Evaluating the Environmental Cost of Biofuels Policy: an Illustration with Bioethanol

In this article we develop an innovative methodology for assessing indirect land use change effects related to biofuels policies in a Computable General equilibrium framework. We apply this methodology in looking at the impacts of ethanol policies in the United States and in the European Union under different trade policy options. Our results show that ethanol production has environmental benefits only under certain restrictive assumptions: in four from our five sets of parameters tests, the payback time for ethanol production was found to be at least 10 years in 2020. The results should be interpreted with some caution as there are many assumptions involved in such an assessment.