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Abstract

The future shortage of fossil energy is not shared by the entire academy, but the need of renewable energy sources is a consensus. Based on this, the ethanol from sugarcane in Brazil becomes an excellent energy alternative by offering better indicators, such as: less land intensity, lower production costs and larger CO2 reduction when compared with other energy producing crops. However, there are no studies that estimate the long run ethanol demand using panel data or either estimate it at regional level. Therefore, this study aims to estimate the price, income and cross price demand elasticities for ethanol in the short and long run. The estimates are both at national and regional levels for Brazil, from July 2001 to July 2011, on a monthly basis. Panel data econometrics are used and forecasts use the following estimators: General Least Squares (GLS) with correction for heteroscedasticity for short run and Dynamic Ordinary Least Squares (DOLS) for long run. Results indicate that ethanol is price elastic, with elasticity around -1.42 and -3.30 for the short and long run, respectively. There was an increase of cross and price elasticities in the short run in the post-flex period.

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