The Impact of Biofuel and Greenhouse Gas Policies on Land Management, Agricultural Production, and Environmental Quality

This dissertation explores the combined effects of biofuel mandates and terrestrial greenhouse gas GHG mitigation incentives on land use, management intensity, commodity markets, welfare, and the full costs of GHG abatement through conceptual and empirical modeling. First, a simple conceptual model of land allocation and management is used to illustrate how bioenergy policies and GHG mitigation incentives could influence market prices, shift the land supply between alternative uses, alter management intensity, and boost equilibrium commodity prices. Later a major empirical modeling section uses the U.S. Forest and Agricultural Sector Optimization Model with Greenhouse Gases (FASOMGHG) to simulate land use and production responses to various biofuel and climate policy scenarios. Simulations are performed to assess the effects of imposing biofuel mandates in the U.S. consistent with the Renewable Fuels Standard of the Energy Independence and Security Act of 2007 (RFS2). Simulations are run for several climate mitigation policy scenarios (with varying GHG (CO2) prices and eligibility restrictions for GHG offset activities) with and without conservation land recultivation. Important simulation outputs include time trajectories for land use, GHG emissions and mitigation, commodity prices, production, net exports, sectoral economic welfare, and shifts in management practices and intensity. Direct and indirect consequences of RFS2 and carbon policy are highlighted, including regional production shifts that can influence water consumption and nutrient use in regions already plagued by water scarcity and quality concerns. Results suggest that the potential magnitude of climate mitigation on commodity markets and exports is substantially higher than under biofuel expansion in isolation, raising concerns of international leakage and stimulating the “Food vs. Carbon” debate. Finally, a reduced-form dynamic emissions trading model of the U.S. economy is developed using simulation output from FASOMGHG and the National Energy Modeling System to test the effect of biofuel mandate expansion and domestic offset eligibility restrictions on total economy-wide GHG abatement costs. Findings are that while the RFS2 raises the marginal costs of offsets, full abatement costs depend on a number of policy factors. GHG payment incentives for forest management and non-CO2 agricultural offsets can increase full abatement costs by more than 20%