Regional, Economic, and Environmental Implications of Dual Ethanol Technologies in Brazil

Abstract

Climate change, food security, and energy efficiency have become universal challenges for global economic development and environmental conservation that demand in-depth multidisciplinary research. Biofuels have emerged as a decisive factor in the fight against global warming and air pollution from fossil fuel use, and they can play an important role in the development of poor as well as rich regions. In this work, we investigate the implications of biofuels for regional development in Brazil given its historic experience as an ethanol producer. We compare the environmental and economic impacts of the two predominant ethanol production techniques, in order to understand their effects on output, employment and income and also their potential to reduce the intensity of fossil fuel use and emissions of greenhouse gases. As we focus on a developing country, we also examine the distributional impacts of ethanol technology deployment, in terms of its potential contributions to poverty alleviation and the reduction of regional income inequalities. The production technologies currently used to produce ethanol differ spatially in Brazil, with a capital-intensive technology being used in the Southern regions of the country, and a traditional labor-intensive technology in the Northern regions. We take advantage of this regional variation to conduct a comparative regional analysis of ethanol production technology choice. We evaluate and compare the direct and indirect relationship between output, employment, income, energy intensity, and pollution emissions at the subnational level for the two ethanol production technologies, showing quantitatively the interrelations between the ethyl alcohol industry and the rest of the economy. We hypothesize that the adoption of capital-intensive ethanol production technology provides greater output and employment and lower environmental and energy costs than more traditional technologies and, in contrast, that the implementation of the traditional technology alleviates income inequality by increasing the income received by households in economically deprived regions.