The use of biofuels in domestic transportation sector in the United States and European Union is attributed mainly to the binding mandates, Renewable Fuel Standard in the US and European Directive on the Promotion of Renewable Energy in the EU. The mandates have triggered production of first generation technologies that have been around for centuries and use food crops like corn or sugarcane as inputs and the second generation technologies that are still being developed but rely on cellulose or waste material. This raises important questions, what are the implications of policy mandates and biofuel production on land use change, global food crop prices and fuel blend technology as the binding mandates will rely mainly on first generation fuel technologies for the foreseeable future.

Most analysis of policy mandates and biofuel production technologies leave out the land use change impact assessment. To investigate the questions I focus on how the mandates in the US and EU interact with land use. I use a computable general equilibrium framework, the MIT Emissions Prediction and Policy Analysis (EPPA) model, which captures full economy-wide impacts of policy mandates and land use. I have developed a mechanism to integrate the first and second generation technologies, the transportation sector, and land use for policy impact analysis. I simulated the policy mandates through a permit trading system which is constrained by the blend wall technology of the underlying vehicle transportation fleet.

I find that the global biofuel crop land requirement over 2005 to 2030 time frame is 44 percent higher with the mandates. The land requirement is met primarily by the reallocation of non-biofuel crop land and partially by pasture, natural grass and harvested forest lands. The long term food crop prices increase by less than 1% per year with mandates as land productivity improvements dampen the impact of biofuel production on prices. In the case of global biofuel free-trade Brazil becomes the largest producer which reduces the deforestation in Brazil by 7 percent. I also find that fuel blend-wall acts as an implicit constraint on the domestic biofuel use as it limits the total vehicle fuel consumption.