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Fueling Local Water Pollution: Ethanol Refineries, Land Use, and Nitrate Runoff

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  • Stevens, Andrew
Abstract
Ethanol production in the United States, driven by federal renewable fuel policy, has exploded over the past two decades and has prompted the construction of many ethanol refineries throughout the US Corn Belt. These refineries have introduced a new inelastic demand for corn in the areas where they were built, reducing basis for nearby farmers and effectively subsidizing local corn production. In this paper, I explore whether and to what extent the construction of new ethanol refineries has actually increased local corn acreage. I also explore some environmental effects of this acreage increase. Using a thirteen year panel of over two million field-level observations in Illinois, Indiana, Iowa, and Nebraska, I estimate a net increase of nearly 300,000 acres of corn in 2014 relative to 2002 that can be attributed to the placements of new ethanol refineries. This increase comprises approximately 0.75% of the total 2014 corn acreage within my dataset. Furthermore, this effect is separate from the general equilibrium effect of ethanol policy increasing aggregate demand for corn. Back-of-the-envelope calculations suggest that over 21,000 tons of the nitrogen applied to fields in my sample in 2014 can be attributed to refinery location effects. Essentially all of these observed effects occur only in areas within 30 miles of an ethanol refinery, suggesting that refineries have meaningful localized impacts on land use and environmental quality such as nitrate runoff.

Suggested Citation

  • Stevens, Andrew, 2015. "Fueling Local Water Pollution: Ethanol Refineries, Land Use, and Nitrate Runoff," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205741, Agricultural and Applied Economics Association.
    • Handle: RePEc:ags:aaea15:205741
    DOI: 10.22004/ag.econ.205741
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    References listed on IDEAS

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    1. Kevin McNew & Duane Griffith, 2005. "Measuring the Impact of Ethanol Plants on Local Grain Prices," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 164-180.
    2. Hongli Feng & Bruce A. Babcock, 2010. "Impacts of Ethanol on Planted Acreage in Market Equilibrium," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 92(3), pages 789-802.
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    6. Michael Livingston & Michael J. Roberts & Yue Zhang, 2015. "Optimal Sequential Plantings of Corn and Soybeans Under Price Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(3), pages 855-878.
    7. Gallagher, Paul W. & Wisner, Robert N. & Brubaker, Heather, 2005. "Pricing Relationships in Processors' Input Market Areas: Testing Theories for Corn Prices Near Ethanol Plants," Staff General Research Papers Archive 12305, Iowa State University, Department of Economics.
    8. Lambert, Dayton M. & Wilcox, Michael D. & English, Alicia & Stewart, Lance A., 2008. "Ethanol Plant Location Determinants and County Comparative Advantage," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(1), pages 1-19, April.
    9. Camilo Sarmiento & William W. Wilson & Bruce Dahl, 2012. "Spatial Competition and Ethanol Plant Location Decisions," Agribusiness, John Wiley & Sons, Ltd., vol. 28(3), pages 260-273, June.
    10. Kevin McNew & Duane Griffith, 2005. "Measuring the Impact of Ethanol Plants on Local Grain Prices," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(2), pages 164-180.
    11. Turnquist, Alan & Fortenbery, T. Randall & Foltz, Jeremy D., 2008. "Progress or Devastation? The Effects of Ethanol Plant Location on Local Land Use," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6125, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    12. Mônica A. Haddad & Gary Taylor & Francis Owusu, 2010. "Locational Choices of the Ethanol Industry in the Midwest Corn Belt," Economic Development Quarterly, , vol. 24(1), pages 74-86, February.
    13. Katchova, Ani L., 2009. "The Spatial Effect of Ethanol Biorefinery Locations on Local Corn Prices," 2009 Annual Meeting, July 26-28, 2009, Milwaukee, Wisconsin 49309, Agricultural and Applied Economics Association.
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    Cited by:

    1. Andrew W. Stevens, 2023. "Estimating Agricultural Acreage Responses to Input Prices: Groundwater in California," Natural Resource Management and Policy, in: David Zilberman & Jeffrey M. Perloff & Cyndi Spindell Berck (ed.), Sustainable Resource Development in the 21st Century, pages 93-106, Springer.
    2. Stigler, Matthieu M., 2018. "Supply response at the field-level: disentangling area and yield effects," 2018 Annual Meeting, August 5-7, Washington, D.C. 274343, Agricultural and Applied Economics Association.
    3. Gaurav Arora & Peter T. Wolter & Hongli Feng & David A. Hennessy, 2016. "Role of Ethanol Plants in Dakotas Land Use Change: Incorporating Flexible Trends in the Difference-in-Difference Framework with Remotely-Sensed Data," Center for Agricultural and Rural Development (CARD) Publications 16-wp564, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    4. Austin, K.G. & Jones, J.P.H. & Clark, C.M., 2022. "A review of domestic land use change attributable to U.S. biofuel policy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 159(C).

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    Keywords

    Land Economics/Use; Production Economics;

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