Alternative U.S. biofuel mandates and global GHG emissions: The role of land use change,crop management and yield growth

We investigate the impacts of the U.S. renewable fuel standard (RFS2) and several alternative biofuel policy designs on global GHG emissions from land use change and agriculture over the 2010–2030 horizon. Analysis of the scenarios relies on GLOBIOM, a global, multi-sectoral economic model based on a detailed representation of land use. Our results reveal that RFS2 would substantially increase the portion of agricultural land needed for biofuel feedstock production. U.S. exports of most agricultural products would decrease as long as the biofuel target would increase leading to higher land conversion and nitrogen use globally. In fact, higher levels of the mandate mean lower net emissions within the U.S. but when the emissions from the rest of the world are considered, the US biofuel policy results in almost no change on GHG emissions for the RFS2 level and higher global GHG emissions for higher levels of the mandate or higher share of conventional corn-ethanol in the mandate. Finally, we show that if the projected crop productivity would be lower globally, the imbalance between domestic U.S. GHG savings and additional GHG emissions in the rest of the world would increase, thus deteriorating the net global impact of U.S. biofuel policies.     

Costs of meeting a cellulosic biofuel mandate with perennial energy crops: Implications for policy

We develop an analytical framework to examine the extent to which farmers' risk and time preferences, availability of credit to cover establishment cost, and subsidized crop insurance for conventional crops influence the decision to allocate land to a perennial energy crop and affect the costs of meeting a biofuel mandate using this crop as feedstock and its implications for the effectiveness of two alternative policies to supplement the mandate: an establishment cost subsidy and subsidized energy crop insurance. We examine the design of these policies to minimize the total (public and private) costs for meeting a one-billion-gallon biofuel mandate by using miscanthus as feedstock. We find that a high degree of risk aversion, high discount rate, credit constraint, and availability of crop insurance for conventional crops can increase the cost of producing enough biomass for a one-billion-gallon biofuel mandate by up to 43% and increase the land required by 16% as compared to otherwise; removal of subsidized crop insurance and credit constraints could lower these costs by 50%. We find that in most cases the cost-effective energy crop insurance subsidy rate is 0% whereas the cost-effective establishment cost subsidy rate is 100%. Relative to the case with no policy intervention for energy crops, energy crop insurance can reduce the total costs (net of government expenditures on subsidies) of meeting the 1 billion gallon mandate by 1.3% whereas establishment cost subsidy can reduce these costs by 34%.     

A biofuel supply chain equilibrium analysis with subsidy consideration

We consider a biofuel supply chain problem in which a farmer supplies two downstream refineries with nonidentical crops (corn and energy crop). The problem has been modeled as a multi leader single follower game to derive the farmer's decisions on land use as well as refineries' proposed prices to the farmer. We consider subsidizing the farmer and the refinery that uses the energy crop to study whether a subsidy plan can enhance the advanced biofuel production and meet the mandate of the Environmental Protection Agency (EPA). This mandate requires the production of 36 billion gallons of biofuel, out of which 21 billion gallons should be noncorn‐based biofuel. We solve the problem under four cases based on the willingness of the farmer to sell corn to the food market as well as the availability of land expansion for her. The Nash equilibrium is derived for all cases, and parametric analyses are used to study the effect of subsidies on the profit of the players and the total social welfare of the supply chain. We observe that a government's expenditure can be offset by the increase of the social welfare under certain circumstances. We find the minimum budget requirement to meet the EPA's mandate and show that a specific budget can be distributed in different ways while obtaining the same results.     

Demystifying RINs: A partial equilibrium model of U.S. biofuel markets

We explore four fundamental channels of mandate compliance available under current U.S. biofuel policy: increased ethanol blending through E10 or E85, increased biodiesel blending, and a reduction in the overall compliance base. Simulation results highlight the interplay and varying importance of these channels at increasing blend mandate levels. In addition, we establish how RIN prices are formed: The value of a RIN in equilibrium is shown to reflect the marginal cost of compensating the blender for employing one additional ethanol-equivalent unit of biofuel. This contrasts with existing research equating the price of RINs to the gap between ethanol supply and demand evaluated at the mandate level. We demonstrate the importance of this distinction in case of binding demand side infrastructure constraints such as the ethanol blend wall: as percentage blend mandates increase, the market for low-ethanol blends may contract in order to reduce the overall compliance base. This has important implications for implied ethanol demand in the economy.     

