European farmers? response to crop residue prices and implications for bioenergy policies

To achieve the European bioenergy objectives, member states are likely to implement support policies targeting the use of lignocellulosic biomass for advanced bioenergy. Such policies could increase prices. In this study, we argue that with higher prices and new market opportunities for lignocellulosic biomass, farmers will account for crop residues in their choice of production and use of inputs. We test this hypothesis in an economic model of the EU agricultural supply coupled with a crop model to assess the effect of crop residue prices on residue supply, land allocation, yields, fertiliser use, and nitrogen pollution. We find that 120 million tonnes of dry matter (tDM) of crop residues are co-produced when they are unpriced. The price-induced additional supply is elastic to price but limited to 8% at euro100/tDM and 13% at euro200/tDM of the unpriced production. However, the increase in residue prices induces farmers to increase their crop areas and yields, which leads to significantly higher fertiliser consumption and nitrous oxide emission. These results indicate to policy makers that supporting prices would not substantially increase crop residue potential but could have collateral effects on the environment. They raise issues of coordination between bioenergy and agri-environmental policies in the EU.