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Consumer choice between ethanol and gasoline: Lessons from Brazil and Sweden
KTH, School of Industrial Engineering and Management (ITM), Energy Technology, Energy and Climate Studies, ECS.
KTH, School of Industrial Engineering and Management (ITM), Energy Technology, Energy and Climate Studies, ECS.ORCID iD: 0000-0001-7123-1824
2011 (English)In: Energy Policy, ISSN 0301-4215, E-ISSN 1873-6777, Vol. 39, no 11, p. 6936-6942Article in journal (Refereed) Published
Abstract [en]

The introduction of flex-fuel vehicles since 2003 has made possible for Brazilian drivers to choose between high ethanol blends or gasoline depending on relative prices and fuel economies. In Sweden, flex-fuel fleets were introduced in 2005. Prices and demand data were examined for both Brazil and Sweden. Bioethanol has been generally the most cost-efficient fuel in Brazil, but not for all states. In any case, consumers in Brazil have opted for ethanol even when this was not the optimal economic choice. In Sweden, a different behavior was observed when falling gasoline prices made E85 uneconomical in late 2008. In a context of international biofuels expansion, the example of E85 in Sweden indicates that new markets could experience different consumer behavior than Brazil: demand falls rapidly with reduced price differences between ethanol and gasoline. At the same time, rising ethanol demand and lack of an international market with multiple biofuel producers could lead to higher domestic prices in Brazil. Once the limit curve is crossed, the consumer might react by shifting back to the usage of gasoline.

Place, publisher, year, edition, pages
Elsevier , 2011. Vol. 39, no 11, p. 6936-6942
Keywords [en]
Ethanol, gasoline, consumer choice, Sweden, Brazil
National Category
Economics
Research subject
SRA - Energy
Identifiers
URN: urn:nbn:se:kth:diva-48308DOI: 10.1016/j.enpol.2010.09.024ISI: 000298120200024Scopus ID: 2-s2.0-80054875539OAI: oai:DiVA.org:kth-48308DiVA, id: diva2:457298
Funder
StandUp
Note
QC 20111124Available from: 2011-12-08 Created: 2011-11-17 Last updated: 2022-06-24Bibliographically approved
In thesis
1. The Development of Bioethanol Markets under Sustainability Requirements
Open this publication in new window or tab >>The Development of Bioethanol Markets under Sustainability Requirements
2015 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This thesis is a theoretical and empirical examination of the developmentof bioethanol markets since 2005 when sustainability regulations forbiofuels were introduced globally. The experiences of Brazil and Sweden,and the influence of European regulations on the development ofbioethanol markets receive special attention. The work is based onprimary and secondary data sources gathered between 2009 and 2014,including interviews, field research, data from public and private sources,as well as an extensive literature review. The thesis uses case examples ofcountries that have adopted bioethanol as a transport fuel, such as Braziland Sweden.The research is structured using a bottom-up approach, and addressesthree specific angles of the complex issue of how bioethanol marketshave developed under sustainability requirements.The first part introduces an economic sustainability view of ethanol. Thecharacteristics of bioethanol fuel are presented together with conceptsand a theoretical framework for analysing biofuel sustainability. Policytools are also discussed, particularly those used to introduce fuel ethanolin the transport sector. The discussion is centred on the competitionbetween ethanol and gasoline, considering the hypothesis that consumersare sensitive to prices and tend to choose fuels based on their cost-perenergyunit. The analysis is supported by the case examples of Brazil andSweden, with special focus on the delicate balance between fueleconomies of bioethanol and gasoline systems in the face of differentways oil products are priced in those countries. Findings show thatdrivers tend to choose between bioethanol (E85/E100) or gasoline (E5-E25) depending on the relative prices between the two fuels. Theresearch results suggest that different pricing strategies for bioethanoland gasoline affect how consumers perceive the attractiveness of eachfuel. The examples of E100 in Brazil and E85 in Sweden provide insightson the elastic consumer behaviour that new markets may experience,serving to guide strategies in different contexts.The second part of this work bridges experiences in national contextswith the recent trend for biofuel sustainability regulation in internationalmarkets. Based on the hypothesis that the ethanol industry is responsiveto sustainability regulations, an examination of the development of theiiBrazilian bioethanol industry is carried out. This provides a comparisonframework drawing patterns between the industry's reaction to nationalregulations (past) and international regulations (recent). For this purpose,a comparison between the European sustainability requirements forethanol and the industry’s status quo is explored. Findings show that theEU sustainability criteria for biofuels are likely to have three effects onthe bioethanol industry: (i) compliance through incrementalimprovements in sustainability practices and certification; (ii) riskdiversification by engaging in multi-output production models; and (iii)market leakage towards less-regulated markets.The third part of the thesis brings together the first two parts. Itexamines how in a fuel competition context, the incorporation of costsrelated to sustainability certification can change the attractiveness ofhigh-bioethanol blends for consumers. The model of sustainabilityadopted by major international markets is based on regulations enforcedby mandatory certification. As biofuel market share increased, producerswere faced with costs for sustainability certification in order to obtainmarket access. While it was expected that ‘sustainably’ produced biofuelswould be rewarded with higher prices in the EU, this work found thatprice premiums for ethanol have in general been very small or inexistent,with certified fuels becoming the new norm in the market. New costsbrought into the market through sustainability certification can make itdifficult to balance between national policies heavily reliant on consumerchoice between fuels (and associated price-elasticities), and thedeployment of high blends of ethanol, such as E100 and E85.By analysing the three aspects (consumer behaviour and marketdynamics for ethanol in Brazil and Sweden, the introduction ofsustainability criteria for biofuels, and the implications of sustainabilityfor consumer choice between fuels) this work seeks to increaseunderstanding of the highly complex issue of biofuel market formationin the face of sustainability requirements. The key finding is thatsustainability certification has a cost, which needs to be orchestrated withother sectors of the economy to achieve the desired objectives. Thisthesis suggests that crucial areas of economic and environmentalsustainability have been often dealt with separately in biofuelpolicymaking, which has created weaknesses that deserve attention infuture policy efforts in order to improve biofuel systems.

Place, publisher, year, edition, pages
Stockholm: KTH Royal Institute of Technology, 2015. p. xxvi, 130
Series
Trita-ECS-Report ; 15:1
Keywords
Bioethanol, Biofuels, Consumer choice, Sustainability Criteria, International Trade, European Union, Brazil, Sweden, Policy.
National Category
Energy Systems
Research subject
Energy Technology
Identifiers
urn:nbn:se:kth:diva-163406 (URN)978-91-7595-475-2 (ISBN)
Public defence
2015-04-21, Sal F3, Lindstedtsvägen 26, KTH, Stockholm, 13:15 (English)
Opponent
Supervisors
Funder
EU, FP7, Seventh Framework ProgrammeSwedish Energy Agency
Note

QC 20150401

Available from: 2015-04-01 Created: 2015-04-01 Last updated: 2022-06-23Bibliographically approved

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