Supply response, marginal cost, and soil erosion implications of stover-based biofuels

sesmero, juan; pratt, michelle and tyner, wallace;

Existing economic analysis of corn stover as an energy feedstock has not considered potential changes in land use associated with different stover prices. We estimate the response of corn stover supply density to its price driven by changes in land use and examine its implications for a processing plant�s pricing strategy and marginal cost, as well as associated changes in soil erosion. We find that plants will exploit the intensive margin as well as the extensive margin to secure additional
amounts of stover. Our results show, counterintuitively, that a market for stover may result in lower soil erosion due to reallocations of land to continuous corn with removal, which, combined with no-till farming, results in lower soil erosion than the baseline without stover removal. Also contrary to expectations, using cover crops with stover removal may result in higher soil erosion due to land use changes within the fuel shed associated with optimal pricing.