Department of Agricultural and Resource Economics

Concern about the possible affects of biofuels on deforestation have led to assigning biofuel producers with the responsibility for greenhouse gas (GHG) emissions of the indirect land use changes (ILUC) associated with their activities when assessing their compliance with biofuel policies. We show that the computation of the ILUC is shrouded with uncertainty; they vary frequently, and are strongly affected by policy choices. It seems that its overall impact on GHGs is relatively minor. Once the ILUCs are introduced other indirect effects of biofuel may need to be considered which will increase the cost of biofuel regulations. Concentrating on direct regulation of biofuel and on efforts to reduce deforestation, wherever it occurs, may be more effective than debating and refining the ILUC.