Environmental, Social & Economic Impacts programs

Economic and Environmental Impacts of Biofuels: Implications for Land Use and Policy

The program is creating a comprehensive framework to analyze the socioeconomic, biophysical, and environmental impacts of biofuel production at an economy-wide level, while incorporating detailed spatial heterogeneity at a local and regional scale. This framework has the flexibility to be modified as new knowledge and insights emerge from the field and laboratory studies. The analysis provides policy makers and analysts with a scientific basis and a methodology to analyze the impacts of a range of public policies, including gasoline taxes, biofuel subsidies, carbon payments, and reduction in tariffs on imported biofuels.

program Highlights

2014 Highlights

Our research shows significant potential to achieve greenhouse gas savings by using forest biomass for bioenergy production and to expand wood pellet production with modest increase in pulpwood price for traditional wood products. We also find that farmer risk and time preferences can raise the price of biomass needed to induce them to grow energy crops like Miscanthus and switchgrass and that it is important to have policies that alleviate their credit constraints and share the establishment costs for energy crops borne by them to lower the cost of meeting the cellulosic biofuel mandate. Our analysis of the existing fuel policies in Brazil shows that they are likely to have been motivated by the objectives of increasing oil exports, raising government revenue and promoting rural development through the sugarcane sector and have had a significant adverse effect on fuel and sugar consumers, aggregate social welfare and a small increase in greenhouse gas emissions in Brazil.

2013 Highlights

We examined the effect of heterogeneity in risk preferences and land quality among landowners on the extent of vertically integrated production by a biorefinery, the share of biomass production under different types of contractual arrangements, and the terms of the contracts between a biorefinery and landowners. We conducted a survey to identify the preference of farmers for the type of contractual arrangements that would induce them to grow energy crops. Preliminary results from the survey indicate that energy crop adopters are more likely to be risk-loving, educated, patient and own land of low cash rent. To adopt energy crops, farmers prefer short contract length, larger establishment cost shared by refinery, higher net gain and lower variability in annual income. We also used BEPAM to analyze the effects of state-level Renewable Portfolio Standards (RPSs) for the competition for biomass for meeting the cellulosic biofuel mandate in the RFS and its implications for the agriculture sector. We analyzed the impacts of biofuel policies in the U.S. on land use, agricultural commodity and transportation fuel markets, and global environment in Brazil and the political economy of fuel policies in Brazil on incentives to produce ethanol.

2012 Highlights

Our focus this year has been on analyzing the design and effectiveness of alternative policies to stimulate advanced biofuels. We examined the optimal carbon tax in the presence of biofuels as a transportation fuel when the revenue from the carbon tax is used to replace labor income taxes in a revenue-neutral manner. We also compared the effectiveness of a range of other policies, including the Low Carbon Fuel Standard (LCFS), Renewable Fuel Standard (RFS), carbon tax, biofuel subsidies and tariff in reducing greenhouse gas (GHG) emissions and achieving energy security and their implications for food and fuel markets. We found that supplementing the RFS with a carbon price policy, a LCFS or a cellulosic biofuel tax credit could induce a switch away from corn ethanol to cellulosic biofuels and achieve the mandated level of biofuel production with a smaller adverse impact on crop prices. These supplementary policies can enhance the greenhouse gas savings achieved by the RFS alone and can also stimulate greater learning by doing and reduction in industrial costs of producing cellulosic biofuels. We quantified the economic benefits of these policies and showed that the RFS can lead to economic gains for the U.S. by improving the terms of international trade for the U.S. and lowering the price of oil imports while raising the price for agricultural commodity exports.


In related work, we published a review of the studies estimating the indirect land use change (ILUC) effect of first generation biofuels in the U.S. and EU and showed that there is a large variability in estimates due to differences in the underlying assumptions across studies and in model structures. We also analyzed the implications of the ILUC effect and rebound effect in the fuel market for GHG emissions savings due to biofuels under alternative policies. Our research on Brazil was expanded to examine the effects of U.S. biofuel policies on biofuel production and land use change in there. We also initiated research analyzing the potential design of biomass production contracts between biomass growers and biorefineries to promote the development of the industry. We are currently conducting a survey of farmers to determine the factors that will induce them to grow energy crops.

