Bioenergy crop production and climate policies: a von Thunen model and the case of reed canary grass in Finland

We examine the potential of bioenergy crops to offset greenhouse gas emissions from fossil fuels, assuming homogeneous agricultural land and distance-dependent transport costs. Variable transport costs define the socially and privately optimal extensive margin of the bioenergy crop production and imply that fertiliser intensity differs across locations. Under current policy, private fertiliser application is suboptimal, requiring location-specific input, transport or output subsidies. The theoretical model is applied to reed canary grass (Phalaris arundinacea L.) in Finland, which offsets emissions from peat in electricity production. If oats is the alternative crop, and taking permit price of CO 2 emissions as the proxy for climate benefits over the life cycle, reed canary grass production is socially optimal even 100 km away from the power plant and still offsets more than 6 tons/ha of CO 2 emissions from peat. Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email journals.permissions@oxfordjournals.org, Oxford University Press.