How green is sugarcane ethanol?

Abstract

Biofuels offer one approach for reducing carbon emissions in transportation. However, the agricultural expansion needed to produce biofuels may endanger tropical forests and thus offset the benefits of fossil fuel substitution. Whether this occurs depends on the extent to which increases in biofuels supply arise from gains in yields per acre or expansion in growing areas. I use a dynamic model of land use to disentangle the roles played by acreage expansion and yield increases in the supply of sugarcane ethanol in Brazil. The model is estimated using a panel of 1.8 million fields, which is built using remote sensing (satellite) information of sugarcane activities. My estimates imply that, at the margin, 94% of new ethanol comes from increases in area planted and only 6% from increases in yield. Direct deforestation accounts for 12% of area expansion. Balancing carbon emissions from deforestation and the carbon saved by fossil fuel substitution, I find that it would take about 20 years for the lower emissions from sugarcane ethanol to 'pay back' the added emissions from deforestation. As an illustrative policy experiment, I consider the effects of a 5 billion gallon sugarcane ethanol mandate (~ 3% of US gasoline consumption). Such policy would lead to a 1% price increase and deforestation of about 9,000 sq. km. ( ~3/4 the size of Connecticut).