Sustainability of Corn Stover Harvest for Biomass

Off-farm demand for crop residues is expected to grow as bioenergy policies become effective. Demand for residues will provide farmers with an additional source of revenue but it may also trigger losses in soil organic carbon and increases in fertilizer application. This study develops a dynamic economic model of stover harvest that permits conceptualization and quantification of these potential tradeoffs. We parameterize our model based on publicly available studies of soil biophysical relationships in the Corn Belt. Under these parameter values and 2010 corn and fertilizer prices harvesting stover is not economically convenient at prices below $53 per dry ton of stover. Results suggest that the rate of stover harvest may be quite sensitive and negatively linked to corn prices, which means that policies favoring the use of stover for biomass may be overridden by further increases in corn price. The negative link between stover harvest and corn prices, while somewhat counterintuitive, is driven by the fact that removal of stover reduces future grain yield (through reductions in soil organic carbon). Results also seem to indicate that, under plausible parameter values, profit maximizing farmers would increase stover supply in response to increases in stover price. However increases in supply are, according to our simulations, associated with (potentially significant) reductions in soil organic carbon (and hence carbon emissions as these are positively linked) and increases in nitrogen application (and potential runoffs). This result suggests that concerns about adverse environmental implications of harvesting stover may be justified, and more precise quantification of environmental tradeoffs should be pursued by future research.stover supply, biomass, soil productivity, soil organic carbon, nitrogen, Environmental Economics and Policy, Farm Management, Land Economics/Use, Resource /Energy Economics and Policy, C61, Q12, Q24, Q42, Q53,

ESSAYS ON EQUITY-EFFICIENCY TRADE OFFS IN ENERGY AND CLIMATE POLICIES

Economic efficiency and societal equity are two important goals of public policy. Energy and climate policies have the potential to affect both. Efficiency is increased by substituting low-carbon energy for fossil energy (mitigating an externality) while equity is served if such substitution enhances consumption opportunities of unfavored groups (low income households or future generations). However policies that are effective in reducing pollution may not be so effective in redistributing consumption and vice-versa. This dissertation explores potential trade-offs between equity and efficiency arising in energy and climate policies. Chapter 1 yields two important results. First, while effective in reducing pollution, energy efficiency policies may fall short in protecting future generations from resource depletion. Second, deployment of technologies that increase the ease with which capital can substitute for energy may enhance the ability of societies to sustain consumption and achieve intertemporal equity. Results in Chapter 1 imply that technologies more intensive in capital and materials and less intensive in carbon such as corn ethanol may be effective in enhancing intertemporal equity. However the effectiveness of corn ethanol (relative to other technologies) in reducing emissions will depend upon the environmental performance of the industry. Chapter 2 measures environmental efficiency of ethanol plants, identifies ways to enhance performance, and calculates the cost of such improvements based on a survey of ethanol plants in the US. Results show that plants may be able to increase profits and reduce emissions simultaneously rendering the ethanol industry more effective in tackling efficiency. Finally while cap and trade proposals are designed to correcting a market failure by reducing pollution, allocation of emission allowances may affect income distribution and, hence, intra-temporal equity. Chapter 3 proves that under plausible conditions on preferences and technology increasing efficiency requires greater transfers to low income households the higher the effect of these transfers on the price of permits and the lower their effect on the price of consumption goods. This denotes market conditions under which efficiency and equity are complementary goals. Adviser: Lilyan E. Fulginit

Effectiveness of Trade Sanctions as an Enforcement Mechanism in Greenhouse Gas Mitigation Agreements in Agriculture and Forestry

