Crop-Based Biofuel Production under Acreage Constraints and Uncertainty

Mindy Baker (), Dermot Hayes () and Bruce Alan Babcock

Staff General Research Papers from Iowa State University, Department of Economics

Abstract: A myriad of policy issues and questions revolve around understanding the bioeconomy. To gain insight, we develop a stochastic and dynamic general equilibrium model and capture the uncertain nature of key variables such as crude oil prices and commodity yields. We also incorporate acreage limitations on key feedstocks such as corn, soybeans, and switchgrass. We make standard assumptions that investors are rational and engage in biofuel production only if returns exceed what they can expect to earn from alternative investments. The Energy Independence and Security Act of 2007 mandates the use of 36 billion gallons of biofuels by 2022, with significant requirements for cellulosic biofuel and biodiesel production. We calculate the level of tax credits required to stimulate this level of production. Subsidies of nearly $2.50 per gallon to biodiesel and $1.86 per gallon to cellulosic biofuel were required, and long-run equilibrium commodity prices were high, with corn at $4.76 per bushel and soybeans at $13.01 per bushel. High commodity prices are due to intense competition for planted acres among the commodities.

Keywords: biodiesel; biofuels; cellulosic; dynamic; ethanol; general equilibrium; Monte Carlo; market. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr and nep-env
Date: Written
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Related works:
Working Paper: Crop-Based Biofuel Production under Acreage Constraints and Uncertainty (2008)
Working Paper: Crop-Based Biofuel Production under Acreage Constraints and Uncertainty (2008)
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Persistent link: http://EconPapers.repec.org/RePEc:isu:genres:12870

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