Indirect Land-Use Change: A Persistent Challenge for Modeling and Policy

Indirect land-use change (ILUC)—the market-mediated expansion of agricultural land that can occur when cropland is diverted to biofuel feedstocks—has potential to result in the release of large amounts of stored carbon, offsetting some or all of the climate benefits of biofuels. ILUC has been a source of debate in biofuels policy and life-cycle greenhouse gas accounting for nearly two decades. This brief reviews how economic models estimate ILUC and how policymakers incorporate those estimates in the United States, the European Union, and international aviation. We explain why projections vary across models, where disagreements remain, and how policy design can account for uncertainty.Biofuels are derived from biological material, such as crops, waste oils, and residues. They have the potential to reduce net GHG emissions relative to petroleum-based fuels because the carbon released when they are burned was recently absorbed by the feedstock and will be reabsorbed from the atmosphere if new feedstock is grown. For this reason, they are often viewed as a way to reduce net greenhouse gas (GHG) emissions in sectors that are difficult to electrify, such as aviation, shipping, and heavy-duty transport.Whether biofuels reduce net emissions in practice depends on the consequences of producing and using them at scale relative to fossil-fuel baselines, including emissions from feedstock cultivation, refining, (LUC). An expansion of agricultural land use induced by increased biofuel demand has the potential to spur the conversion of forests, grasslands, and wetlands to cropland, thereby releasing large amounts of stored carbon.LUC could arise in two ways. Direct LUC is an expansion of cropland for feedstock production; such expansion can be directly observed and accounted for. For example, when a forest is cleared for a palm oil plantation, fuel produced from that plantation can be assigned direct LUC emissions. ILUC, by contrast, occurs through market-mediated responses. Increased demand for crops as feedstocks (versus food or animal feed) raises crop prices, which creates incentives to convert non-crop land to cropland. Natural areas may be converted directly to cropland, or land used for grazing livestock may be converted to cropland, pushing livestock production into natural areas. These responses occur globally, so they can induce land conversion far from where feedstocks are produced. For instance, if soybean oil is diverted from export markets to US fuel use, higher global prices for vegetable oil may induce expansion of palm oil production in Southeast Asia to replace soybean oil in food markets.That ILUC operates through global markets makes it difficult to attribute land-use emissions to biofuels, and researchers and policymakers have typically relied on models to simulate it. Searchinger et al. (2008) brought concerns about ILUC to prominence by predicting ILUC emissions from US corn ethanol production large enough to undo its carbon benefits relative to conventional fuels. In this comparison, timing matters: ILUC produces a large, immediate release of land carbon, but the emissions benefits from substituting corn ethanol for petroleum accrue over many years. In Searchinger et al. (2008), corn ethanol nearly doubles GHG emissions over the first 30 years, and the break-even point is reached only after about 167 years. Subsequent critiques questioned the assumptions underlying these large projections (Wang and Haq 2008; Sedjo et al. 2015). Since then, policymakers have relied on lower ILUC emissions values, reflecting alternative models and assumptions.ILUC predictions continue to be vigorously debated. Model results are highly sensitive to contested assumptions and modeling choices, and the past predictive performance of ILUC models has been difficult to validate empirically. These challenges—coupled with the potential significance of ILUC for assessing the climate effects of biofuels and influencing policy incentives and compliance obligations—have made the topic highly contentious.We begin by outlining how policymakers incorporate ILUC into regulatory frameworks in Section 2. Section 3 describes the economic models used to estimate ILUC, explaining why projections vary. Section 4 reviews the ILUC values adopted in policy and the disagreements surrounding them. Section 5 concludes with reflections on future directions for ILUC analysis and policy design.