Impacts of Ethanol on Planted Acreage in Market Equilibrium

Land use impacts of biofuel expansion have attracted considerable attention because of the implications for climate change, the environment, and food supply. To examine these impacts, we set up an economic framework that links input use and land allocation decisions with ethanol and agricultural commodity markets. Crops can be substitutes or complements in supply depending on the relative magnitude of the effects of crop prices on total cropland, land share, and input use. We show that with unregulated free markets, total cropland area increases with ethanol price whether crops are substitutes or complements in supply. Similarly, a higher ethanol subsidy or a higher ethanol mandate will lead to cropland expansion. However, subsidies and mandates have very different land use impacts when there is yield improvement. With ethanol subsidies, higher corn yields from exogenous technical changes lead to cropland expansion. The impact of yield increases for other crops on aggregate land use is ambiguous. With a quantity mandate for ethanol, yield improvement causes total cropland to expand only if crop demand is sufficiently elastic, a condition that is unlikely to hold given an inelastic aggregate food demand.