Land use and economic effects of alternative biofuel policies in Brazil and the United States

Being the two largest ethanol producers in the world, biofuel policies in Brazil and the United States affect both their domestic markets and the global food and biofuel economy. In this article we develop a price endogenous mathematical programming model to simulate and analyze the impacts of biofuel mandates and trade distortions on land use, agricultural commodity and transportation fuel markets, and global environment. We find that an 80% increase in total biofuel production from its 103 billion liter baseline level to the mandated 183 billion liter level in 2022 can be achieved with less than 2% increase in total cropland use in both countries. In the United States, this would occur with cellulosic biofuels meeting nearly half of the biofuels consumed and produced largely on cropland pasture and corn ethanol meeting the rest of the mandate and resulting in a 2% increase in corn price. In Brazil, the expansion in sugarcane production would be achieved by reducing land under pasture and a marginal increase in intensification of livestock production. In the aggregate, biofuel policies increase economic surplus in both countries by 1% and redistribute the benefits from agricultural consumers to agricultural producers and the fuel sector. Finally, we also find that full implementation of the mandates in North America, China, and the European Union would reduce the global life‐cycle global greenhouse gas emissions by about 5%.     

Competition for land in the global bioeconomy

The global land use implications of biofuel expansion have received considerable attention in the literature over the past decade. Model‐based estimates of the emissions from cropland expansion have been used to assess the environmental impacts of biofuel policies. And integrated assessment models have estimated the potential for biofuels to contribute to greenhouse gas (GHG) abatement over the coming century. All of these studies feature, explicitly or implicitly, competition between biofuel feed stocks and other land uses. However, the economic mechanisms governing this competition, as well as the contribution of biofuels to global land use change, have not received the close scrutiny that they deserve. The purpose of this article is to offer a deeper look at these factors. We begin with a comparative static analysis which assesses the impact of exogenously specified forecasts of biofuel expansion over the period: 2006–2035. Global land use change is decomposed according to the three key margins of economic response: extensive supply, intensive supply, and demand. Under the International Energy Agency's “New Policies” scenario, biofuels account for nearly one‐fifth of global land use change over the 2006–2035 period. The article also offers a comparative dynamic analysis which determines the optimal path for first and second generation biofuels over the course of the entire 21st century. In the absence of GHG regulation, the welfare‐maximizing path for global land use, in the face of 3% annual growth in oil prices, allocates 225 Mha to biofuel feed stocks by 2100, with the associated biofuels accounting for about 30% of global liquid fuel consumption. This area expansion is somewhat diminished by expected climate change impacts on agriculture, while it is significantly increased by an aggressive GHG emissions target and by advances in conversion efficiency of second generation biofuels.     

Effect of soil heterogeneity on the welfare economics of biofuel policies

Biofuel policies (blend mandate or tax credit) have impacts on food and energy prices, and on land-use. The magnitude of these effects depends on the market response to price, and thus on the agricultural supply curve, which, in turn, depends on the land availability (quantity and agronomic quality) and relative prices. To understand these relationships, we develop a theoretical framework with an explicit representation of land heterogeneity. The elasticity of the supply curve is shown to be non-constant, depending on land heterogeneity and the availability of land for agricultural expansion. This influences the welfare economics of biofuels policies, and the possible carbon leakage in land and fuel markets. We emphasize that the impacts of biofuel policies on welfare and land-use change depend strongly on the potential development of the agricultural sector in terms of expansion and intensification, and not only on its current size.     

The impacts of biofuels targets on land‐use change and food supply: A global CGE assessment

We analyze the long‐term impacts of large‐scale expansion of biofuels on land‐use change, food supply and prices, and the overall economy in various countries or regions using a multi‐country, multi‐sector global computable general equilibrium model augmented with an explicit land‐use module and detailed biofuel sectors. We find that an expansion of biofuel production to meet the existing or even higher targets in various countries would slightly reduce GDP at the global level but with mixed effects across countries or regions. Significant land re‐allocation would take place with notable decreases in forest and pasture lands in a few countries. The expansion of biofuels would cause a moderate decrease in world food supply and more significant decreases in developing countries like India and Sub‐Saharan Africa. Feedstock commodities (sugar, corn and oil seeds) would experience significant increases in their prices in 2020, but other price changes are small.     

Cash crop liberalization and poverty alleviation in Africa: evidence from Malawi

This article uses the case of burley tobacco liberalization in Malawi to investigate the efficacy of cash crop liberalization as an instrument for poverty alleviation in sub‐Saharan Africa. The principal justification for cash crop liberalization is that markets allow farm households to increase their incomes by producing that which provides the highest return to their productive resources and use the cash to buy consumption goods. Using a latent welfare model, we find that households that selected to grow cash crops had higher incomes than those that did not grow cash crops. However, we also find that due to the lumpiness and seasonality of cash crop incomes, higher household incomes, while increasing food purchases did not significantly affect per capita food intake. Irrespective of participation in cash crops, for much of the cropping season rural households seem to rely more on nonfarm income for expenditure and consumption smoothing.     