2011 Highlights

Khanna’s group found that the Renewable Fuel Standards (RFS) in the U.S. will probably result in a 20 percent increase in crop prices, less of an increase than with cellulosic ethanol subsidies or a carbon price policy. They also concluded that, while the RFS leads to reduced fuel imports and more energy security, it also leads to a lower reduction in GHG emissions than would carbon tax policies. The Khanna group estimates that if energy crops were allowed to grow on a small percentage of the 32 million acres currently in the Conservation Reserve Program (which pays landowners to shift marginal cropland into productive wetland), more than 1 billion liters of cellulosic biofuels could be produced, reducing the impact of the RFS on food prices.

2010 Highlights

Khanna’s group developed a dynamic, multi-market equilibrium model, called the Biofuel and Environmental Policy Analysis Model, that analyzes the markets for fuel, food, and livestock. They used it to obtain supply curves for cellulosic feedstocks and show their sensitivity to costs of feedstock production and land availability.

2009 Highlights

Khanna’s group developed a national-scale economic model with crop, livestock, and fuel sectors to determine the impact of biofuel production under various policy scenarios. They also examined the optimal capacity and location of biorefineries as a function of the regional distribution of bioenergy feedstocks, the costs of transportation of feedstocks, biofuels and the demand centers for biofuels. They found that it is most cost-effective to locate refineries (on average) within 50 miles of the biomass and corn-producing areas and to transport feedstock by truck.



Published in 2014

Potential Greenhouse Gas Benefits of Transatlantic Wood Pellet Trade, P. Dwivedi, M. Khanna, R. Bailis, A.Ghilardi, Environmental Research Letters 9, 024007 (p. 11), 2014. 


Alternative Fuel Standards: Welfare Effects and Climate Benefits, X. Chen, H. Huang, M. Khanna and H. Onal, Journal of Environmental Economics and Management, 67(3), pp. 241–257, May 2014. 


Wood-Based Bioenergy Products—Land or Energy Efficient?, P. Dwivedi, M. Khanna. Canadian Journal of Forest Research, 44 (999), pp. 1187-1195, August 24, 2014. 


Are Bioenergy Crops Riskier than Corn? Implications for Biomass Price, R. Miao, and M. Khanna. Choices 29(1), 2014. 


Abatement Cost of GHG Emissions for Wood-Based Electricity and Ethanol at Production and Consumption Levels, P. Dwivedi, M. Khanna. PloS One, 9(6), doi: 10.1371/journal.pone.0100030, June 17, 2014. 


Carbon Abatement in the Fuel Market with Biofuels: Implications for Second-Best Policies, C. Crago and M. Khanna, Journal of Environmental Economics and Management, 67(2), pp. 89–103, March 2014. 


Abatement Cost of Wood-Based Energy Products at the Production Level on Afforested and Reforested Lands, P. Dwivedi, M. Khanna, Global Change Biology—Bioenergy, doi: 10.1111/gcbb.12199, June 2, 2014. 


Is Use of Both Pulpwood and Logging Residues Instead of Only Logging Residues for Bioenergy Development a Viable Carbon Mitigation Strategy?, P. Dwivedi, R. Bailis, M. Khanna. BioEnergy Research, 7 (1), pp. 217-231, March 2014. 


Modeling Land Use Change with Biofuels, M. Khanna, D. Zilberman, C. Crago, Book chapter, J. M. Duke and J. J. Wu (eds.), Oxford Handbook of Land Economics, Oxford University Press, http://ukcatalogue.oup.com/product/9780199763740.do, 2014. 


Adoption and Land Use, D. Zilberman, M. Khanna, S. Kaplan and E. Kim, Book Chapter, J. M. Duke and J. J. Wu (eds.), Oxford Handbook of Land Economics, Oxford University Press, http://ukcatalogue.oup.com/product/9780199763740.do, 2014. 

