Building a Bioethanol Market in Mexico

Abstract

Objectives: This article aims to analyze the economic effects of bioethanol policies in Mexico, where there have been several attempts to introduce biofuels into the market but so far, no success. Methodology: Technically, an endogenous-price mathematical programming model is developed emphasizing the agricultural and fuel sectors, which are embedded in a multi-region, multi- product, spatial partial equilibrium model. Bioethanol can be produced both from a dedicated crop and from agroindustrial residues. Three policy alternatives are considered as well as a base case in which, as now, liquid fuels are all derived from fossil sources. The first alternative consists of subsidies to biofuel producers, the second of blending mandates and the third of both combined.Results: Results show some losses for fuel and agricultural consumers, that are not offset by both ethanol producer and environmental gains. Limitations and implications: The base year data should be more recent, but it is very difficult to gather all this amount of information for a more recent year. Like any partial equilibrium model, the analysis ignores the effects outside the markets included in the model. Originality and value: Model developed for this research, and it is the first economic study on bioethanol in Mexico that reaches such a detailed analysis. Conclusions: This research suggests that it is possible to develop a bioethanol market in Mexico, but some compensating redistribution among economic groups may be needed if these policies are to be seen as politically sustainable.