Policy can have profound impacts on the economic sustainability of cellulosic-based bio­chemical systems. Renewable fuel standards can create guaranteed markets for specified quantities demanded of wholesale or retail products. Direct costs are passed on to con­sumers if the constraint is binding, although reduced demand for other fuels may create some offsetting savings for consumers. Tax credits and deductions can reduce the after-tax cost of investments in facilities and start-up costs. Governments have been willing to give up tax revenue in the short run to create jobs and income and tax revenue over the longer term, particularly in economically depressed areas. Cost-share payments for crop establish­ment have been made by governments to farmers who sign contracts with new crop-to-fuel systems. Loan guarantees to new processors have also been used to reduce investor risk. Energetic discussions take place around the sustainability criteria and implications of gov­ernment programs.

15.5 Summary

Economic sustainability of cellulosic energy cropping systems requires that cellulosic feed­stock production is a profitable alternative for farmers, as well as other suppliers, handlers, and processors in the supply chain. Crop production is a risky proposition for farmers. Various types of risk including yield risk, price risk, risk of financial collapse, and contract risk must be addressed when considering cellulosic energy cropping systems. A variety of risk management and risk mitigation alternatives are available for farmers and processors. Longer-term commitments by farmers and commitment to single outlet markets by farm­ers are likely to require more start-up cost sharing and risk mitigation through contracts. Adequate profitability in realistic projected budgets, adequate equity to survive start-up and shocks, product contracts to assure energy product prices through the first few years, and strong scientific support for crop development are important components of a successful start-up and economically sustainable system. Explicit criteria for resource, environmental, and social sustainability can be incorporated into the expected profit maximization model. Sustainability incentives and criteria can be included in contracts and standard operating procedures. Continued investment in technological improvement to increase yields, reduce resource use and environmental emissions, and generally reduce the cost and increase profitability and stability of the enterprise are critical to long-term sustainability.