In order to reduce economic and national security risks, U.S. energy policy, in 2005 and 2007, mandated production of renewable biofuels. By 2014, the renewable biofuel industry was consuming approximately one-third of domestic corn and soybean production. To meet this growing demand, conservation and pastureland has been cultivated with corn and soybean, resulting in a reduction in ecosystem services, such as carbon storage, wildlife habitat and water quality. Perennial bioenergy crops (e.g., switchgrass) offer a more sustainable alternative. However, unlike annual crops, farmers and landowners have little experience with perennial bioenergy crop production. Uncertainty in production and prices will impact the supply of these novel crops into an emerging market. Using a stated preference method, I show that agricultural landowners are willing to produce perennial bioenergy crops, given competitive returns, but only on a portion of their land. These results suggest that risk and uncertainty are important considerations in perennial bioenergy crop supply. Next, using a state-contingent approach to choice under uncertainty, I characterize the comparative static effects of government incentives to promote perennial bioenergy crop production. I show that uncertainty can dampen the impact of these incentives and in some cases even decrease perennial bioenergy acreage. Finally, I estimate the magnitude of the relative risks and the fixed cost hurdle using a discrete/continuous structural model. I show that agricultural landowners perceive a relatively high level of risk from perennial bioenergy crop production and are less willing to produce short rotation woody crops than perennial grasses.
University of Minnesota Ph.D. dissertation. July 2015. Major: Applied Economics. Advisors: Terrance Hurley, Frances Homans. 1 computer file (PDF); x, 112 pages.
The Economics of Perennial Bioenergy Crop Production Under Risk and Uncertainty: Understanding Economic and Policy Incentives.
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