Is ethanol worth tanking only when it costs 70% of the price of the equivalent in volume of gasoline?

Abstract

“ In Brazil it is widely believed – both in academic literature and in popular media – that tanking flex-fuel vehicles (FFVs) with hydrated ethanol (E100) pays off only up to the point when this fuel costs 70% of the price of the equivalent in volume of gasoline (E18–E25). This note explores this belief, using empirical data from a Brazilian monitoring programme (CONPET) in order to compare if the 0.7 threshold holds against empirical testing. The note finds that, on average, ethanol is worth chosing only up to 68% of the gasoline price. While apparently insignificant, this 2% difference can have large aggregate welfare consequences for vehicle drivers and for the competition between fuels. “

Keywords:

• Ethanol
• Gasoline
• Price
• Threshold
• Payoff
• Efficiency
• Mileage
• CONPET

Additional information

Notes on contributors

Henrique Pacini

Arnaldo Walter

Martin Kumar Patel