Potential for Uncertainty about Indirect Effects of Ethanol on Land Use in the Case of Brazil

The indirect effects of ethanol on land are a focus of recent US biofuel literature and policy. The experiments presented here highlight the sensitivity of land use changes to assumptions about the ability of land to be converted from one use to another and the ease with which decision makers can make these conversions. By varying parameters governing land use in a simulation model, indirect effects on land use can be varied no less widely. Extending this result, there is an inverse relationship between the responsiveness of land allocation, which is a key element of overall supply response in the medium-term, and the magnitude of price effects: for a given shock, greater land response dampens the scale of price changes and lower land response is associated with greater price effects. Moving beyond agricultural commodity markets alone, Brazilian ethanol markets may be as sensitive to prices as US markets are sometimes believed to be. If so, then changes in Brazilian trade may represent a substantial part of the market response to changes in US ethanol consumption at least over certain ranges. With uncertainties about area and ethanol market effects taken into account, a particular path of US imports may be associated with any number of land use effects.