The renewable energy industry continues to expand at a rapid pace. New advances in cellulosic ethanol technologies have the potential to reduce our dependency on foreign oil. The evolution of these new biofuel markets could have significant effects on future production levels, market prices, and world trade levels for various agricultural commodities. Alternative scenarios involving new biofuel technologies, primary factor availability, and government policy will result in very different outcomes for the agricultural economy. The interactions of current and new biofuel technologies, including conventional ethanol production (from corn grain) and cellulosic ethanol production (from corn stover and switchgrass), and the agricultural economy were examined in a general equilibrium framework. Various outcomes were examined with attention primarily focused on (1) trade offs among competing uses of agricultural commodities, (2) changes in the output of major agricultural producers competing with the U.S., (3) effects on the livestock industry, (4) profitability of the agricultural industry, (5) changes in input costs, including land rents, and (6) changes in land use patterns.

Results indicated that advances in cellulosic ethanol technology led to less grain ethanol production and more stover ethanol production in the United States. The production of switchgrass ethanol was not economically feasible under any scenario, which was expected due to the availability of lower priced corn stover. Overall, it was expected that a decrease in the costs of cellulosic ethanol production would lead to a higher increase in total U.S. ethanol production than actually occurred. As a result, the effects on the world economy were smaller than expected.