Interfuel substitution, biomass consumption, economic growth, and sustainable development: Evidence from Brazil

Abstract

This paper examines the possibilities of substituting the fossil fuels including natural gas, coal, and oil for biomass consumption in Brazil for the period 1980–2015. We used the ridge regression procedure to generate the parameter estimates from a second order Taylor Series approximation of log linear trans-log specification. For robustness sake, we constructed an index of sustainable development (SD) as additional regressand alongside the conventional gross domestic product (GDP). Overall, the results show strong evidence of substitution possibilities between biomass and the fossil fuels in both the GDP and the SD models indicating that Brazil can continue with its growth and sustainability agenda by using more biomass and less fossil fuels. The results also show that the SD model gives a more robust output elasticity estimates as it detects the inherent negative effect of some of the fossil fuels on the economy that are not directly observable in the GDP model.