Natural Gas Vehicles: Consequences to Fuel Markets and the Environment Roberto Amaral-Santos Ariaster Chimeli Jo˜ ao Paulo Pessoa July 13, 2023 Abstract Policies to adopt cleaner fuels have become increasingly important, but their impacts on incumbent fuel prices and resulting greenhouse gas emissions are unclear. We use a panel dataset on weekly prices at the gas station level in a large Brazilian state to study how the growth of natural gas, a cheaper and less carbon-intensive alternative to traditional fuels, affected retail prices and profit margins of gasoline and ethanol. Applying an IV strategy, we estimate that prices and margins have fallen. The intensified competition in the fuel market boosted fuel demand, leading to higher emissions of GHGs and other pollutants. Keywords: Gasoline; Ethanol; Price Competition; Emissions; Brazil. JEL Codes: L11, L13, Q31, Q41, Q42, Q48, Q53, Q55, Q58 We thank Cristine Pinto, Leonardo Rezende, Ruozi Song, Fl´ avio Malagutti and seminar participants at FGV-S˜ ao Paulo School of Economics, University of California at Santa Barbara, Federal University of Juiz de Fora and Berkeley Summer School SCABS. We would also like to thank Marcos Antˆonio Carrili from G´ as Brasiliano, Patr´ ıcia Zamorano from Abeg´ as, Jos´ e Lucivaldo dos Santos and Ricardo Vallejo from Comg´ as, Marcos Alexandre Correa from G´ as Natural Fenosa, Tais Silva from Inmetro, Alexandre Carvalho from Agenersa and Marcelo de Guimar˜ aes Santos from Arsesp for helping us to better understand the natural gas sector in Brazil. Amaral-Santos gratefully acknowledges financial support from Instituto Escolhas and thanks its members for all their support. University of California at Santa Barbara University of S˜ ao Paulo FGV-Sao Paulo School of Economics and Centre for Economic Performance 1