Why Brazil imports so much corn-based ethanol: The role of Brazilian and American ethanol blending mandates

Despite the decades of productive tradition and the energetic efficiency of the sugarcane-based ethanol, Brazil has been importing large volumes of American corn-based ethanol and presenting increasing occurrences of deficit in its ethanol trade balance since the 2010s decade begun. Despite not being able to meet the domestic and international sugarcane ethanol demands, Brazil keeps raising its ethanol blending mandate. To better understand that, the present work examines the literature in search for possible explanations of the phenomenon, and estimates three ARDL models in which the Brazilian ethanol trade balance is explained by the Brazilian and American ethanol mandates. Brazilian mandate has both long run and short run effects, and American mandate, for its nature of being an annual mandate, differently from the Brazilian one, only has a positive long run effect. As recently the USA government started directing the ethanol mandate raises towards cellulosic biofuels mainly (being sugarcane-based ethanol one of the main representatives of this category), and the estimates showed that this kind of mandate specifically has a bigger impact, the study suggests that Brazil could take advantage of this new rising demand by not raising its mandate, which is currently the highest blend rate in the world.

Automated summary

Despite a decades-long tradition of sugarcane-based ethanol production, Brazil has been importing large volumes of American corn-based ethanol and experiencing deficits in its ethanol trade balance since the 2010s. The Brazilian ethanol mandate has both long run and short run effects on the trade balance, while the American mandate only has a positive long run effect due to its annual nature. The study suggests that Brazil could capitalize on the rising demand for cellulosic biofuels, which has a greater impact compared to traditional ethanol mandates.