Policy analysis of perennial energy crops cultivation at the farm level: the case of short rotation coppice (SRC) in Germany

Perennial energy crops such as short rotation coppice (SRC) have gained interest among both farmers and policy makers. SRC is characterized by fast biomass production, low-input use and high managerial flexibility. In addition, SRC provides environmental benefits compared with competing crops and contributes to the transition process towards renewable energy sources. Yet, the combination of high irreversible costs and uncertainties hampers SRC adoption by farmers. Policy instruments that are currently implemented to foster SRC adoption in Germany show limited success. In this study, we therefore assess different policy measures to incentivize the adoption of SRC in terms of their efficiency and farm-level effect while taking into account uncertainties related to SRC cultivation. We use the combination of the stochastic programming and the real options approaches. Our case study focuses on poplar production in Germany. We analyse four policy measures to foster SRC cultivation, i.e. a planting subsidy, a price floor, a guaranteed price and increasing the “Ecological Focus Area” (EFA) weighting coefficient within the Common Agricultural Policy of the European Union. Our results show that the recently implemented planting subsidy could create incentives to adopt SRC by leading to a substantial increase in farm income. However, increasing the EFA coefficient and a price floor are more efficient in terms of governmental expenditures; while a guaranteed price triggers immediate introduction of SRC.

Issue Date:
Sep 18 2017
Publication Type:
Working or Discussion Paper
Total Pages:
JEL Codes:
C63; Q12; Q15; Q18; Q28; Q42; Q48
Series Statement:
Food and Resource Economics, Discussion Paper 2017:3

 Record created 2017-09-22, last modified 2017-09-22

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