Biofuels and ecoagriculture: can bioenergy production enhance landscape-scale ecosystem conservation and rural livelihoods?

Global development of the biofuel sector is proceeding rapidly, driven by national policy mandates, government subsidies, and profit opportunities for farmers, agribusiness and energy companies. To date, most investment in—and dialogue on—biofuels has focused on large-scale production of liquid transport fuels. A smaller set of efforts has explored the potential of biofuels to promote rural development by reducing energy poverty among the world's two billion poorest people. Here, we consider the potential of these diverse approaches to promote the goals of ecoagriculture: namely, sustainable agricultural production (including biofuel feedstocks), conservation of biodiversity and ecosystem services and viable rural livelihoods. Using a landscape planning framework, we review empirical evidence and identify criteria for designing biofuel production systems that promote this trio of goals. Biofuel development has the greatest potential when biomass production is an ‘interstitial’ activity and when processing and use occurs at the local level. Larger scale production for regional or global liquid fuel markets may be beneficial under some circumstances, but a stronger policy framework is needed to guide this approach. To advance biofuels for sustainable development, while avoiding serious risks, investment must shift to include a variety of ecoagriculture-compatible pathways. Supportive public policies and market incentives must be developed before the biofuel sector develops strong path-dependence toward unsustainable outcomes.     

Economic and environmental effects of decoupled agricultural support in the EU

This article reports findings from a simulation model representing the European farming system disaggregated at different scales. This modeling experiment explores the effects of various decoupling options associated with the 2003 European agreement on gross margins, land use, shadow cost of land, and greenhouse gas emissions. Our results show increases in the farmers’ gross margins when decoupled support is maintained equal to the amount of direct aid previously attributed to agricultural production, assuming unchanged prices. Land used for pasture increases at the expense of land used for cereals and protein crops. The extent to which these effects materialize depends on the policy options selected by Member States when implementing the Luxembourg agreement. When they opt for some recoupling of support, adverse net economic impacts occur for producers. Regional differences in impacts are more pronounced than the analysis aggregated at European and national scales suggests. This highlights the need for further work based on geostatistical downscaling.     

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’

Sweetness and Power – Public Policies and the ‘Biofuels Frenzy’ In the last decade, there has been a huge policy‐led expansion in biofuels production and consumption. This paper presents some of the findings of a funded research project which has sought to identify the drivers of biofuels policies over this period. It focuses on the EU, US and Brazil which, together, represent about 90 per cent of global biofuels markets. Biofuels policies have three key drivers: as a partial substitute for fossil fuels, to lower greenhouse gas emissions; as a way of improving energy security, by diversifying away from fossil fuels and from the limited number of countries with fossil‐fuel reserves; and as a means of promoting rural development, given the opportunities offered by the production of biofuel feedstocks and their processing into biofuels. One particular challenge for both the EU and US has been to create and sustain a broad coalition of stakeholder interests in support of biofuels and biofuel policies. Both have sought to promote ‘conventional’ biofuels now, whilst trying to aid the development of ‘advanced’ biofuels industries that will address problems with existing technologies. The continued failure to deliver significant quantities of advanced biofuels raises questions for biofuels policymakers going forward, not least dealing with the downsides of conventional biofuels that, so far, have not been mitigated by a successful transition to advanced biofuels.     

Implications of biofuels mandates for the global livestock industry: a computable general equilibrium analysis

The rapid growth of biofuels production, particularly in the United States, the EU, and Brazil, has had important implications for the global livestock industry—both by raising the cost of feed grains and oilseeds and by forcing onto the market a large supply of biofuel by‐products, most of which end up in livestock feed rations. This article investigates the impact of an expanding biofuels industry on the mix and location of global livestock production. Surprisingly, we find that growth in the U.S. and EU biofuels industries results in larger absolute reductions in livestock production overseas than in those regions, due to the international transmission of grains prices which is offset locally by the lower cost of by‐products. We also find that nonruminant production is cut more than ruminant livestock, because it is less able to use biofuel by‐products in its feed rations. Implementing biofuel mandates increases cropland area, a large portion of which is estimated to come from reduced grazing lands. The biofuel producing regions are expected to reduce their coarse grains exports and increase imports of oilseeds and vegetable oils, while they increase their exports of processed feed materials. In sum, biofuel mandates have important consequences for livestock as well as crops, with net effects influenced by the important role of by‐products in substituting for feedstuffs.     

