Analyzing Effects on Biofuels While Integrating the Agricultural Sector to the Energy Market: Linking POLYSYS and MARKAL

Two different sectoral models: POLYSYS (agricultural) and MARKAL (energy) are soft-linked in a modeling framework. The linkage benefits the strengths of price dynamics of biofuel crops in POLYSYS and the least cost biofuel supply in MARKAL. As the result the framework can now evaluate implication of biofuel policy in the agricultural and energy sectors simultaneously. This study utilizes the linkage to evaluate the implication of biofuel subsidy policy on the agricultural and energy sectors. Three scenarios are developed. First, the base case assumes current subsidy for corn ethanol and cellulosic ethanol will be continued until 2030. Second scenario (Sub1) assesses the phasing out of the corn ethanol subsidy from 2013 onward while the subsidy for the cellulosic ethanol will be continued until 2030 and the third scenario (Sub2) assesses the phasing out of the subsidy for cellulosic and corn ethanol from 2013 onward. The base case results show that as the demand for cellulosic ethanol increases, prices of dedicated energy crops will increase as high as $77/bu by 2030 also it significantly increases the prices of food crops. Further, the acreages of dedicated energy crops are significantly increased and as a result, the acreages of food crops are significantly reduces. Results in the alternative scenarios show that the phasing out of subsidy to corn ethanol improves service efficiency in the energy sector and while the same will decline when subsidies to corn and cellulosic ethanol are phased out. Phasing out of subsidy to corn ethanol does not significantly affect the crop prices and their acreages while there will be significant effect if subsidy to corn and cellulosic ethanol are phased out. The results show that the linkage is capable to simultaneously evaluate policy impacts on both the energy and agricultural sectors.