This study explores the conditions under which a trade sanction can be an effective enforcement mechanism used by the US against China in global greenhouse (GHG) mitigation in agriculture and forestry. The problem has the structure of prisoner’s dilemma and hence both the US and China have incentive to free-ride in GHG emissions abatement. It is found that if the US joined the rest of the world (ROW) in emissions abatement in agriculture and forestry, the US could also convince China to comply with abatement using trade sanctions. In this study, trade sanctions are considered as a deterrent to free-riding. For threats of trade sanctions to become a viable enforcement mechanism tariff rates have to achieve two conditions defined in this study: credibility and effectiveness. In a scenario where China is the only region refusing to implement an emissions tax on its GHG from agricultural and forestry sectors it is shown that there may be a window in which trade sanctions constitute a viable enforcement mechanism for the environmental agreement. This window is depicted by tariff rates below 9% (these rates achieve credibility) and above an increasing lower bound (denoting rates achieving effectiveness). The lower bound intersects 9% at a carbon tax of $80/TCE implying that; 1) at carbon taxes above$80/TCE trade sanctions are no longer a viable enforcement mechanism for the environmental agreement, and 2) the viability of trade sanctions as an enforcement mechanism may be limited to a certain level of targeted abatement.Trade Sanctions, Greenhouse Gas Mitigation, Multilateral Environment Agreements, Computable General Equilibrium Model, Environmental Economics and Policy, International Relations/Trade, Land Economics/Use,

Economic and Marketing Efficiency Among Corn Ethanol Plants

We extend data envelopment analysis (DEA) to decompose the economic efficiency of a sample of ethanol plants into internal (technical and allocative) and boundary (marketing) sources. This decomposition allows us to evaluate the channels through which different plant characteristics affect plant performance. Results show that plants are very efficient from a technical point of view. Plants with higher production volumes seem to perform better not because of economies of scale but because they can secure more favorable prices (higher marketing efficiency) and execute production plans accordingly (higher allocative efficiency). This may rationalize the increase in the size of the average plant observed in the industry in recent years despite evidence of close to constant returns to scale. This suggests that plants may have incentives to horizontally integrate. Our results do not seem to point towards the existence of strong incentives to vertically integrate. Plants seem to have achieved significant improvements in performance through experience and learning-by-doing. Plants that are privately owned do not seem to perform better that those owned by farmers’ cooperatives.corn ethanol, data envelopment analysis, economic efficiency decomposition, marketing efficiency, mergers, Crop Production/Industries, Marketing, Production Economics,

Efficiency of New Ethanol Plants in the U.S. North-Central Region

Replaced with revised version of paper 07/29/09.Ethanol, Efficiency, DEA, Production Economics, Resource /Energy Economics and Policy,

Efficiency in Midwest US Corn Ethanol Plants: A Plant Survey

Continuation of policy support for the US corn ethanol industry is being debated due to doubts about the greenhouse gas effects of the industry and the effects of the industry on food prices. Yet there is no publicly available data on the economic and technical performance of the current generation of plants, which constitute the overwhelming majority of the industry. This study helps to fill that gap. Seven recently constructed ethanol plants in seven Midwest US states provided details on input requirements and operating costs during 2006 and 2007. Results show that technical performance is substantially better than current estimates available in the literature. Average net operating returns exceeded capital costs during the survey period, but price changes by mid-2008 reduced these margins to near zero. While the economic performance of the industry is currently viable, this study demonstrates that it can be threatened by current price trends, and certainly would be in the absence of current subsidies

Essays on equity-efficiency trade offs in energy and climate policies

Economic efficiency and societal equity are two important goals of public policy. Energy and climate policies have the potential to affect both. Efficiency is increased by substituting low-carbon energy for fossil energy (mitigating an externality) while equity is served if such substitution enhances consumption opportunities of unfavored groups (low income households or future generations). However policies that are effective in reducing pollution may not be so effective in redistributing consumption and vice-versa. This dissertation explores potential trade-offs between equity and efficiency arising in energy and climate policies. Chapter 1 yields two important results. First, while effective in reducing pollution, energy efficiency policies may fall short in protecting future generations from resource depletion. Second, deployment of technologies that increase the ease with which capital can substitute for energy may enhance the ability of societies to sustain consumption and achieve intertemporal equity. Results in Chapter 1 imply that technologies more intensive in capital and materials and less intensive in carbon such as corn ethanol may be effective in enhancing intertemporal equity. However the effectiveness of corn ethanol (relative to other technologies) in reducing emissions will depend upon the environmental performance of the industry. Chapter 2 measures environmental efficiency of ethanol plants, identifies ways to enhance performance, and calculates the cost of such improvements based on a survey of ethanol plants in the US. Results show that plants may be able to increase profits and reduce emissions simultaneously rendering the ethanol industry more effective in tackling efficiency. Finally while cap and trade proposals are designed to correcting a market failure by reducing pollution, allocation of emission allowances may affect income distribution and, hence, intra-temporal equity. Chapter 3 proves that under plausible conditions on preferences and technology increasing efficiency requires greater transfers to low income households the higher the effect of these transfers on the price of permits and the lower their effect on the price of consumption goods. This denotes market conditions under which efficiency and equity are complementary goals

