Elasticities of short and long term demand for ethanol in Brazil

The future scarcity of fossil fuels is not an opinion shared by the whole of academia but the need for cleaner energy sources is a consensus. Based on this first generation ethanol from Brazilian sugarcane becomes an excellent energy alternative because it presents better environmental indicators at a competitive cost in some Brazilian states. However studies on the demand for ethanol worldwide are scarce and this scarcity surprisingly is repeated in Brazil. In recent literature for example there are no studies that estimate elasticities by region or that consider long-term elasticities using panel data for Brazil. This paper estimates elasticities for Brazil and for the Five Brazilian Regions for the period July 2001 to July 2011 on a monthly basis. GLS for the short run and DOLS for the long run are used. The results indicate that ethanol is a price elastic good with elasticity around -1.42 and -3.30 for the short run and long run respectively. Increase in price and cross elasticities in the short run are the main results.