Bioethanol As Basis for Regional Development in Brazil: An Input-Output Model With Mixed Technologies

Abstract

Many issues of strategic importance that have emerged in recent years are contributing to the formulation of national policies for promoting biofuels worldwide. In the developed countries, such initiatives result mainly from concerns on energy security and greenhouse gases emissions. Developing countries envisage biofuels as a potential means to improve access to energy, increase income and employment, alleviate poverty, spur rural development, reduce oil imports and enhance exports of biomass products. These interests converge as to render bioethanol trade a unique opportunity for sustainable development. Despite its simplicity and ease of use, the basic input-output (i-o) model does not allow the representation of technology-differentiated sectors producing the same good or service. For instance, in Brazil, sugarcane can be collected manually or via harvesting machines and alcohol can be produced in plants appended to a sugar mill or in autonomous distilleries. An i-o model with mixed technologies was constructed for the purposes of the study. A linear technology is used to represent the sugarcane and ethanol sectors, whereas the remaining industries are characterized by the usual Leontief production function. Activity levels for the linear-technology sectors are set by a scenario analysis, avoiding the use of much more complicated mathematical tools, such as a computable general equilibrium (cge) model. The construction of the database was done in two stages. Firstly, an i-o table containing 42 sector and 80 commodities was estimated for the base year of 2002. Secondly, the sugarcane and ethanol industries were disaggregated from the sectors they appear in IBGE economic tables, based on detailed engineering information obtained from experts and specialized publications. The extended input-output model with mixed technologies was used to analyze the socioeconomic impacts of a large-scale expansion of bioethanol production in Brazil so as to replace 5% of the estimated global demand for gasoline in 2025. The resulting direct, indirect and induced effects indicate that if ethanol production is augmented in nearly 800%, GDP would increase by a factor of 11.4%, equivalent to approximately the entire economy in the Northeast region of Brazil, and more than 5 million of jobs would be created.