US biofuel production and policy: implications for land use changes in Malaysia and Indonesia

Background: It has been argued that the US biofuel policy is responsible for the land use changes in Malaysia and Indonesia (M&I). In this paper, following a short literature review that highlights the relevant topics and issues, we develop analytical and numerical analyses to evaluate the extent to which production of biofuels in the US alters land use in M&I. The analytical analyses make it clear that market-mediated responses may generate some land use change in M&I due to biofuel production in the US. These analyses highlight the role of substitution among vegetable oils in linking these economies in markets for vegetable oils. To numerically quantify these effects, we modified and used a well-known Computable General Equilibrium model (CGE), GTAP-BIO. We conducted some sensitivity tests as well.

Results: According to the simulation results obtained from two base case scenarios for corn ethanol and soy biodiesel, we find that producing 15 BGs of corn ethanol and 2 BGs gallons of soy biodiesel together could potentially increase area of cropland in M&I by 59.6 thousand hectares. That is less than 0.5% of the cropland expansion in M&I for the time period of 2000-2016, when biofuel production increased in the US. The original GTAP-BIO model parameters including the regional substitution rates among vegetable oils were used for the base case scenarios. The estimated induced land use change (ILUC) emissions values for corn ethanol and soy biodiesel are about 12.3 g CO2e MJ-1, 17.5 g CO2e MJ-1 for the base case scenarios. The share of M&I in the estimated ILUC emissions value for corn ethanol is 10.9%. The corresponding figure for soy biodiesel is much higher, 78%. The estimated ILUC emissions value for soy biodiesel is sensitive with respect to the changes in the regional rates of substitution elasticity among vegetable oils. That is not the case for corn ethanol. When we replaced the original substitution elasticities of the base case, which are very large (i.e., 5 or 10) for many regions, with a small and uniform rate of substitution (i.e., 0.5) across the world, the ILUC emissions value for soy biodiesel drops from 17.5 g CO2e MJ-1 to 10.16 g CO2e MJ-1. When we applied larger substitution elasticities among vegetable oils, the estimated ILUC emissions value for soy biodiesel converged towards the base case results. This suggests that, other factors being equal, the base case substitution elasticities provide the largest possible ILUC emissions value for soy biodiesel. Finally, our analyses clearly indicate that those analyses that limit their modeling framework to only palm and soy oil and ignore other types of vegetable oils and fats provide misleading information and exaggerate about the land use implications of the US biofuels for M&I.

Conclusion: (1) Production of biofuels in the US generates some land use effects in M&I due to market-mediated responses, in particular through the links between markets for vegetable oils. These effects are minor compared to the magnitude of land use change in M&I. However, because of the high carbon intensity of the peatland the emissions fraction of M&I is larger, in particular for soy biodiesel. (2) The GTAP-BIO model implemented a set of regional substitution elasticities among vegetable oils that, other factors being equal, provides the largest possible ILUC emissions value for soy biodiesel. (3) With a larger substitution elasticity among all types of vegetable oils and animal fats in the US, less land use changes occur in M&I. That is due to the fact that a larger substitution elasticity among vegetable oils in the US, diverts a larger portion of the additional demand for soy oil to non-palm vegetable oils and animal fats that are produced either in the US or regions other than M&I. (4) Those analyses that limit their modeling framework to only palm and soy oils and ignore other types of vegetable oils and fats provide misleading information and exaggerate about the land use implications of the US biofuels for M&I.