Published in 2013

Stacking Low-Carbon Policies on the Renewable Fuel Standard: Economic and Greenhouse Gas Implications, Haixiao Huang, Madhu Khanna, Hayri Önal, Xiaoguang Chen, Energy Policy, 56, pp. 5-15, June 2013.


Is Use of Both Pulpwood and Logging Residues Instead of Only Logging Residues for Bioenergy Development a Viable Carbon Mitigation Strategy?, P. Dwivedi, R. Bailis, M. Khanna, Bioenergy Research, 7, pp. 217-231, doi: 10.1007/s12155-013-9362-z.

Can India Meet Biofuel Policy Targets? Implications for Food and Fuel Prices, M. Khanna, H. Onal, C. Crago, K.Mino, American Journal of Agricultural Economics, 95(2), pp. 296-302, 2013.


Food vs. Fuel: The Effect of Biofuel Policies, Chen, X., and M. Khanna. American Journal of Agricultural Economics, 95 (2), 289-295. 2013.


Economic, Energy Security and Greenhouse Gas Effects of Biofuels: Implications for Policy, M. Khanna, X. Chen, American Journal of Agricultural Economics, 95(5), pp. 1325-1331, 2013.


Carbon Abatement in the Fuel Market with Biofuels: Implications for Second Best Policies, Christine Lasco Crago, Madhu Khanna, Journal of Environmental Economics and Management, online access, doi: 10.1016/j.jeem.2013.11.001, November 2013.



Published in 2012


Stimulating Learning-By-Doing in Advanced Biofuels: Effectiveness of Alternative Policies,  Xiaoguang Chen, Madhu Khanna, and Sonia Yeh,  Environmental Research Letters, doi:10.10888/1748-9326/7/4/045907, December 13, 2012.


Can India Meet Biofuel Policy Targets: Implications for Food and Fuel Prices, Madhu Khanna, Hayri Onal, Christine Crago, Kivoshi Mino, American Journal of Agricultural Economics, doi: 10.1093/ajae/aas040, May 18, 2012.


Food vs. Fuel: The Effect of Biofuel Policies, Xiaoguang Chen, Madhu Khanna, American Journal of Agricultural Economics, doi: 10.1093/ajae/aas039, May 11, 2012.


The Market-Mediated Effects of Low Carbon Fuel Policies, Xiaoguang Chen, Madhu Khanna, AgBioForum, 15(1), pp. 89-105, May 2012.


Land Use and Greenhouse Gas Implications of Biofuels: Role of Technology and Policy, Xiaoguang Chen, Haixiao Huang, Madhu Khanna, Social Science Research Network, February 8, 2012.


Modeling Agricultural Supply Response Using Mathematical Programming and Crop Mixes, Xiaoguang Chen, Hayri Onal, American Journal of Agricultural Economics, doi: 10.1093/ajae/aar143, Feb. 2, 2012.


Meeting the Mandate for Biofuels: Implications for Land Use, Food and Fuel Prices, X. Chen, H. Huang, M. Khanna and H. Onal, Chapter 7 in The Intended and Unintended Effects of U.S. Agricultural and Biotechnology Policies, eds. J. G. Zivin and J. Perloff, University of Chicago Press.


Explaining the Reductions in Corn Ethanol Processing Costs: Testing Competing Hypothesis, X. Chen and M. Khanna, Energy Policy 44, 153-159.


Measuring Indirect Land Use Change with Biofuels: Implications for Policy, M. Khanna and C. L. Crago, Annual Review of Resource Economics, April 23, 2012 online, doi: 10.1146/annurev-resource-110811-114523


Published in 2011

Economics of Herbaceous Bioenergy Crops for Electricity Generation: Implications for Greenhouse Gas Mitigation, Madhu Khanna, Hayri Onal, Basanta Dhungana, Michelle Wander, Biomass and Bioenergy, 35(4), doi: 10.1016/j.biombioe.2010.11.031, April 2011.


Land Use and Greenhouse Gas Mitigation Effects of Biofuel Policies, Madhu Khanna, Xiaoguang Chen, Haixiao Huang, Hayri Onal%



Back to Top