Impacts of Ethanol on Planted Acreage in Market Equilibrium
The magnitude of land conversion caused by biofuels expansion largely determines whether biofuels reduce net greenhouse gas emissions. To examine this issue, we model how equilibrium changes in input use and land allocation decisions respond to market- and policy-induced increases in corn ethanol demand. We demonstrate why total cropland area unambiguously increases with increased ethanol demand. The impact of ethanol price subsidies and consumption mandates are examined in the context of technical change. If ethanol demand is elastic enough, an exogenous increase in corn yields leads to cropland expansion with price subsidies. Yield increases under consumption mandates reduce land use.
This working paper was published as Feng, Hongli and Bruce A. Babcock, "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics 92 (2010): 789–802, doi:10.1093/ajae/aaq023.