Effectiveness of the Biomass Crop Assistance Program: Roles of Behavioral Factors, Credit Constraint, and Program Design

Abstract

AbstractThe Biomass Crop Assistance Program (BCAP) aims to incentivize the production of biomass for bioenergy and bioproducts. This paper investigates the potential effectiveness of BCAP in stimulating biomass production. We find that the effectiveness of BCAP is significantly affected by program design, farmers’ risk and time preferences, credit availability, and biomass prices. The impact of a budget‐constrained BCAP on incentivizing biomass production is much larger under a program design that enrolls land with the largest incremental biomass production per BCAP payment dollar (IBP‐Max design) than under a design that enrolls land with the lowest cost of production (COP‐Min design). The effectiveness of BCAP in inducing biomass production is highest when farmers are credit constrained, have a high degree of risk aversion, and a high rate of time preference under the IBP‐Max design. The mix of feedstocks induced by the BCAP also varies as the biomass price increases; at low prices much of the biomass induced is from crop residues, while at high prices it is from perennial energy crops. The additional biomass production induced by the BCAP ranges from 0.1% to 62% of total biomass production without BCAP under the IBP‐Max design, and from 0.1% to 3% under the COP‐Min design. However, the volume of biomass production induced by BCAP is small even in the credit constrained, high‐risk aversion, and high discount rate scenario (2.7 million metric tons annually) due to the limited program budget of $125 million BCAP budget under the 2014 Farm Bill.