Policy incentives for switchgrass production using valuation of non-market ecosystem services

http://dx.doi.org/10.1016/j.enpol.2012.05.057

Abstract: This study presents a linear profit model with combined economic and environmental factors for a switchgrass-for-biofuels agricultural system in the southeastern U.S. The objectives are to establish conversion-to-switchgrass thresholds for various market prices and identify policy incentives that would ensure economic profit while also maximizing environmental benefits (carbon sequestration, displacement of fossil fuels) and minimizing negative impacts (global warming potential, nitrate loss). Weighting factors are chosen to represent incentives and penalties by assigning value to the impacts. With no other incentives, switchgrass market prices of at least $51 and $58/dton would be needed in order to make a profitable switch from corn/Conservation Reserve Program (CRP) lands and cotton, respectively. At a mid-range offering of $50/dton, feasible carbon credit prices of $3/ $8/ $23 per metric tonne CO₂e would incentivize conversion from corn, CRP, or cotton, respectively. Similarly, a water quality penalty of $0.20/ $3/ $2 per kilogram NO₃–N leached would incentivize the same conversions with resultant watershed improvement. At a lower price of $30/dton switchgrass, incentives based on valuation of ecosystem services begin to exceed feasible ranges of these valuations.

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Highlights

► A linear effective profit model predicts conversion thresholds to switchgrass.
► Carbon and nitrogen fluxes can be valued and incorporated into producer choices.
► Farmgate prices alone of $51 and $58/dton switchgrass will entice conversion.
► Reasonable ecosystem service valuations will encourage adoption of switchgrass.

 

Fig. 2. Potential profitability (net income) of switchgrass in comparison with cotton, corn and CRP land uses. Running three-year averages for traditional crops are shown,but annual corn and cotton profits are highly variable, [CV=2.1 (corn) and 1.0 (cotton), where CV=ratio of standard deviation to mean].

 

Fig. 3. The effects of (a) carbon credit price and (b) nitrate penalty on expected improvements in net revenues from land use conversion. A greater slope of the line shows a greater sensitivity to increases in the weighting factors (x-axis). Switchgrass price is assumed to be at the recent contracted (mid-range) offering of $50/dton.

by Jim F. Chamberlain^{a, ,} , Shelie A. Miller^b 

^a School of Civil Engineering and Environmental Science, University of Oklahoma, OK 73019, USA 

^b School of Natural Resources and Environment, University of Michigan, Ann Arbor, MI 48109, USA

Energy Policy via Elsevier Science Direct www.ScienceDirect.com

Volume 48, September 2012, Pages 526–536

Keywords: Switchgrass; Ecosystem services; Carbon credit

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