Economic Potential of Biomass-Based Fuels for Greenhouse Gas Emission Mitigation

Uwe A. Schneider, Bruce A. McCarl
August 2001  [01-WP 280]

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Schneider, U.A. and B. McCarl. 2001. "Economic Potential of Biomass-Based Fuels for Greenhouse Gas Emission Mitigation." Working paper 01-WP 280. Center for Agricultural and Rural Development, Iowa State University.


Use of biofuels diminishes fossil fuel combustion, thereby also reducing net greenhouse gas emissions. However, subsidies are needed to make agricultural biofuel production economically feasible. To explore the economic potential of biofuels in a greenhouse gas mitigation market, the authors incorporate data on production and biofuel processing for the designated energy crops--switchgrass, hybrid poplar, and willow--in a U.S. Agricultural Sector Model, along with data on traditional crop-livestock production and processing, and afforestation of cropland. Net emission coefficients on all included agricultural practices are estimated through crop growth simulation models or are taken from the literature. The authors simulate potential emission mitigation policies or markets using hypothetical carbon prices ranging between $0 and $500 per ton of carbon equivalent. At each carbon price level, the Agricultural Sector Model computes the new market equilibrium, revealing agricultural commodity prices, regionally specific production, input use, welfare levels, environmental impacts, and adoption of alternative management practices such as biofuel production. Results indicate there is no role for biofuels below carbon prices of $50 per ton of carbon equivalent. At these incentive levels, emission reductions through reduced soil tillage and afforestation are more cost efficient. At carbon prices above $50, however, biofuels become increasingly important, and at prices above $180 they dominate all other agricultural strategies.