Abstract
The recent economic reappraisal presented in this study shows that the social viability of ethanol production in Brazil will only became a reality with considerable increases in productivity and with international oil prices above US$ 30.00, factors which are only likely to come about at the end of the 1990s. However, if one accepts that the investments already undertaken in the alcohol production sector, can be considered as sunk costs, then the prospect of viability is not so remote, and perfectly feasible with oil prices in the US$ 15–20 range. The adjustment on fiscal policy discussed here is designed precisely to guarantee the continuation of PROÁLCOOL, with the production of alcohol limited to the sector's current capacity. In other words, its purpose is to achieve an evolution in the demand for alcohol so as to ensure compatibility with the supply derived from investments already undertaken in the sector, through, basically, an increase in tax on alcohol car sales.
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