The impact of OECD biofuels policies on developing countries

OECD countries’ biofuels policies, derived from energy and environmental legislation and activated by high oil prices, were the primary cause of not only the sudden spike in grain and oilseed prices in 2007–2008 but also of the ensuing price volatility. Even though developing countries have a comparative advantage in biofuels production, they were shut out of rich countries’ biofuel markets by trade discriminating biofuels policies. Developing countries would not have been able to take full advantage of the price spike in the short run anyway given the low supply elasticities and the long time required for biofuel production to come online, unlike for corn‐ethanol. The controversy over the right price of food is misplaced and policy makers should instead focus on improving biofuels policies, which like their counterpart agricultural policies in previous decades, have damaged the welfare of developing countries.     

The Impact of Biofuel Policies on Crop Acreages in Germany and France

A major concern about biofuels is that increasing biofuel feedstock demand reduces availability of crops for food and feed leading to higher food prices. This paper investigates relations between biofuel policies and prices of rapeseed, the major feedstock used for biodiesel production in Europe, and the impact of rapeseed prices on crop acreages in Germany and France. Biodiesel is an important biofuel in Europe, and Germany and France are the largest biodiesel producers in Europe. First, the various biofuel policies in Germany and France are discussed, followed by an analysis of their effects on rapeseed prices. Although theory indicates that such effects exist, we could not find empirical evidence for them. Second, using regional land use panel data from Germany and France we investigate empirically whether crop shares have been affected by rapeseed prices in the period 2000–2015 and whether these price effects changed because of biofuel policy changes. Results show that wheat shares in Germany and France did respond to rapeseed prices, but barley shares did not. Moreover, mandatory blending introduced in Germany in 2007 and production quotas introduced in France in 2005 led to a stronger effect of rapeseed prices on wheat shares, but again did not affect barley shares.     

EU Biofuels Sustainability Standards and Certification Systems – How to Seek WTO‐Compatibility

Governments, increasingly, are encouraging the production and consumption of biofuels, as a partial substitute for fossil‐fuel based transport fuels. One reason for this is to contribute to the fight against climate change. Sustainability criteria have been introduced recently by some countries to help ensure biofuels have lower greenhouse gas emissions than fossil fuels. Concerns have been expressed from various quarters that such criteria could represent World Trade Organisation (WTO)‐incompatible barriers to trade. We, first, question recent contributions to the (mainly legal) academic literature which have sought to find ways of allowing biofuels to be treated differently in trade policy terms, based on whether or not they have been derived from feedstocks produced sustainably. We then draw on the Technical Barriers to Trade Agreement (TBTA) to offer guidance as to how to establish WTO‐compatible sustainability criteria. There is little direct case law to draw on at the design stage, but we argue that if TBTA guidance is followed, a long‐term absence of case law could be taken as an indication that the sustainability criteria established are indeed WTO‐compatible.     

The Land Use Impacts of the EU Biodiesel Policy: Assessing the Direct,Indirect and Induced Effects

This paper deals with the controversial measure of indirect land use changes of the European biodiesel policy. Two studies sponsored by the European Commission find significant, but contrasted, land use impacts for the different vegetable oils used for biodiesel production. The first study uses an aggregate computable general equilibrium model capturing direct, indirect and induced effects. The second more recent study uses a biotechnical partial equilibrium model providing a detailed representation of the indirect effects occurring through the livestock sectors. We develop an original economic emulator to understand the diverging key results of these studies and test their sensitivity. We find that the direct and indirect effects on vegetable oil and land markets explain most of the differences. We also find that indirect effects on the feed markets and the induced effects have less influence on the biodiesel results. We finally argue that the development of emulators as done here can help to understand complex policy assessments.     

A causal analysis framework for land-use change and the potential role of bioenergy policy

We propose a causal analysis framework to increase understanding of land-use change (LUC) and the reliability of LUC models. This health-sciences-inspired framework can be applied to determine probable causes of LUC in the context of bioenergy. Calculations of net greenhouse gas (GHG) emissions for LUC associated with biofuel production are critical in determining whether a fuel qualifies as a biofuel or advanced biofuel category under regional (EU), national (US, UK), and state (California) regulations. Biofuel policymakers and scientists continue to discuss to what extent presumed indirect land-use change (ILUC) estimates should be included in GHG accounting for biofuel pathways. Current estimates of ILUC for bioenergy rely largely on economic simulation models that focus on causal pathways involving global commodity trade and use coarse land-cover data with simple land classification systems. This paper challenges the application of such models to estimate global areas of LUC in the absence of causal analysis. The proposed causal analysis framework begins with a definition of the change that has occurred and proceeds to a strength-of-evidence approach that includes plausibility of relationship, completeness of causal pathway, spatial co-occurrence, time order, analogous agents, simulation model results, and quantitative agent–response relationships. We discuss how LUC may be allocated among probable causes for policy purposes and how the application of the framework has the potential to increase the validity of LUC models and resolve controversies about ILUC, such as deforestation, and biofuels.     

