/09/136, Fiscal AffairsDepartment, July.

[12] Pindyck R, Rubinfeld D. Microeconomics. 5th ed. New Jersey: Prentice-Hall;2001.

[13] Dresner S, Dunne L, Clinch P, Beuermann C. Social and political responses toecological tax reform in Europe: an introduction to the special issue. EnergyPolicy 2006;34:895e904.

[14] Pigou A. The economics of welfare. London: McMillan; 1918.[15] Baumol W, Oates W. The Theory of environmental policy. 2nd ed., vol 23. New

York: Cambridge University Press; 1988.[16] Hsu S, Walters J, Purgas A. Pollution Tax Heuristics: an empirical study of

willingness to pay higher gasoline taxes. Energy Policy 2008;36:3612e9.[17] Mankiw G. Raise the gasoline tax. Wall Street J. available at, http://online.wsj.

com/article/SB116131055641498552.html?mod¼opinion_main_commentaries;October 20, 2006. accessed in may 12, 2010.

[18] Litman T. Carbon taxes: "Tax what You Burn, not what You Earn". available at.Canada: Victoria Transport Policy Institute, http://www.vtpi.org/carbontax.pdf; 2008. accessed in December, 2010.

[19] Macedo I. Commercial perspectives of bBio-Alcohol in Brazil. Sevilla, Spain:First World Conference on Biomass for energy and Industry; 2000.

[20] Coady D, Gillingham R, Ossowski R, Piotrowski J, Tareq S, Tyson J. Petroleumproduct subsidies: Costly, Inequitable, and Rising. International Monetaryfund (IMF). Fiscal Affairs Department; 2010. February.

[21] Davoust R. Gasoline and diesel prices and Taxes in Industrialized countries.Institut Français des Relations Internationales (IFRI); 2008. December.

[22] IEA. Energy Prices & Taxes 2009. International Energy Agency, IEA statistic,Quarterly statistics, fourth quarter; 2009.

[23] Hsu S. Carbon Tax Heuristics and Politics: the case of the gasoline tax.Working paper series, available at. Social Science Research Network (SSRN),http://papers.ssrn.com/sol3/papers.cfm?abstract_id¼1121039; 2010.accessed in April 21.

[24] Daubanes J. Taxation of oil products and GDP Dynamics of oil-rich countries;February, 2009. Zürich, Switzerland.

[25] ESMAP. Potential for biofuels for transport in developing countries. Wash-ington: Joint UNDP/ World Bank Energy Sector Management AssistanceProgram (ESMAP); 2005.

[26] Gerlagh R, Lise W. Carbon taxes: a Drop in the Ocean, or a Drop that Erodesthe Stone? The effect of carbon taxes on technological change. Ecol Econ2005;54:241e60.

[27] IFAD. Promoting market access: for the Rural poor in order to achieve theMillennium development Goals. available at. International Fund for Agricul-tural Development (IFAD), http://www.ifad.org/4DF01EF4-54FB-484E-BCA7-D26687F08386/FinalDownload/DownloadId-2C05449FB59F683AF7C3636047361C93/4DF01EF4-54FB-484E-BCA7-D26687F08386/gbdocs/gc/26/e/markets.pdf; 2010. accessed in april 14.

[28] Gowen M. Biofuels versus fossil fuels in developing countries: How green isthe pasture? Energy Policy; 1989:455e70.

[29] Sterner T. Fuel taxes: an important instrument for climate policy. EnergyPolicy 2007;35:3194e202.

[30] Beuermann C, Santarius T. Ecological Tax Reform in Germany: Handling twohot potatoes at the same time. Energy policy 34. Elsevier; 2006. 917e929.

[31] IEA. Biofuels for Transport: an international perspective. France, Paris: Inter-national Energy Agency; 2004.

[32] EIA. International energy Statistics: biofuels production and consumption of2008. available at. Energy Information Administration, U.S. Department ofEnergy, http://www.eia.doe.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid¼79&pid¼79&aid¼1; 2010. accessed in December 15.