Feedstock loss from drought is a major economic risk for biofuel producers

High cost of technology is seen as the primary barrier to full commercialization of cellulosic biofuels. There is broad expectation that once conversion technology breakthroughs occur, policy support is only needed to accelerate cost reductions through “learning by doing” effects. In this study, we show that droughts pose a significant economic risk to biofuel producers and consumers regardless of the rate at which technology costs fall. We model a future switchgrass derived cellulosic biorefinery industry in Kansas based on spatially resolute historic (1996–2005) weather data, representing a rainfall regime that could reflect drought events predicted to occur throughout the U.S. Midwest by climatologists (Karl et al. (2009) U.S. Global Change Research Program USA). We find that droughts reduced modeled biorefinery capacity factors, on average, by 47%, raising biofuel production costs by 35% between a modeled dry and wet year. Interestingly, we find that two logical strategies to plan for drought; (1) building large biorefineries to source feedstock from a larger area and, (2) Storing switchgrass in good production years for use in drought years; are not very effective in reducing drought risks. Our findings should be of particular concern to low carbon fuel policies like California's Low Carbon Fuel Standard and the U.S. Second Renewable Fuel Standards (RFS2) whose costs of compliance may be much higher than expected.     

Imported palm oil for biofuels in the EU: Profitability,greenhouse gas emissions and social welfare effects

We examine the social desirability of renewable diesel production from imported palm oil in the EU when greenhouse gas emissions are taken into account. Using a partial market equilibrium model, we also study the sectoral social welfare effects of a biofuel policy consisting of a blend mandate in a small EU country (Finland), when palm oil based diesel is used to meet the mandated quota for biofuels. We develop a market equilibrium model for three cases: i) no biofuel policy, ii) biofuel policy consisting of socially optimal emission-based biofuel tax credit and iii) actual EU biofuel policy. Our results for the EU biofuel market, Southeast Asia and Finland show very little evidence that a large scale use of imported palm oil in diesel production in the EU can be justified by lower greenhouse gas emission costs. Cuts in emission costs may justify extensive production only if low or negative land-use change emissions result from oil palm cultivation and if the estimated per unit social costs of emissions are high. In contrast, the actual biofuel policies in the EU encourage the production of palm oil based diesel. Our results indicate that the sectoral social welfare effects of the actual biofuel policy in Finland may be negative and that if emissions decrease under actual biofuel policy, the emission abatement costs can be high regardless of the land use change emissions.     

Using the competitive storage model to estimate the impact of ethanol and fueling investment on corn prices

The impact of biofuel mandates on the prices of commodities used to produce food continues to be a major consideration by policy makers. More recently concern about high compliance costs of oil companies due to mandates led to reductions in US biofuel mandates. To gain insights into the policy impacts of mandates on agricultural commodity prices and compliance costs requires development of dynamic models that can capture the fact that many agricultural commodities used to produce biofuels can be stored and that flexible compliance mechanisms allow for banking and borrowing of tradable permits. US biofuel mandates are enforced using a system of tradable permits, called RINs. RIN market dynamics are important because RINs can be banked for the future or borrowed from the future. Corn is the primary U.S. biofuel feedstock and is storable. Rational expectations competitive storage models are well suited to capture the dynamic behavior of commodity markets. Such a model is developed here for corn and RIN markets to estimate the impacts of alternative future ethanol mandate levels. The model considers corn use for ethanol, storage and all other uses in each period, accounting for two random variables: oil prices and corn yields. Borrowing and banking provisions of the Renewable Fuels Standard mandate are explicitly integrated into the model. We use the model to provide estimates of the impact on corn prices, corn plantings and ethanol production under two ethanol mandate scenarios for six marketing years from 2016/17. Our scenarios are a combination of volume requirements and infrastructure investment. The first scenario is one in which corn ethanol mandates stay the same as required in the current and proposed RFS and additional E85 stations are introduced that allow for compliance with higher mandates. The second scenario is one in which no investment occurs and the Environmental Protection Agency reduces the mandate to 13.87 billion gal, a level that can just be met with 10 percent ethanol blends. Comparing the results for two scenarios, we find that average corn prices are about 5 to 6% lower with the reduced mandates or about 22 to 30 cents per bushel, while average RIN prices drop from around 60 to 40 cents per RIN.     

