A Watershed Level Economic Analysis of Cellulosic Biofuel Feedstock Production with Consideration of Water Quality

National policy supports the production of renewable energy from cellulosic feedstocks such as corn stover and switchgrass. These feedstocks have contrasting impacts on water quality. In this study, the regional supply response for cellulosic biofuel from these two feedstocks is estimated for the Le Sueur Watershed in South-Central Minnesota. The impacts of the resulting agricultural production activities on water quality in this northern corn belt watershed are also estimated. The Le Sueur River is a tributary of the Minnesota River, which in turn feeds into the Mississippi. The analysis is conducted with a multi-region, endogenous supply, mathematical programming model of the agriculture sector in the watershed. A unique aspect of the analysis is the spatial detail used in the production model. Results from a previous simulation analysis conducted with the Soil Water Assessment Tool (SWAT) model are used in the economic model to simulate the effects of the feedstock supply response on water quality in the Le Sueur. Sediment and nutrient losses from corn stover production make switchgrass more promising on environmental grounds, but the relatively high cost of production causes switchgrass to cover only a small part of crop land if farmers have unrestricted choice about how to supply cellulosic feedstocks.