Incentivizing Ecosystem Services from Crop Production: Implications for Energy Crop Production by Risk-Averse Farmers

Cellulosic ethanol, derived from either energy crops or corn stover, has the potential to provide substantial greenhouse-gas reduction benefits, as ethanol can be less carbon-intensive than gasoline. Perennial energy crops like miscanthus and switchgrass are particularly appealing as cellulosic ethanol feedstock as they grow on lower quality land and provide relatively high biomass yields, making it possible to plant these crops without displacing food and feed production. Additionally, energy crops provide ecosystem service benefits such as soil carbon sequestration.

Contracting for carbon-based emission reduction directly may be more effective in mitigating greenhouse gas emissions than establishment cost-share subsidies that are currently proposed by the literature. Carbon-based ecosystem services contracts, provided through fossil-fuel displacement, belowground soil carbon sequestration, and reduction in lifecycle emissions through land use choices must account for the perennial nature of energy crops and spatial heterogeneity in ecosystem service potential, and be able to target ecosystem services effectively while inducing the adoption of energy crops.

We develop a simulation model that links an economic model with a biogeochemical model, DayCent, to analyze the economic incentives and biophysical implications of allocating land to energy and conventional crops while accounting for spatial and temporal heterogeneity in crop yields to gauge the effect on change in carbon emissions through conventional and energy crop planting choices.

The results show that upfront contracts targeting ecosystem services are more effective at providing carbon emission reduction than contracts targeting establishment subsidies despite a lower adoption of energy crops. Payments for the displacement of fossil fuels stimulate a higher energy crop production than payments for carbon sequestration. High carbon prices are needed when the price of biomass is low. Most production of biomass occurs in the southeastern region of the US due to high yields and high carbon sequestration potential.