Switchgrass selection as a “model” bioenergy crop: A history of the process

A review of several publications of the Oak Ridge National Laboratory's Biofuels Feedstock Development Program and final reports from the herbaceous crop screening trials show that technology, environmental, and funding issues influenced the decision to focus on a single herbaceous “model” crop species. Screening trials funded by the U.S. Department of Energy in the late 1980s to early 1990s assessed thirty-four herbaceous species on a wide range of soil types at thirty-one different sites spread over seven states in crop producing regions of the U.S. Several species, including sorghums, reed canarygrass, wheatgrasses, and other crops, were identified as having merit for further development. Six of the seven institutions performing the screening included switchgrass among the species recommended for further development in their region and all recommended that perennial grasses be given high research priority. Reasons for the selection of switchgrass included demonstration of relatively high, reliable productivity across a wide geographical range, suitability for marginal quality land, low water and nutrient requirements, and other positive environmental attributes. Crop screening results, economic and environmental assessments by the Biofuels Feedstock Development Program staff, and Department of Energy funding limitations all contributed to the decision to further develop only switchgrass as a “model” or “prototype” species in 1991. The following ten year focus on development of switchgrass as a bioenergy crop proved the value of focusing on a single “model” herbaceous crop. The advancements and attention gained were sufficient to give government leaders, policymakers, farmers, and biofuel industry developers the confidence that lignocellulosic crops could support an economically viable and environmentally sustainable biofuel industry in the U.S.     

Drought,ethanol, and livestock

The 2012 drought in the U.S. Midwest resulted in volatile crop prices. With field crops constituting a major input in livestock production, livestock producers sought a waiver to Renewable Fuel Standard biofuel mandates. They believed such a waiver would mitigate crop-price volatility; given crops are major inputs in biofuel production. The U.S. Environmental Protection Agency (EPA) denied the waiver under the belief that the waiver would have minimal if any impact on mitigating price volatility. Employing a VECM, the objective is to investigate if it was prudent for the EPA to reject the waiver. Results generally support EPA's conclusion that the waiver relaxing the biofuel mandate would have minimal impact.     

Production and spatial distribution of switchgrass and miscanthus in the United States under uncertainty and sunk cost

The U.S. cellulosic biofuel mandate has not been enforced in recent years. Uncertainty surrounding the enforcement of the mandate in addition to high production and harvest cost have contributed to a delay in the widespread planting of bioenergy crops such as switchgrass and miscanthus. Previous literature has shown that under uncertainty and sunk cost, an investment threshold is further increased due to the value associated from holding the investment option. In this paper, we extend the previous literature by applying a real option switching model to bioenergy crop production. First, we calculate the county-level break-even price which triggers a switching away from traditional field crops (corn, soybeans, and wheat) to bioenergy crops under various scenarios differing by commodity prices, production cost and biomass price expectations. We show that the resulting break-even prices at the county-level can be substantially higher than previously estimated due to the inclusion of the option value. In a second step, we identify counties that are most likely to grow switchgrass or miscanthus by simulating a stochastic biomass price over time. Our results highlight two issues: First, switchgrass or miscanthus are not grown in the Midwest under any scenario. Under low agricultural residue removal rates, biomass crops are mostly grown in the Southeast. Second, under the assumption of a high removal rates, bioenergy crops are not grown anywhere in the U.S. since the cellulosic biofuel mandate can be covered by agricultural residues.     

Indirect fuel use change (IFUC) and the lifecycle environmental impact of biofuel policies

A common assumption in lifecycle assessment (LCA) based estimates of greenhouse gas (GHG) benefits (or costs) of renewable fuel such as biofuel is that it simply replaces an energy-equivalent amount of fossil fuel and that total fuel consumption remains unchanged. However, the adoption of renewable fuels will affect the price of fuel and therefore affect total fuel consumption which, may increase or decrease depending on the policy regime and market conditions. Using a representative two-region model of the global oil market in which, one region implements a domestic biofuel mandate and the other does not, we show that the net change in global fuel consumption due to the policy, which we term indirect fuel use change (IFUC), can have a significant impact on the net GHG emissions associated with biofuel. If LCA-based regulations are designed to account for indirect emissions such as indirect land use change, then we argue that IFUC emissions cannot be ignored. Our work also shows how different policies can affect the environmental impact from adopting a given clean technology differently.     

Effects of US biofuel policies on US and world petroleum product markets with consequences for greenhouse gas emissions

US biofuel policy includes greenhouse gas reduction targets. Regulators do not address the potential that biofuel policy can have indirect impacts on greenhouse gases through its impacts on petroleum product markets, and scientific research only partially addresses this question. We use economic models of US biofuel and agricultural markets and US and world petroleum and petroleum product markets to show that discontinuing biofuel tax credits and ethanol tariff lower biofuel use could lead to increased US petroleum product use, and a reduction in petroleum product use in other parts of the world. The net effect is lower greenhouse gas emissions. Under certain assumptions, we show that biofuel use mandate elimination can have positive or negative impacts on greenhouse gas emissions. The magnitude and the direction of effects depend on how US biofuel trade affects biofuel in other countries with different emissions, context that determines how important use mandates are in the first place, who pays mandate costs, and the price responsiveness of global petroleum supplies and uses. However, our results show that counter-intuitive effects are possible and discourage broad conclusions about the greenhouse gas impacts of removing these elements of US biofuel policy.     

