Policies to Accelerate the Bioeconomy:
Unintended Effects and Effectiveness
Madhu Khanna
University of Illinois, Urbana-Champaign
Major Low Carbon/Renewable Fuel
Policies in the US


Bioenergy offers significant potential for low carbon, renewable energy

Largely compatible with existing infrastructure

High value use for land

High costs have necessitated policy support
Renewable Fuel Standard:


Quantity mandates for 3 major categories of biofuels

Cellulosic biofuels with a life-cycle GHG intensity 60% lower than conventional gasoline

Advanced biofuels with a life-cycle GHG intensity 50% lower than conventional gasoline

Conventional biofuels with a life-cycle GHG intensity 20% lower than conventional gasoline
Low Carbon Fuel Standard in California

Lower the life-cycle GHG intensity of transportation fuel by a given percentage

Provides flexibility in the quantity of different low carbon fuels to blend based on their specific LC GHG
intensity
Unintended Effects of Biofuel Policies

Increased competition for land: food vs fuel

Conversion of land from marginal/non-agricultural uses to crop production

Release of carbon stocks in soils and vegetation

Need to consider direct emissions intensity of producing biofuels and indirect emissions
intensity due to land use change

Raised two issues:

Assessment of the indirect land
use change (ILUC) effect of biofuels

Policy mechanisms to reduce the ILUC
effect
Assessment of Indirect Land Use Change
CRP Acres (Millions)
40
30
20
CRP Declined by 10 Million acres since 2007
10
2011
2009
2007
2005
2003
2001
1999
1997
1995
0
Barr et al., 2011
Data
Low elasticity of acreage to crop prices
58% ($100/acre)increase in land rent (2004/062007/09)
0.8% (1 M hectare) land use expansion
Fargione et al., 2010
Models:
4-6 Million hectares of land use change in the
US in 2007-2009 due to 15 B gallons of biofuels
FAPRI
GTAP
AGLINK LEITAP
FAPRI
59.5
GTAP
CARB (2010)
46
EPA (2010)
CARB (2010)
EPA (2010)
17.5
Edwards et al (2010)
60
Edwards et al. (2010)
20.8
Edwards et al. (2010)
14
Tyner et al (2010)
20
Tyner et al (2010)
27
Tyner et al (2010)
30.3
CARB (2009)
57
Hertel et al. (2010)
63
Dumortier et al. (2011)
80
Dumortier et al. (2011)
100
Dumortier et al. (2011)
104
Dumortier et al. (2011)
40
EPA (2010)
Searchinger et. al (2008)
120
100.5 (g CO2eq/MJ)
ILUC Related Carbon Intensity of Corn Ethanol
65
62
40.8
30
13.9
19.2
3.8
0
FAPRIGTAP
Regulation of ILUC Effect
Requirements of RFS, EISA
CA-LCFS assumes no incremental biofuel requirement beyond RFS; uses direct an
GHG intensity associated with meeting the RFS
Focus of this presentation


Provide a validated assessment of indirect land use
change due to corn ethanol

Using observed changes in CRP acres (2007-2012)

Isolating the effects due to corn ethanol by
comparing to a counterfactual No-ethanol scenario
Effectiveness of regulating ILUC effects by
including an ILUC factor in the GHG intensity of
biofuels in implementing a LCFS policy

Compare the economic costs of a national LCFS with
and without an ILUC factor

Additional costs of abatement of GHG emissions due
to the ILUC factor

Distributional effects of including an ILUC factor
Economic Model

Integrated model of Agricultural, Forestry
and Transportation Sectors of the US

Maximizes surplus of consumers of
Vehicle Miles Travelled and major
agricultural commodities and producer
surplus in multiple markets subject to
technology, production and land constraints

Endogenously determines equilibrium
quantities and prices in these sectors under
various scenarios

Examine extent ot conversion of expiring
CRP acres and marginal land to convert to
cropland was due to biofuel production
(2007-2012)
Validation and Calibration of the
Economic Model


