Three Essays on Biofuels, Drought, Livestock, and the Environment

This dissertation consists of three essays. The first essay examines the impact of the 2012 drought and the biofuels mandate on the U.S. grain and livestock markets. A stochastic equilibrium displacement model is used to analyze the impact on eight commodity markets viz. beef, pork, poultry, corn, distillers’ grain (DG), soybean, soymeal, and ethanol. Among the eight markets, corn and beef are found to be the most vulnerable to drought. The use of Renewable Identification Number (RIN) credits as an instrument to mitigate the impact of drought has limited effectiveness. A mandate waiver of about 23% is required to fully negate the impact of the drought on corn prices. Using the residual supply approach, the second essay examines the oligopsony power of U.S. importers in importing sugarcane ethanol from Brazil. The residual supply elasticity of the ethanol export from Brazil to the United States is found to be highly elastic with a significant influence of the import competing countries in determining the supply of ethanol from Brazil. Nonetheless, the elasticity is positive indicating a small degree of U.S. importer market power. This implies that the U.S. importers are operating as oligopsonist and policies that further restrict the ethanol imports would not be optimal for them. The third essay examines the impact of livestock production on land use and associated greenhouse gas emissions (GHG). The GTAP-BIO model is used to project the growth of livestock output between 2004 and 2022 and to estimate the land use changes and associated GHG emissions. Results indicate that the increased livestock output leads to considerable increase in pasture (about 45 million hectares) and decrease in forest area (about 44 million hectares) in the world. Estimated emissions associated with this change is about 20 billion tons of carbon-dioxide equivalent (Co2 e) during the study period or an annual average of 1.1 billion tons. A significant portion of the emissions (about 11%) can be reduced by making private household demand for livestock products more sensitive to price changes. In practice, this would require interventions that promote a range of choices of livestock products to the consumers. Advisors: Matthew C. Stockton and Azzeddine M. Azza