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Biofuels, Climate Policy, And Water Management: Assessing Policy-Induced Shifts On Agriculture’S Extensive And Intensive Margins

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  • Baker, Justin Scott
  • Murray, Brian C.
  • McCarl, Bruce A.

Abstract

Biofuel expansion efforts and climate mitigation policy could fundamentally alter land management trends in U.S. agriculture and forestry (AF) by mandating biofuel feedstock production and providing incentives for greenhouse gas (GHG) emissions reduction and carbon sequestration from terrestrial sources. Research has shown that biofuel expansion can alter commodity markets, induce agricultural land expansion, and intensify production. Meanwhile, GHG mitigation efforts could limit agricultural expansion, reduce current cultivation, and lower management intensity by incentivizing GHG emissions reduction and carbon sequestration within AF. To date, little work has attempted to quantify biofuel and climate policy-induced shifts together along the extensive and intensive agricultural production margins within a systems-based framework, though such shifts could have resounding implications on agricultural water consumption and quality. This study uses a comprehensive and detailed economic model of the U.S. AF sectors to simulate land management responses to biofuel expansion and GHG policies. While bioenergy production and altered AF management practices are found to significantly reduce GHG emissions, additional water consumption and nutrient use are possible policy outcomes. Specifically, we find that policies that influence shifts to the extensive margin will increase aggregate water use and nutrient application, but lead to lower intensity per-unit area. Conversely, when combined with biofuel mandates climate mitigation incentives lower agricultural land expansion, but lead to higher levels of management intensity. Somewhat contrary to expectations, GHG mitigation incentives cause water and nutrient use intensity to grow at an increasing rate due to the greater level of land use competition. Additionally, important regional trends emerge, as water use and quality concerns grow with the CO2 price in areas with limited GHG mitigation possibilities. This suggests that “water leakage” is possible whereby emissions reduction activities decrease output in one region and stimulate management intensity elsewhere. The potential indirect consequences of combined biofuel and climate mitigation incentives on water resource systems warrant further attention in policy design and future research.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2011 Annual Meeting, July 24-26, 2011, Pittsburgh, Pennsylvania with number 104912.

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Date of creation: 2011
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Handle: RePEc:ags:aaea11:104912

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Keywords: Greenhouse gas mitigation; biofuels; water resource management; Environmental Economics and Policy; Production Economics; Resource /Energy Economics and Policy;

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  1. Searchinger, Timothy & Heimlich, Ralph & Houghton, R. A. & Dong, Fengxia & Elobeid, Amani & Fabiosa, Jacinto F. & Tokgoz, Simla & Hayes, Dermot J. & Yu, Hun-Hsiang, 2008. "Use of U.S. Croplands for Biofuels Increases Greenhouse Gases Through Emissions from Land-Use Change," Staff General Research Papers 12881, Iowa State University, Department of Economics.
  2. Hongli Feng & Bruce A. Babcock, 2010. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 789-802.
  3. Roman Keeney & Thomas W. Hertel, 2009. "The Indirect Land Use Impacts of United States Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(4), pages 895-909.
  4. Keeney, Roman & Hertel, Thomas, 2008. "The Indirect Land Use Impacts of U.S. Biofuel Policies: The Importance of Acreage, Yield, and Bilateral Trade Responses," GTAP Working Papers 2810, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
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