[33] Ryan L, Convery F, Ferreira S. Stimulating the use of Biofuels in EuropeanUnion: Implications for climate change policy. Energy Policy 2005;34:3184e94.

[34] EIA. Motor gasoline outlook and state MTBE bans. available at. Washington,DC: Energy Information Administration/US Department of Energy, http://www.eia.doe.gov/emeu/steo/pub/special/mtbeban.html; 2010. accessed injanuary13.

[35] EIA. Impact of energy policy Act of 2005 section 206 Rebates on consumersand Renewable energy consumption, with projections to 2010. available at.

Washington, DC: Energy Information Administration/US Department ofEnergy, http://www.eia.doe.gov/cneaf/solar.renewables/page/epact/epact.html; 2010. accessed in October 10.

[36] Steenblik R. Biofuelsdat what cost? Government support for ethanol andbiodiesel in the United States. available at. Geneva, Switzerland: Reportprepared for The Global Subsidies Initiative, http://www.globalsubsidies.org/files/assets/oecdbiofuels.pdf; 2010. accessed in November 12.

[37] Hira A, Oliveira L. No substitute for oil? How Brazil developed its ethanolindustry. Energy Policy 2009;37:2450e6.

[38] GTZ. International Fuel Prices. Deutsche Gesellschaft Für Technische Zusam-menarbeit. available at. Eschborn: GTZ, http://www.gtz.de/de/dokumente/en_International_Fuel_Prices_2005.pdf; 2005. accessed in April 3, 2010.

[39] Almeida E, Bomtempo J, Silva C. The performance of Brazilian biofuels: aneconomic, environmental and social analysis. discussion paper no. 5, availableat. Instituto de Economia, Universidade Fed do Rio de Janeiro, InternationalTransport Forum, http://www.internationaltransportforum.org/jtrc/DiscussionPapers/DiscussionPaper5.pdf; 2010. accessed in October 10.

[40] Macedo I, Leal M, Silva J. Assessment of greenhouse gas emissions in theproduction and use of fuel ethanol in Brazil. available at. Governo do Estadode São Paulo, http://www.wilsoncenter.org/events/docs/brazil.unicamp.macedo.greenhousegas.pdf; 2010. accessed in january 28.

[41] Wang M, Wu M, Huo H. Life-cycle energy and greenhouse gas emissionimpacts of different corn ethanol plant types. IOP Publishing, EnvironmentalResearch Letters, Center for Transportation Research; 2007.

[42] Peters J, Thielmann S. Promoting biofuels: Implications for developing coun-tries. Energy Policy 2008;36:1538e44.

[43] Walter A, Rosillo-Calle F, Dolzan P, Piacente E, Cunha C. Perpectives on fuelethanol consumption and trade. Biomass and Bioenergy 2008;32:730e48.

[44] EPE. Plano Decenal de Energia 2010-2019. Empresa de Pesquisa Energética(EPE). available at. Rio de Janeiro: Ministério de Minas e Energia (MME),http://www.epe.gov.br/PDEE/Forms/EPEEstudo.aspx; 2010. accessed inseptember 5.

[45] EIA. Annual Energy Outlook. Energy information Administration (EIA). avail-able at. United States Department of Energy, http://www.eia.gov/oiaf/archive/aeo10/index.html; 2010. accessed in November 20, 2010.

[46] MAPA. Mistura Carburante - Variação de Percentual. available at. Ministérioda Agricultura Pecuária e Abastecimento (MAPA), http://www.agricultura.gov.br/portal/page?_pageid¼33,3900254&_dad¼portal&_schema¼PORTAL; 2010.accessed in August 19.

[47] M. Francescato. O Impacto dos Mercados de Açúcar e Petróleo Americano naVolatilidade do Açúcar Brasileiro. Master of Science Thesis, IBMEC São Paulo.School of Economics and Administration, 2006.

[48] X. Wang. The impact of fuel ethanol on Motor gasoline market: Modelingthrough a system of Structural Equations. Master of Science Thesis, Universityof Missouri-Columbia, 2008.

