Socioeconomic and Land Use Trade-Offs of Ethanol Expansion in Brazil

Brazil is the second largest producer of ethanol in the world and is likely to play a leading role in meeting global demand in the future. Increased ethanol production is not without a risk, however, as ethanol expansion could increase deforestation in the Brazilian Amazon. Some argue that technological improvements in sugarcane varieties, cultivation, and ethanol production will reduce the need for new deforestation. Others maintain that demand for ethanol may shift production of food crops to sugarcane, resulting in higher food prices and have a disproportionate impact on the poor. To evaluate these arguments we developed a computable general equilibrium (CGE) model of Brazil to estimate the socioeconomic and land use impacts of (a) an improvement in sugarcane and ethanol production technology; (b) an increase in ethanol demand; and (c) the combined effects of improved technology and increased ethanol demand. Our results indicate that ethanol expansion has little effect on levels of deforestation. Technological improvements reduce the area of sugarcane cultivation in all regions of Brazil while other agricultural sectors tend toward expansion. Agricultural product prices decrease in the short-run, but return close to their original levels in the longer-run thus having almost no affect on the poor.