A Guide for the Perplexed to the Indirect Effects of Biofuels Production

Over the past decade, the concept of indirect land use change (ILUC) has come from obscurity to become a primary concern for biofuels policy. In the U.S., the Renewable Fuel Standard and California’s Low Carbon Fuel Standard now include estimates of carbon emissions from ILUC. In the EU, a European Commission review of ILUC from biofuels resulted in proposed amendments to the Renewable Energy Directive and Fuel Quality Directive that are still being debated by the European Institutions two years later. Some industry stakeholders reject the concept entirely (e.g., the European Biodiesel Board called it a “highly debatable and unscientific concept”), while others have accepted it as a key sustainability concern (e.g., the Sustainable Aviation Fuels Users Group states that “Government policies should only incentivize the development and use of fuels that meet strong sustainability criteria, which actively protect against ILUC and other social and environmental risks”).
One point that is not disputed, however, is that ILUC is a complicated concept. Many stakeholders are still unfamiliar with the basic premises that indirect land use change modeling is based on. In this Guide for the Perplexed to the Indirect Effects of Biofuels Production—inspired in part by a landmark 1997 World Resources Institute report that sought to illuminate the modeling of the economic impacts of climate change action—we provide a detailed but accessible overview of the concept of ILUC and the way that ILUC emissions are estimated.
The report identifies the six key factors that determine the size of ILUC effects when biofuel demand increases, in reality as well as in the modeling: the response of food consumption; the response of yield; the choice of crops; the utilization of co-products; the response of area; and the carbon stock of land that is converted. We review the evidence for each of these effects, discuss how they are handled in the most important models used in the U.S. and EU, and present examples to illustrate how different assumptions change the expected level of ILUC. 
Our aim with this report is to help the reader make better-informed judgments about ILUC modeling, and ultimately to promote better-informed biofuels policy. While there are good biofuels, both government and industry bear a heavy burden of proof to show that biofuel mandates will deliver the carbon savings claimed for them. For the current generation of biofuels, the evidence has to include ILUC modeling, and the evidence on ILUC shows compellingly that indiscriminate biofuel mandates are unlikely to realize carbon reduction policy objectives. And if that is the case, then change is warranted in international agreements such as the Kyoto Protocol and the European Emissions Trading System that treat biofuels as carbon neutral. Unless both direct and indirect emissions are recognized, the incentives offered to biofuels climate policies will not be properly aligned to the potential benefits.