[49] ANP. Anuário Estatístico Brasileiro do Petróleo e do Gás Natural e 2010.Agência Nacional do Petróleo. available at. Gás Natural e Biocombustíveis(ANP), http://www.anp.gov.br/?pg¼31286; 2010. accessed in November 19.

[50] CONFAZ. Atos Cotepe e Convênios ICMS. available at. Conselho Nacional dePolítica Fazendária (CONFAZ), http://www.fazenda.gov.br/confaz; 2010.accessed in may 17.

[51] BNDES and CGEE. Bioetanol de Cana-de-Açúcar: Energia para o desenvolvi-mento sustentável. 1st ed. Rio de Janeiro: Coordenation BNDES e CGEE; 2008.

[52] IMF. World Economic Outlook Databases: Gross domestic product, currentprices (U.S. dollars). available at. International Monetary Fund (IMF), http://www.imf.org/external/pubs/ft/weo/2010/01/weodata/weoselgr.aspx; 2010.accessed in April 6.

[53] MPOG. Estatísticas Fiscais: Resultado primário da seguridade social. availableat. Ministério do Planejamento, Orçamento e Gestão (MPOG), Secretaria deOrçamento Federal, https://www.portalsof.planejamento.gov.br/bib/estatis_2010; 2010. accessed in December 31.

[54] Brazil. Investimentos em Infraestrutura para o Desenvolvimento Econômico eSocial. Programa de Aceleração do Crescimento (PAC), http://www.brasil.gov.br/pac/o-pac/investimentos-em-infraestrutura-para-o-desenvolvimento-economico-e-social; 2010. available ataccessed in December 31.

[55] UNFCC. United nations Conference on Environment and development: EarthSummit. Rio de Janeiro: United Nations Framework Convention on ClimateChange (UNFCC); 1992. June 3 to 14.

[56] Maibach M, Schreyer C, Sutter D, Van Essen H, Boon B, Smokers R, et al.Handbook on estimation of external costs in the transport sector. Producedwithin the study Internalisation Measures and Policies for All external Cost ofTransport; 2008. Delf CE.

[57] European Commission. European Union energy and transport in figures:statistical pocketbook. Luxembourg: Office for Official Publications of theEuropean Communities; 2002.

[58] Álvares Jr O, Linke R. Metodologia Simplificada de Cálculo das Emissões deGases do Efeito Estufa de Frotas de Veículos no Brasil. Available at, http://www.ambiente.sp.gov.br/proclima/PDF/inventario_efeitoestufa.pdf; 2010. accessedin February 22.

[59] CDIAC. Global, regional, and national Annual time Series. available at. CarbonDioxide Information Analysis Center (CDIAC), U.S. Department of Energy(DOE), http://cdiac.esd.ornl.gov/cdiac/; 2010. accessed in August 23.

[60] M. Scandiffio. Análise prospectiva do álcool combustível no Brasil e cenários2004-2024. Campinas, São Paulo, Doctoral Thesis, Campinas State University,School of Mechanical Engineering, Campinas, 2005.

M. Cavalcanti et al. / Renewable Energy 37 (2012) 9e1818

[61] Seabra J. Avaliação tecnico-econômica de opções para o aproveitamentointegral da biomassa de cana no Brasil. Doctoral Thesis. Campinas: CampinasState University, School of Mechanical Engineering; 2008.

[62] Macedo I, Seabra J, Silva J. Greenhouse gases emissions in the production anduse of ethanol from sugarcane in Brazil: the 2005/2006 averages anda prediction for 2020. Biomass and Bioenergy 2008;32:582e95.

[63] IPCC. Climate Change 2007-Synthesis Report. Intergovernmental Panel onclimate change (IPCC). Switzerland, Geneva: WMO, UNEP; 2008.

[64] HEATCO. Developing Harmonised European approaches for transport costingand project Assessment. Available at. Germany: IER, http://heatco.ier.uni-stuttgart.de/; 2010. accessed in December 08.

