Kelly D. Zering

Department of Agricultural and Resource Economics, North Carolina State University, U. S.A.

15.1 Introduction

Cellulosic energy cropping systems can be sustained when economic incentives remain positive for each participant in the system. In other words, profit from an energy cropping system must equal or exceed profit from available alternatives for each component of the system. This chapter includes an overview of economic principles applied to sustainable energy cropping systems. Capital investment and risk are addressed in addition to recurring revenue and operating costs. Sustainable policy issues and non-market issues such as environmental protection, resource conservation and energy security are also presented. Implications of the comparative profitability requirement are presented for each link in the energy cropping supply chain. The interaction of prices and quantities supplied and demanded is a primary focus for each of the goods and services affected by sustainable energy cropping systems.

Economics is the study of resource allocation to maximize the welfare of people. Applica­tions range from (1) specific choices by individuals, to (2) decisions by a variety of business entities, (3) local, regional, national, and global market behavior, and (4) government poli­cies. In many economic applications, people are perceived to maximize their personal welfare or utility through their choices to invest, produce, save, or consume. People’s choices are constrained by the quantity of resources they have and by the level of available technology. Technology is defined here as the capacity to convert resources to goods and

Cellulosic Energy Cropping Systems, First Edition. Edited by Douglas L. Karlen. © 2014 John Wiley & Sons, Ltd. Published 2014 by John Wiley & Sons, Ltd.

services valued by people. As simplifying restrictions are relaxed, economic models are expanded to include optimization over time and to include risk and uncertainty. These basic ideas are applied to sustainable energy cropping systems in the following sections.

Sustainable systems are defined conceptually here as systems that are economically competitive, that are not dependent on excessive consumption of scarce resources, that are not dependent on excessive levels of detrimental emissions to the environment, and that are generally socially acceptable. Absolute thresholds for these definitions are not proposed here. Economic concepts of the trade-off between marginal changes in absolute thresholds and other determinants of human welfare are raised in this chapter.