Impact of switching production to bioenergy crops: The switchgrass example

This paper reports the results from simulations that evaluate the general equilibrium effects of substituting switchgrass, a biomass, for crude oil in USA petroleum production. The new production process is less efficient and USA GDP declines slightly. As switchgrass production expands, USA agriculture contracts and the world price of cereals increases. The world price of crude oil falls as USA import demand declines. The net effect of the price and income changes is a general decline in economic welfare. Moreover, the declines in welfare are proportionately greater for developing countries who produce small quantities of agricultural commodities whose prices increase.