Biofuel policies and the environment: Do climate benefits warrant increased production from biofuel feedstocks?

We examine whether climate benefits warrant policies promoting biofuel production from agricultural crops when other environmental impacts are accounted for. We develop a general economic-ecological modelling framework for integrated analysis of biofuel policies. An economic model of farmers' decision making is combined with a biophysical model predicting the effects of farming practices on crop yields and relevant environmental impacts. They include GHG emissions over the life cycle, nitrogen and phosphorus runoff, and the quality of wildlife habitats. We apply our model to crop production in Finland. We find that under current biofuel production technology the case for promotion of biofuels is not as evident as has been generally thought. Only reed canary grass for biodiesel is unambiguously desirable, whereas biodiesel from rape seed and ethanol production from wheat and barley cause in most cases negative net impacts on the environment. Suggested policies in the US and the EU tend to improve slightly the environmental performance of biofuel production.