Carbon Emissions and Brazilian Ethanol Prices: Are They Correlated? An Econophysics Study

Derick David Quintino,Heloisa Lee Burnquist,Paulo Jorge Silveira Ferreira

doi:10.3390/su132212862

Derick David Quintino, Heloisa Lee Burnquist + Show 1 more

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https://doi.org/10.3390/su132212862

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Abstract

Brazil is one of the largest global producers and exporters of ethanol and in 2017 launched RenovaBio, a programme aiming to mitigate greenhouse gas emissions. In parallel to this domestic scenario, there is rapid growth in the world market of carbon production, as well as complex price relations between fossil and renewable energies becoming increasingly important in recent years. The present work aims to contribute to filling a gap in knowledge about the relationship between Brazilian ethanol and other relevant energy-related commodities. We use a recent methodology (Detrended Cross-Correlation Approach—DCCA—with sliding windows) to analyze dynamically the cross-correlation levels between Brazilian ethanol prices and carbon emissions, as well as other possible-related prices, namely: sugar, Brent oil, and natural gas prices, with a sample of daily prices between January 2010 and July 2020. Our results indicate that (i) in the whole period, Brazilian ethanol has significant correlations with sugar, moderate correlation with oil in the short term, and only a weak, short-term correlation with carbon emission prices; (ii) with a sliding windows approach, the strength of the correlation between ethanol and carbon emissions varies between weak and non-significant in the short term.

Highlights

Due to policies stemming from global climate change, many governments encourage the use of biofuels through subsidies or mandate policies [1]
Brazil is an important global player in the ethanol market, and the use of renewable energies is a robust strategy in order to achieve sustainable development
Brazilian ethanol is fully competitive with gasoline as a substitute fuel, and its use is consolidated through the large fleet of flex-fuel vehicles in Brazil [3]

Summary

Introduction

Due to policies stemming from global climate change, many governments encourage the use of biofuels through subsidies or mandate policies [1]. Developing countries, including Brazil, are likely to play an important role in the biofuels market in the coming years [2]. Brazil is an important global player in the ethanol market, and the use of renewable energies is a robust strategy in order to achieve sustainable development. Brazilian ethanol is fully competitive with gasoline as a substitute fuel, and its use is consolidated through the large fleet of flex-fuel vehicles in Brazil [3]. Sugarcane originates another important product for Brazilian and global agribusiness, namely, sugar. Brazil is responsible for at least 50% of all sugar exported on the international market, due to its economically competitive production and export capacity [4]

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