Sustainable Biofuels: Economic and Policy Incentives
Madhu Khanna
University of Illinois, Urbana-Champaign
Biofuels from food crops like corn and soybeans have raised concerns about competition for land with food production, indirect land use change, adverse impacts on water quality and limited potential to provide energy security or climate change mitigation. Cellulosic biofuels, particularly from high yielding energy crops, like miscanthus and switchgrass, have the potential to be grown productively on low quality, rainfed land, to sequester large amounts of soil carbon and improve water quality. However, cellulosic biofuels are currently more expensive than corn ethanol or gasoline, necessitating the provision of policy incentives for their production and blending by refineries. Moreover, perennial energy crops have high upfront costs of establishment, expose farmers to yield and price risks that differ from those of conventional crops and require long term time commitments of land to their production. The risk and time preferences of farmers as well as availability of credit can influence the incentives and the biomass price needed to induce farmers to grow these crops. This presentation will discuss the extent to which economic factors can influence the cost of production of feedstocks for cellulosic biofuels and the role that policies can play in inducing biofuel production more cost-effectively. The potential for a mix of policies, targeted at the farm-gate and the fuel sector, to induce production of sustainable biofuels will be discussed.
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