Costs of Meeting the Cellulosic Biofuel Mandate with an Energy Crop with Establishment Cost and Yield Risk: Implications for Policy

We develop a framework to examine the extent to which farmers’ risk and time preferences, availability of credit to cover establishment cost, and crop insurance for conventional crops may influence farmers’ decision to allocate land to a perennial energy crop and, therefore, the total costs of meeting a cellulosic biofuel mandate using this crop. We also investigate the cost-effectiveness of two supplementary policies to the mandate: an establishment cost subsidy and subsidized energy crop insurance, which may achieve the targeted level of biomass production more cost-effectively than the mandate alone. We apply this framework to examine the total costs and land requirements of providing biomass for meeting a one-billion-gallon cellulosic biofuel mandate by using miscanthus as a feedstock while accounting for temporal and spatial variability in miscanthus yields relative to those of conventional crops at a county level across the U.S. rainfed region.