Next-generation biofuels: the supply chain approach to estimating potential land-use change
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Biofuels, including ethanol and biodiesel, are important components of energy policy in the U.S. and abroad. There is a long history of ethanol production from corn (maize) in the United States and from sugarcane in Brazil. However, there has been a push for greater use of next-generation biofuels (including those derived from cellulosic feedstocks) to mitigate many of the environmental and potential food system impacts of large scale biofuel production. Farmer willingness to grow biomass crops and ensuring adequate feedstock supply are two important challenges impeding large scale commercialization of next-generation biofuels. The costs of transporting bulky, low density biomass will be substantial. Consequently, in the near term, the economic success of next-generation biofuels will hinge on the supply of locally available biomass. As such, agricultural contracts are expected to be an important tool in overcoming the feedstock acquisition challenge. The broad objective of this study is to understand the effect of contracting for non-food energy crops (cellulosic feedstocks) on the agricultural landscape via the displacement of commodity (food) crops on productive cropland. We develop an analytical framework for evaluating the design and use of two different contract structures for securing cellulosic feedstock in a representative supply chain with a biorefinery and farmer. We study the dynamics of scarce land and indirect competition from commodity market production on a biorefinery's equilibrium pricing strategy and the resultant supply of cellulosic biomass. And we consider its sensitivity to various production characteristics and market conditions. We develop a method for quantifying the biorefinery's tradeoff between profit margins and competing for land in order to secure the requisite feedstock for biofuel production. And we characterize the loss of efficiency in the decentralized system, relative to a vertically integrated system, that can be attributed to the need to compete for the farmer's scarce land resource versus that which results from the biorefinery's desire to make a profit. Then we extend our framework to consider multi-year contracts for biomass production and evaluate the importance of land quality, yield variability and contract structure on a farmer's willingness to accept a contract to produce cellulosic feedstock as well as the resulting impact on the agricultural landscape through the displacement of commodity crops. Using switchgrass production in Tennessee as a case study, we develop feedstock supply curves for each contract structure considered and evaluate the conditions and contract prices at which land devoted to various field crops would be displaced by switchgrass based on field trials of switchgrass production in Tennessee and recent USDA data on crop prices and production.