1. Policies to Accelerate the Bioeconomy: Unintended Effects and Effectiveness Madhu Khanna University of Illinois, Urbana-Champaign

2. 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

3. 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

4. Assessment of Indirect Land Use Change
CRP Acres (Millions)
CRP Declined by 10 Million acres since 2007
Barr et al., 2011
Data
Low elasticity of acreage to crop prices
58% ($100/acre)increase in land rent (2004/ /09)
0.8% (1 M hectare) land use expansion
Models:
4-6 Million hectares of land use change in the US in due to 15 B gallons of biofuels
Fargione et al., 2010

5. APRI Model (Dumortier et al (2011))
1. Addition of idle land
2. More spatially disaggregated carbon coefficients
3. Agricultural Costs are related to enGTAP (Hertel et al; Tyner et al.)
Addition of unused cropland and cropland pasture
TEM model to determine productivity of marginal land
Higher level of disaggregation
Improvements in technology, land productivity and yields
ergy costs
4. Crop Yields are price elastic

6. Regulation of ILUC Effect
Requirements of RFS, EISA
CA-LCFS assumes no incremental biofuel requirement beyond RFS; uses direct and indirect
GHG intensity associated with meeting the RFS

7. Focus of this presentation
Provide a validated assessment of indirect land use change due to corn ethanol
Using observed changes in CRP acres ( )
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

8. 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 ( )

9. 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

10. 34% of reduction in CRP acres due to biofuels
30-40% (7.3 million acres) of marginal land converted to biofuels due to biofuels

11. Comparison of Results EPA estimates: FASOM/FAPRI
acres/million gallons
Taheripour and Tyner (2013)
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
acres/million gallons
at a point in time

12. Cost effectiveness of using an ILUC factor to regulate ILUC effect of biofuels

13. 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

14. Alternative ILUC Factors (g CO2/MJ)
Use ILUC factors from three sources:
California Air Resources Board
EPA
Searchinger et al (2008)

15. 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

16. 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

17. 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

18. Distribution of Welfare Costs Due to ILUC Factor
Discounted value ( )
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

19. LCFS_With_ILUC Factor
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
US GHG Emissions (with ILUC)
% reduction
-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
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

20. 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