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FGV Conferences, 33º Meeting of the Brazilian Econometric Society

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Consumer Choice Between Gasoline and Sugarcane Ethanol
Alberto Salvo, Cristian Huse

Last modified: 25-09-2011

Abstract


How US motorists might switch from gasoline to an alternative energy source is not known, since the availability of alternatives is currently very limited. To bridge this gap, we exploit recent exogenous variation in ethanol prices at Brazil's pumps and uncover substantial consumer heterogeneity in the choice among century-old gasoline and a less-established---but still widely available and usable---alternative, sugarcane ethanol. Surprisingly, we observe roughly 20% of flexible-fuel motorists choosing gasoline when gasoline is priced 20% above ethanol in energy-adjusted terms ($/mile) and, similarly, 20% of motorists choosing ethanol when ethanol is priced 20% above gasoline. Ceteris paribus, older motorists, heavy vehicle users, or (in follow-up interviews) motorists voicing engine concerns or "range anxiety", are significantly more likely to choose gasoline over (lower-mileage) ethanol. In contrast, motorists who spontaneously invoke environmental concerns or reside in sugar-producing states exhibit a greater propensity to adopt ethanol. Our findings suggest---and a counterfactual illustrates---that switching away from gasoline en masse, should this be desired, would require significant price discounts to boost voluntary adoption, in the US and elsewhere.

Keywords


consumer choice; fossil fuels; renewable fuels; biofuels; flexible-fuel vehicles

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