Bioethanol can reduce CO₂ emissions and improve domestic production by replacing gasoline consumption. However, bioethanol competes with food consumption, if it is produced from the edible parts of agricultural products. This study aims to evaluate the pros and cons of bioethanol in the Vietnamese economy by the computable general equilibrium （CGE） model.
The simulation results demonstrate the following points. First, a policy that replaces the fixed rate of bioethanol in gasoline brings about reductions in long-run electricity production in addition to direct reduction of petroleum consumption. Moreover, the import of petroleum products, highly dependent on imports at present, can be reduced, and a decrease in imports transfers to domestic production and consequently the self-sufficient rate of energy is raised. Hence, this policy can cut CO₂ emissions by 0.7-3.0% more than without the policy.
Second, the introduction of bioethanol, produced by first generation technology or by second-generation technology with technological progress, increases total income and raises GDP by 0.19% at most. The effects of second-generation bio-ethanol production are higher than for first generation technology because of the high added value of second generation technology. However, second-generation production with the present technology may decrease gross domestic products, because production costs are too high to produce a profit. A government subsidy for bio-ethanol production may cause domestic savings to decline and decrease private investment through crowding-out effects. Although first-generation bio-ethanol production increases competition with food consumption, second-generation bio-ethanol production can avoid competition with food consumption. Hence, policy makers should consider different pathways to affect the national economy and should support technological improvements.
Third, the environmental effects of the bio-ethanol introduction policy are lower than the direct effects of CO₂ emissions from gasoline consumption reduced by this policy, because this policy stimulates domestic production. In addition to the economic effects, situations in which the economic growth accelerates CO₂ emissions can be avoided, as long as a policy that replaces the fixed rate of gasoline consumption is continued., The CGE model is a useful policy tool to show the above complicated effects.

JEL Classification: C68, D58, Q21, Q28, Q48