Land Use and Greenhouse Gas Implications of Biofuels: Role of Technology and Policy

This paper examines the extensive and intensive margin changes in land use in the U.S. likely to be induced by biofuel policies and the implications of these policies for GHG emissions over the 2007-2022 period. The policies considered here include the Renewable Fuel Standard (RFS) by itself as well as combined with current biofuel tax credits or a carbon price policy. We use a dynamic, spatial, multi-market equilibrium model, Biofuel and Environmental Policy Analysis Model (BEPAM), to endogenously determine the effects of these policies on cropland allocation, food and fuel prices, and the mix of first and second-generation biofuels. We find that the increase in crop prices under the RFS is likely to be less than 20% in most cases and this increase is much smaller when the RFS is accompanied by volumetric subsidies or a carbon price policy since these policies induce a switch away from corn ethanol to cellulosic biofuels. The impact of the RFS on GHG emissions reduction in the U.S. is fairly modest in size but increases when the RFS is accompanied by volumetric subsidies or a carbon price policy. However, domestic savings in GHG emissions achieved by the RFS can be severely eroded by the indirect land use changes and the rebound effect on global gasoline consumption. The net reductions in global GHG emissions are largest when the RFS is accompanied by a carbon price policy.