Article
Adoption of switchgrass cultivation for biofuel under uncertainty: A discrete-time modeling approach
Biomass and Bioenergy
(2017)
Abstract
Production of biofuels from cellulosic sources, such as switchgrass, is being encouraged through mandates, incentives, and subsidies. However, uncertainty in future prices coupled with large establishment costs often inhibit their cultivation. Owing to their inability to incorporate uncertainty and dynamic decision-making, standard discounted cash flow techniques are ineffective for analyzing such investments. We formulate a discrete-time binomial framework to model output prices, allowing us to incorporate price uncertainty, stand age, and variable crop yields into the analytical framework. We analyze the feasibility of investments in switchgrass cultivation under varying price transition paths, evaluate the relationship between risk and profitability, and estimate the value of flexible decision-making options wherein the farmer can alter cultivation choices. We find that switchgrass cultivation is only 32% likely to be profitable in the base model and infer that on-farm management could play an important role in entry and exit decisions. We also find that subsidies are important for project viability and policymakers could consider incorporating payments for ecosystem services to encourage adoption.
Keywords
- Switchgrass,
- Bioenergy,
- Uncertainty,
- Cellulosic
Disciplines
Publication Date
Summer July 5, 2017
DOI
10.1016/j.biombioe.2017.06.012
Citation Information
Pralhad Burli, Eric Forgoston, Pankaj Lal, Lora Billings, et al.. "Adoption of switchgrass cultivation for biofuel under uncertainty: A discrete-time modeling approach" Biomass and Bioenergy Vol. 105 (2017) p. 107 - 115 ISSN: 2162-965X Available at: http://works.bepress.com/pankaj-lal/2/