How green is sugarcane ethanol?

Biofuels offer one approach for reducing carbon emissions in transportation. However, the agricultural expansion needed to produce biofuels may endanger tropical forests. I use a dynamic model of land use to disentangle the roles played by agricultural expansion and yield increases in the supply of sugarcane ethanol in Brazil. The model is estimated using remote sensing (satellite) information of sugarcane activities. Estimates imply that, at the margin, 92% of new ethanol comes from increases in area and only 8% from increases in yield. Direct deforestation accounts for 12% of area expansion. I further assess carbon emissions and deforestation implications from ethanol policies.