Fuel price control in Brazil: environmental impacts

This paper evaluates carbon dioxide (CO2) emission as a consequence of the intervention in the prices of oil and its substitute fuel, ethanol, in the transport sector. These studies cover price behavior in different phases of the period ranging from 2002 to 2016, when Brazil adopted interventionist policies that impacted the balance between fuel supply and demand and, consequently, the environment. The results of econometric models corroborate the increase in magnitude of CO2 emissions during the periods with government intervention in fuel prices, thereby indicating misalignment of the prices related to the sector, and, subsequently, given this price suppression that this intervention aggravated the inflation instead of reducing it. Our study estimated the effect of this government intervention through a multivariate regression and found that oil prices hugely contributed to the level of CO2 emissions, almost doubling right after January 2009 vis-à-vis 2016. This means that there was a significant increase of approximately 32% in the level of CO2 emissions during the aforementioned period. Had it not been so, the result could have been only 14% percentage points lower following the forecast of our pre-crisis regression.