Abstract for: Simulating Government Policies for the Ethanol Market in Brazil

Sugarcane ethanol is now established as an important component in the Brazilian energy matrix. This status was achieved through a long lasting, expensive incentive program that started in the 1970s and with ongoing research and development. But the industry has had ups and downs and during 2011/12 it went through a major crisis with a shortage in supply, surge in prices and a shift in demand from ethanol to gasoline. This paper explores recommended policies by the government to deal with this and future crises. A System Dynamics model is used to replicate the current and possible future scenarios and to test appropriate strategies. The simulations show that a policy to allow gasoline prices to grow, adjusting to international prices, would have a highly positive impact for the industry while also contributing to public savings. The dosage of the policies can be tested under different scenarios with the presented model and flight simulator.