Sustainability of Corn Stover Harvest for Biomass

Off-farm demand for crop residues is expected to grow as bioenergy policies become effective. Demand for residues will provide farmers with an additional source of revenue but it may also trigger losses in soil organic carbon and increases in fertilizer application. This study develops a dynamic economic model of stover harvest that permits conceptualization and quantification of these potential tradeoffs. We parameterize our model based on publicly available studies of soil biophysical relationships in the Corn Belt. Under these parameter values and 2010 corn and fertilizer prices harvesting stover is not economically convenient at prices below $53 per dry ton of stover. Results suggest that the rate of stover harvest may be quite sensitive and negatively linked to corn prices, which means that policies favoring the use of stover for biomass may be overridden by further increases in corn price. The negative link between stover harvest and corn prices, while somewhat counterintuitive, is driven by the fact that removal of stover reduces future grain yield (through reductions in soil organic carbon). Results also seem to indicate that, under plausible parameter values, profit maximizing farmers would increase stover supply in response to increases in stover price. However increases in supply are, according to our simulations, associated with (potentially significant) reductions in soil organic carbon (and hence carbon emissions as these are positively linked) and increases in nitrogen application (and potential runoffs). This result suggests that concerns about adverse environmental implications of harvesting stover may be justified, and more precise quantification of environmental tradeoffs should be pursued by future research

Chinese Regional Agricultural Productivity: 1994-2005

Agricultural productivity growth in Chinese provinces during the 1994-2005 period is examined using two alternative approaches: a parametric stochastic frontier and a non-parametric Malmquist index. These models are suitable to the Chinese situation due to the existence of procurement prices, quotas, and other interventions that have distorted prices. Results show that there is high but declining productivity growth rates in the mid 1990’s with productivity growth decreasing in the late 1990’s but with a reversal of the trend around 1998 when growth rates start accelerating. A stochastic frontier translog production function is estimated to obtain an alternative measure of total factor productivity growth. Results are compared across these two models. Although average growth in technical change is similar in the two models, the regional rates are dissimilar. A model that includes three variables hypothesized to explain the difference in performance across regions is also estimated. The three variables included in the model are irrigation ratio, illiterate ratio and agriculture expenditure level. These variables make allowance for the difference of land and labor quality and the effect of public inputs. The irrigation ratio and agriculture expenditure are found to positively relate to the technical efficiency change and the illiterate ratio is found to negatively relate to the technical efficiency change. The results are consistent with expectations

Environmental Efficiency Among Corn Ethanol Plants

Economic viability of the US corn ethanol industry depends on prices, technical and economic efficiency of plants and on continuation of policy support. Public policy support is tied to the environmental efficiency of plants measured as their impact on emissions of greenhouse gases. This study evaluates the environmental efficiency of seven recently constructed ethanol plants in the North Central region of the U.S., using nonparametric data envelopment analysis (DEA). The minimum level of GHG emissions (per gallon of ethanol produced) feasible with the available technology is calculated for each plant and this level is used to decompose environmental efficiency into its technical and allocative sources. Results show that, on average, plants in our sample may be able to reduce GHG emissions by a maximum of 6% or by 3,116 tons per quarter. Input and output allocations that maximize returns over operating costs (ROOC) are also found based on observed prices. The environmentally efficient allocation, the ROOC maximizing allocation, and the observed allocation for each plant are combined to calculate economic (shadow) cost of reducing greenhouse gas emissions. These shadow costs gauge the extent to which there is a trade off or a complementarity between environmental and economic targets. Results reveal that, at current activity levels, plants may have room for simultaneous improvement of environmental efficiency and economic profitability