Biofuel policies and the environment: the effects of biofuel feedstock production on climate, water quality and biodiversity

In this paper we examine the multiple environmental effects of policies promoting biofuel production from agricultural crops. We develop theoretical and empirical frameworks and provide an integrated economic and ecological modelling approach: an economic model of farmers’ decision making is combined with a biophysical model predicting the effects of farming practices on crop yields and multiple environmental effects. The analysed environmental effects include GHG emissions over the life cycle, nitrogen and phosphorus runoff, herbicide runoff and the quality of wildlife habitats. Model is applied to crop production in Finland. We found that the overall environmental performance of alternative land use types is mainly driven by the value of CO2-eq emissions and nutrient runoff damage. Herbicide use intensity and resulting herbicide runoff damage have only a marginal effect on the environmental performance of alternative land use types. Incorporation of biodiversity benefits favour rape and reed canary grass over cereals. Social welfare ranking of alternative land use types is mainly driven by profitability of land use rather than the social valuation of environmental effects