Food-Energy-Environment Trilemma: Policy Impacts on Farmland Use and Biofuel Industry Development

Abstract

We present a game-theoretic model to analyze the role of two major biofuel policies in the U.S., namely mandates and subsidies, and their implications to biofuel industry development. By characterizing the farmers' land use decision (land allocation among food, energy, and reservation) and biofuel firm's mandate compliance strategy (whether to comply with the mandate or not), we identify the complementarity roles of mandate and subsidy. We further illustrate the impact of coordination in the two policy instruments; lack of coordination may result in excessive biofuel mandate in the early stage of industry development, while it may lead to insufficient mandate during the matured stage. With a case study based on the U.S. Midwest, we address recent trends in the U.S. biofuel industry and further discuss related policy insights.