[65] Litman T. Climate change emission Valuation for transportation economicanalysis. available at. Canada: Victoria Transport Policy Institute, http://www.vtpi.org/ghg_valuation.pdf; 2010. accessed in November 10.

[66] Watkiss P, Anthoff D, Downing T, Hepburn C, Hope C, Hunt A, Tol R. The socialcost of carbon (SCC) Review e Methodological approaches for using SCCestimates in policy Assessment. Final Report, available at. Research on Behalfof UK Defra, http://www.decc.gov.uk/assets/decc/what%2520we%2520do/a%2520low%2520carbon%2520uk/carbon%2520valuation/social_cost/aeat-scc-report.pdf; 2010. accessed in June 13.

[67] Jungmeier G, Koenighofer K, Varela M, Lago C. Economic and environmentalperformance of biofuels; 2005. Work Package 3, VIEWLS project. Clear Viewson Clean fuels: data, potential, scenarios, markets and trade of biofuels, ECproject NNE5-2001-00619.

[68] Mathews J. Biofuels: what a Biopact between North and South could achieve.Energy Policy 2007;35:3359e70.

[69] Grupta S, Clements B, Fletcher K, Inchauste G. Issues in domestic petroleumpricing in oil-producing countries. Working Paper e WP/02/140, Fiscal AffairsDepartment, available at. International Monetary Fund e IMF, http://www.imf.org/4DF01EF4-54FB-484E-BCA7-D26687F08386/FinalDownload/Down-loadId-E2263AA75F853A5697C99DB332017447/4DF01EF4-54FB-484E-BCA7-D26687F08386/external/pubs/ft/wp/2002/wp02140.pdf; 2010. accessed inSeptember 21.

[70] Hammar H, Löfgren A, Sterner T. Political economy Obstacles to fuel taxation:using Granger non-Causality Test to Gauge the Strength of Lobbying. availableat. University of Göteborg, http://www.hgu.gu.se/files/nationalekonomi/eeu/publications/eeu20%workingpapers/political_obstacles_wp2003_4pdf.pdf;2010. accessed in may 30.

[71] Commodity Data BLS. All commodities (Producer price Index - PPI). availableat. United States Department of Labor, Bureau of Labor Statistics (BLS), http://www.bls.gov/data/home.htm; 2010. accessed in August 19.

[72] BCB. Taxa de Câmbio. available at. Banco Central do Brasil (BCB), http://www4.bcb.gov.br/pec/taxas/port/ptaxnpesq.asp?id¼txcotacao; 2010. accessed inNovember 15.

[73] Delgado C, Araújo A, Fernandes V. Properties of Brazilian gasoline mixed withhydrated ethanol for flex-fuel technology. Fuel Process Technol 2007;88:365e8.

[74] EPE. Balanço Energético Nacional: ano base 2009. Empresa de PesquisaEnergética (EPE). available at. Ministério de Minas e Energia (MME), https://ben.epe.gov.br/downloads/Relatorio_Final_BEN_2010.pdf; 2010. accessed inNovember 15.

[75] Brazil. Constituição da República Federativa do Brasil. Available at, http://www.planalto.gov.br/ccivil_03/Constituicao/Constituicao.htm; 1988. accessed inAugust 15, 2010.

[76] Goldemberg J, Teixeira S, Nastaric P, Lucond O. Ethanol learning CurvedtheBrazilian experience. Biomass and Bioenergy 2004;26:301e4.

[77] MDS. Bolsa Família. Ministério do Desenvolvimento Social e Combate à Fome(MDS). available at, http://www.mds.gov.br/bolsafamilia; 2010. accessed inNovember 20.

[78] EPA. Emissions facts: greenhouse gas emissions from a typical passengervehicle. available at. United States Environmental Protection Agency (EPA),http://www.epa.gov/oms/climate/420f05004.pdf; 2010. accessed inNovember05.

[79] EIA. Spot Prices: Crude Oil in Dollars per Barrel. available at. Energy Infor-mation Administration, U.S. Department of Energy, http://www.eia.doe.gov/dnav/pet/pet_pri_spt_s1_d.htm; 2010. accessed in October 22.