Publication

This paper examines the reasons behind the significant volumes of bilateral trade of physically identical ethanol between the USA and Brazil. While this two-way trade of homogenous products is typically explained by seasonality or cross-border exchanges, traditional market factors do not explain the trade in ethanol between the US and Brazil. Instead, it appears to be driven by differential and uncoordinated environmental policy, inviting arbitrage between the two countries. Highlighting the unintended consequences, the authors propose options for mitigation under which each country could continue to pursue its own policy objectives while acting in a coordinated fashion.