Biofuel Expansion, Fertilizer Use, and GHG Emissions: Unintended Consequences of Mitigation Policies

Increased biofuel production has been associated with direct and indirect land-use change, changes in land management practices, and increased application of fertilizers and pesticides. This has resulted in negative environmental consequences in terms of increased carbon emissions, water quality, pollution, and sediment loads, which may offset the pursued environmental benefits of biofuels. This study analyzes two distinct policies aimed at mitigating the negative environmental impacts of increased agricultural production due to biofuel expansion. The first scenario is a fertilizer tax, which results in an increase in the US nitrogen fertilizer price, and the second is a policy-driven reversion of US cropland into forestland (afforestation). Results show that taxing fertilizer reduces US production of nitrogen-intensive crops, but this is partially offset by higher fertilizer use in other countries responding to higher crop prices. In the afforestation scenario, crop production shifts from high-yielding land in the United States to low-yielding land in the rest of the world. Important policy implications are that domestic policy changes implemented by a large producer like the United States can have fairly significant impacts on the aggregate world commodity markets. Also, the law of unintended consequences results in an inadvertent increase in global greenhouse gas emissions. 1. Introduction World agriculture has been significantly impacted by a number of events that have occurred in the past five to ten years. Arguably the most prominent is the dramatic global expansion of biofuels, especially in the United States and Brazil, driven by mandates, federal and state incentives, and trade barriers [1]. Energy prices have also increased to record levels, with the world crude oil price exceeding $130 per barrel in July of 2008 and currently hovering between $101 and $105 per barrel.1 These higher energy prices have a significant impact on biofuel expansion (Hayes et al., 2009) as biofuels became economically attractive even without subsidies [2]. Additionally, several major policy initiatives relating to climate change in general and biofuels in particular were initiated in a number of countries. These include such policies as the American Clean Energy and Security Act of 2009 (ACES) (H.R.2454) and the Energy Independence and Security Act of 2007 (EISA) in the United States (Public Law 110–140) and the 2009 Energy and Climate Change Package in the European Union [3, 4], which have also contributed to increases in ethanol and biodiesel production.2 While