Calibrate the model:

Productivity of CRP/marginal
land

Costs of conversion of
marginal land to cropland
Examine the fit of the model to
observed data on total
cropland and on amount of
land in CRP under alternative
assumptions about
productivity and costs of
conversion

With observed levels of biofuel
production

34% of reduction in CRP acres due to biofuels

30-40% (7.3 million acres) of marginal land converted to biofuels due
to biofuels
Comparison of Results

EPA estimates: FASOM/FAPRI


Taheripour and Tyner (2013)


375-436 acres/million gallons
353 acres/million gallons
Our estimates:

Land conversions occurred slower
increase in ethanol production

Declining ration of acres/million gallons
over time


251 to 108 acres/million gallons
Single shot view of land use change
overstates land use change

402-435 acres/million gallons
at a point in time
Cost effectiveness of using an ILUC
factor to regulate ILUC effect of
biofuels
Inclusion of an ILUC factor in an
LCFS policy

Carbon intensity of a biofuel= Direct CI+ ILUC factor

Biofuel policies implicitly subsidize biofuels and tax gasoline

Inclusion of an ILUC factor lowers the subsidy on a biofuel

Raises the implicit carbon price of achieving an LCFS by making all
biofuels more carbon intensive

Leads to a switch to biofuels with lower ILUC factors

Also raises cost of blending biofuels and fuel prices for consumers
Alternative ILUC Factors (g CO2/MJ)
Use ILUC factors from three sources:

California Air Resources Board

EPA

Searchinger et al (2008)
Direct GHG Intensity
ILUC GHG Intensity
Net GHG Intensity
175
125
75
25
-25
-75
CARB
Gasoline
EPA
Searchinger CARB
Corn Ethanol
EPA
Searchinger CARB
Cellulosic Biofuels
EPA
Searchinger
Sugarcane Ethanol
Effect of Including an ILUC Factor

Implicit subsidy for corn stover
increases

Corn ethanol is taxed under the
Searchinger factors

Subsidies for perennial grasses
decreases

Higher tax on gasoline
Effect of Inclusion of ILUC Factor on
Prices

Higher carbon price raises price of
gas/diesel

Lower demand for corn ethanol
reduces land rents

Higher demand for biomass raises
price
Effect of Inclusion of ILUC Factor on Fuel Use

Decrease in fossil fuel and corn
ethanol consumption

Increase in cellulosic biofuels from
energy crops under CARB and
EPA scenarios but not in
Searchinger case

Increase in crop residue ethanol
Distribution of Welfare Costs Due to
ILUC Factor

Discounted value (20072027)

Loss in fuel consumer surplus
$18-$ 176 B

Loss in Fuel producers surplus
$12-$138 B

Significant gains to
agricultural consumers and
producers in Searchinger
case

Net Cost $35-211B
Effect of Inclusion of ILUC Factor on Additional
Emissions Reduction and Welfare Costs Compared to
No ILUC Factor
Scenario
LCFS_With_ILUC Factor
CARB
EPA
Searchinger
-1.3%
-1.6%
-2.6%
US Abatement Cost Relative to No_LCFS
Baseline ($ Billion)
$ 35 B
$ 50 B
$ 211 B
US Cost of Additional Global Abatement
Due to ILUC Factor ($/Mg CO2)
$60.7
$73.7
$186.6
US GHG Emissions (with ILUC)
% reduction

Social cost of Carbon is $50 per ton with 3% discount rate

Cost of abatement with ILUC factor is 20% to 270% higher than SCC
Conclusions

ILUC effects are dynamic and changing over time

An ILUC factor is not a cost-effective approach to addressing the unintended land
use effects of biofuels

Various approaches to reducing ILUC should be considered

incentivizing low ILUC effect feedstocks

Non-food crop based

High yielding perennials that can be grown on low quality land

GHG intensity performance based policies like LCFS instead of quantity mandates

Certification of low ILUC biofuels

Enforcement of direct regulations restricting land use change