Governance and legitimacy aspects of the UK biofuel carbon and sustainability reporting system

Biofuel policy has become highly contentious in Europe. In this paper we discuss the governance and legitimacy aspects of the carbon and sustainability system of the UK Renewable Transport Fuel Obligation (RTFO), both before and after implementation of the Renewable Energy Directive. RTFO certification is of a meta-type, being built upon existing certification and labelling schemes, each of which are more or less contested by NGOs. Despite the RTFO being based on these non-state initiatives, so far the concerns of environment and development NGOs and others have not been given serious expression in regulatory terms. Indeed, biofuel policy development in the UK has arguably been unduly non-responsive to critical opinion, given the limited scientific base on biofuel impacts and the reliance of RTFO sustainability certification on non-state actors and schemes. Drawing on documentary evidence, interviews and three sets of literatures – co-production of regulation; post-normal science; and legitimacy of non-state certification and labelling processes – we suggest that until concerned voices are given a stronger expression in UK and EC biofuel policy development, the policy cannot yet be said to have achieved a wide social mandate.     

Stakeholders' perceptions on challenges and opportunities for biodiesel and bioethanol policy development in Thailand

Thailand is Southeast Asia's largest promoter of biofuels. Although, Thailand promotes the use of biofuels, it has yet to achieve its policy targets. This paper focuses on the first generation biofuel development in Thailand and examines the perceptions of seven stakeholder groups to guide further policy development. These stakeholders were feedstock producers, biofuel producers, government agencies, car manufacturers, oil companies, non-profit organizations and end users. It combines a Strengths, Weakness, Opportunities and Threats (SWOT) framework with an Analytical Hierarchy Process (AHP) framework and a TOWS Matrix for analysis of stakeholder's perceptions to propose priorities for policy development. Five policies were of high priority for development of biofuel. These are: (1) promoting biofuel production and use in long term through government policies, (2) revising government regulations to allow sale of biofuel products to other domestic industries while keeping retail prices of blended biofuels below those of regular ethanol and biodiesel, (3) improving farm management and promoting contract farming, (4) expanding cultivation area and yield without affecting food production and environmental sustainability, and (5) balancing biofuel feedstock use between the food and energy industries.     

Market,welfare and land-use implications of lignocellulosic bioethanol in Hawai'i

This article examines land-use, market and welfare implications of lignocellulosic bioethanol production in Hawai'i to satisfy 10% and 20% of the State's gasoline demand in line with the State's ethanol blending mandate and Alternative Fuels Standard (AFS). A static computable general equilibrium (CGE) model is used to evaluate four alternative support mechanisms for bioethanol. Namely: i) a federal blending tax credit, ii) a long-term purchase contract, iii) a state production subsidy financed by a lump-sum tax and iv) a state production subsidy financed by an ad valorem gasoline tax. We find that because Hawaii-produced bioethanol is relatively costly, all scenarios are welfare reducing for Hawaii residents: estimated between −0.14% and −0.32%. Unsurprisingly, Hawaii's economy and its residents fair best under the federal blending tax credit scenario, with a positive impact to gross state product of $49 million. Otherwise, impacts to gross state product are negative (up to −$63 million). We additionally find that Hawaii-based bioethanol is not likely to offer substantial greenhouse gas emissions savings in comparison to imported biofuel, and as such the policy cost per tonne of emissions displaced ranges between $130 and $2100/tonne of CO₂e. The policies serve to increase the value of agricultural lands, where we estimate that the value of pasture land could as well.     

