Exploring policy options to spur the expansion of ethanol production and consumption in Brazil: An agent-based modeling approach

The Brazilian government aims to increase the share of biofuels in the energy mix to around 18% by 2030, which implies an increase of ethanol production from currently 27 bln liters to over 50 bln liters per year. Biofuel policies play an important role in ethanol production, consumption, and investment in processing capacity. Nevertheless, a clear understanding of how current policies affect the evolution of the market is lacking. We developed a spatially-explicit agent-based model to analyze the impact of different blend mandates and taxes levied on gasoline, hydrous, and anhydrous ethanol on investment in processing capacity and on production and consumption of ethanol. The model uses land use projections by the PCRaster Land Use Change model and incorporates the institutions governing the actors’ strategic decision making with regard to production and consumption of ethanol, and the institutions governing the interaction among actors. From the investigated mix of policy measures, we find that an increase of the gasoline tax leads to the highest increased investments in sugarcane processing capacity. We also find that a gasoline tax above 1.23 R$/l and a tax exemption for hydrous ethanol may lead to doubling the production of ethanol by 2030 (relative to 2016).