Indirect Land use Change Mechanisms: Tests from Biofuel Mandates and Pantropical Agriculture

Abstract

Agricultural supply and demand shocks can indirectly cause environmental damages as they propagate across space, time and commodity markets according to mechanisms that have been extensively theorized and simulated, but barely verified empirically. In this paper, I propose a mapping of these indirect land use change (ILUC) mechanisms to major commercial crops. Within this framework, I derive empirical tests of ILUC mechanisms formally, based on interaction effects of local crop-specific conditions and global market shocks. I can run some of these tests in a natural experiment by leveraging the pre-determined nature of the biofuel mandate agenda under the second Renewable Fuel Standard program (RFS2) - one of the largest shocks on global agricultural markets. This detects empirical signals of ILUC for eight commercial crops across the tropics, yielding four results. First, some estimates corroborate a land use displacement mechanism specifically. Second, mechanisms transferring expansion incentives across crops in the same – rather than opposite – direction prevail, including in most critical deforestation contexts. Third, other estimates nevertheless support mechanisms turning maize demand increments into lower incentives to expand other crops. Fourth, ILUC mechanisms occur on both global and domestic markets and their influences vary across the tropics. Overall, these results warn about the reality of ILUC, and partially identify how it occurs.