Banking on Agriculture: A Review of the World Development Report 2008

The World Bank's World Development Report 2008 repackages the development trope that assumes small-scale agriculture to be poor and inefficient and/or redundant in a world of supply shortages despite food abundance. The 'new agriculture for development' replaces smallholder knowledge with corporate inputs to channel food through 'value chains' to markets comprised of those with purchasing power. This essay questions the Bank's new vision, arguing that 'new wine in old bottles' will continue to supply affluence rather than 'feed the world' and sustain its agricultures, especially at a time when land is being commandeered for luxury foods (e.g. the livestock complex, all-season vegetables and fruits) and biofuels, neither of which feed the poor. Ironically, the reproduction of poverty remains the Bank's main source of legitimacy.     

Navigating the perfect storm: reflections on the food,energy, and financial crises

The closely interlinked food, energy, and financial crises pose a significant new challenge to the global effort to reduce poverty. In 2008, food prices rose sharply in many countries, and global poverty and hunger levels increased quite markedly. The good news is that the agricultural supply response in many countries was also strong. The impacts of the financial crisis on poor countries have yet to fully roll out, but it is clear that more people have fallen into poverty and more are suffering from hunger. Lastly, there are strong indications that the global food system is fundamentally changing in a number of dimensions. Biofuels are here to stay, and energy and food prices appear to have adjusted to a higher equilibrium and will in turn raise the prospects of renewed volatility in agricultural commodity markets. Trade protection has also resurfaced, but so have renewed investments in agriculture. These fundamental shifts bring with them opportunities and risks that require internationally coordinated responses with strong national buy‐in, as well as timely and relevant research.     

Trade,policy, and food security

Food insecurity is extensive throughout the world and hunger and malnutrition are expected to remain serious humanitarian and political concerns, both in the short term and for the foreseeable future, particularly in low income developing countries where many rural and urban households are both income and asset poor. In those countries, domestic agricultural production is expected to be especially vulnerable to the impacts of climate change over the next 30 years. Thus international markets for staple agricultural commodities, which have become increasingly important as sources of nutrition for both developing and developed countries over the past 60 years, are likely to become even more important in the future. Free trade policies allow countries to exploit their comparative advantages in economic activity, increasing average per capita incomes, longer term growth rates and a country's capacity to fund social safety nets for the poor. However, many countries abandoned those policies in favor of domestic protections in their efforts to mitigate the effects of short run food crises. The policy challenge is therefore to resolve the tension between optimal long run policies and short run initiatives to address food security concerns.     

Projecting future crop productivity for global economic modeling

Assessments of climate change impacts on agricultural markets and land‐use patterns rely on quantification of climate change impacts on the spatial patterns of land productivity. We supply a set of climate impact scenarios on agricultural land productivity derived from two climate models and two biophysical crop growth models to account for some of the uncertainty inherent in climate and impact models. Aggregation in space and time leads to information losses that can determine climate change impacts on agricultural markets and land‐use patterns because often aggregation is across steep gradients from low to high impacts or from increases to decreases. The four climate change impact scenarios supplied here were designed to represent the most significant impacts (high emission scenario only, assumed ineffectiveness of carbon dioxide fertilization on agricultural yields, no adjustments in management) but are consistent with the assumption that changes in agricultural practices are covered in the economic models. Globally, production of individual crops decrease by 10–38% under these climate change scenarios, with large uncertainties in spatial patterns that are determined by both the uncertainty in climate projections and the choice of impact model. This uncertainty in climate impact on crop productivity needs to be considered by economic assessments of climate change.     

Food insecurity,income inequality,and the changing comparative advantage in world agriculture

I would like to argue in this article that in the process of economic development in land‐poor countries in Asia, agriculture faces three distinctly different problems: food insecurity, sectoral income inequality, and the declining food self‐sufficiency associated with the declining comparative advantage in agriculture at the high‐income stage. Massive imports of food grains to Asia, if they occur, will aggravate the world food shortage, which will have significant implications for the poverty incidence in the world. I argue that in order to avoid such a tragedy, Asia should expand farm size to reduce labor cost by adopting large‐scale mechanization, sub‐Saharan Africa should realize a green revolution in grain production, and Latin America should further expand its grain production capacity.