Biofuel production potentials in Europe: Sustainable use of cultivated land and pastures,Part II: Land use scenarios

Europe's agricultural land (including Ukraine) comprise of 164 million hectares of cultivated land and 76 million hectares of permanent pasture. A “food first” paradigm was applied in the estimations of land potentially available for the production of biofuel feedstocks, without putting at risk food supply or nature conservation.Three land conversion scenarios were formulated: (i) A base scenario, that reflects developments under current policy settings and respects current trends in nature conservation and organic farming practices, by assuming moderate overall yield increases; (ii) an environment oriented scenario with higher emphasis on sustainable farming practices and maintenance of biodiversity; and (iii) an energy oriented scenario considering more substantial land use conversions including the use of pasture land.By 2030 some 44–53 million hectares of cultivated land could be used for bioenergy feedstock production. The energy oriented scenario includes an extra 19 million hectares pasture land for feedstocks for second-generation biofuel production chains. Available land is foremost to be found in Eastern Europe, where substantial cultivated areas can be freed up through sustainable gains in yield in the food and feed sector.Agricultural residues of food and feed crops may provide an additional source for biofuel production. When assuming that up to 50% of crop residues can be used without risks for agricultural sustainability, we estimate that up to 246 Mt agricultural residues could be available for biofuel production, comparable to feedstock plantations of some 15–20 million hectares.     

Biofuel production and implications for land use,food production and environment in India

There is a large interest in biofuels in India as a substitute to petroleum-based fuels, with a purpose of enhancing energy security and promoting rural development. India has announced an ambitious target of substituting 20% of fossil fuel consumption by biodiesel and bioethanol by 2017. India has announced a national biofuel policy and launched a large program to promote biofuel production, particularly on wastelands: its implications need to be studied intensively considering the fact that India is a large developing country with high population density and large rural population depending upon land for their livelihood. Another factor is that Indian economy is experiencing high growth rate, which may lead to enhanced demand for food, livestock products, timber, paper, etc., with implications for land use. Studies have shown that area under agriculture and forest has nearly stabilized over the past 2–3 decades. This paper presents an assessment of the implications of projected large-scale biofuel production on land available for food production, water, biodiversity, rural development and GHG emissions. The assessment will be largely focused on first generation biofuel crops, since the Indian program is currently dominated by these crops. Technological and policy options required for promoting sustainable biofuel production will be discussed.     

Indirect land use change and biofuels: Mathematical analysis reveals a fundamental flaw in the regulatory approach

In the Renewable Fuel Standard (RFS2) program, the United States Environmental Protection Agency (U.S. EPA) has used partial equilibrium models to estimate the overall indirect land use change (iLUC) associated with the biofuel scenario mandated by the Energy Independence and Security Act of 2007 (EISA). For regulatory purposes, the U.S. EPA “shocks” (changes) the amount of each biofuel in the economic models one at a time to estimate the threshold values for specific biofuels (single-shock analysis). The primary assumption in the single-shock analysis is that iLUC is a linear process with respect to biofuels, i.e., that interactions between different biofuels are trivially small. However, the assumption of linearity in the single-shock analysis is not appropriate for estimating the threshold values for specific biofuels when the interactions between different biofuels are not small.Numerical results from the RFS2 program show that the effects of interactions between different biofuels are too large to be ignored. Thus, the threshold values for specific biofuels determined by the U.S. EPA are scenario-dependent and value choice-driven. They do not reflect real impacts of specific biofuels. Using scenario-dependent values for regulation is arbitrary and inappropriate. Failure to deal appropriately with interactions between different biofuels when assigning iLUC values to specific biofuels is a mathematical and systematic flaw; it is not an “uncertainty” issue. The U.S. EPA should find better ways to differentiate the contribution of one biofuel versus another when assigning iLUC values or find better means of regulating the land use change impact of biofuel production.     

Biofuels and their by-products: Global economic and environmental implications

Recently a number of papers have used general equilibrium models to study the economy-wide and environmental consequences of the first generation of biofuels (FGB). In this paper, we argue that nearly all of these studies have overstated the impacts of FGB on global agricultural and land markets due to the fact that they have ignored the role of biofuel by-products. Feed by-products of FGB, such as dried distillers grains with solubles (DDGS) and oilseed meals (VOBP), are used in the livestock industry as protein and energy sources. Their presence mitigates the price impacts of biofuel production. More importantly, they reduce the demand for cropland and moderate the indirect land use consequences of FGB.This paper explicitly introduces DDGS and VOBP into a global computational general equilibrium (CGE) model, developed at the Center for Global Trade Analysis at Purdue University, to examine the economic and environmental impacts of regional and international mandate policies designed to stimulate bioenergy production and use. We show that models with and without by-products reveal different portraits of the economic impacts of the US and EU biofuel mandates for the world economy in 2015. While both models demonstrate significant changes in the agricultural production pattern across the world, the model with by-products shows smaller changes in the production of cereal grains and larger changes for oilseeds products in the US and EU, and the reverse for Brazil. Models that omit by-products are found to overstate cropland conversion from US and EU mandates by about 27%.