Balancing Bio-Energy Cropping Benefits and Water Quality Impacts: A Dynamic Optimization Approach

"The relationship between bio-energy feedstock production and water quality has received little attention from economists. Here, an optimal control model is used to determine the optimal amount of land to convert to the production of energy feedstocks, specifically ethanol corn, taking into account potential impacts on water quality. Based on comparative static analyses of an optimal control model, and a numerical application, we find that the optimal proportion of land to shift into bio-energy production from a baseline use, such as the Conservation Reserve Program, depends on key model parameters, specifically the rate of degradation of the pollutant and the link between the intensity of bio-energy feedstock production and the rate of change in the pollutant stock. Yet, there is a limit to how much land should optimally be converted as society must trade-off its desire to mitigate climate change against its willingness to accept a decline in water quality." Copyright (c) 2010 Canadian Agricultural Economics Society.