Building Bio-Based Supply Chains: Theoretical Perspectives on Innovative Contract Design

Article excerpt

I. INTRODUCTION II. THEORETICAL APPROACHES TO BIOMASS CONTRACT DESIGN    A. The Socio-Compatibility Perspective    B. The Risk-Minimizing Perspective       1. The Unavailability and Limits of Traditional        Agricultural Risk Management Tools       2. Learning, Experience, and Risk Management       3. Economic Contract Theory and Risk-Sharing    C. The Cost-Minimizing Perspective       1. Information Asymmetry Costs- Searching, Measuring, Monitoring          a. Information Asymmetry          b. Moral Hazard       2. Incompleteness Costs- Asset Specificity, Property         Rights, and Holdup III. CONSTRUCTING A FRAMEWORK FOR BIOMASS CONTRACTS   A. Trans-Disciplinary Approaches to Biomass Contracts   B. Biomass Contracting Framework Considerations     1. Production Diversity- Crop and Location Selection     2. Education and Information Sharing     3. Biomass Production- Pricing, Yield Risk, Incentives, and        Specifications       a. Price       b. Yield Risk       c. Incentives       d. End-Product Specifications, Storage, and Delivery          i. Product Specification          ii. Storage and Transportation     4. Property and Production Issues- Land Acquisition       and Ancillary Property Rights          a. Acquiring Farmland          b. Ancillary Property Rights: Germplasm and           Ecosystem Service Payments     5. Duration/Assignment/Renewability IV. CONCLUDING THOUGHTS- "SUSTAINABLE" BIOMASS CONTRACTING 


A robust mix of domestic and international policies increasingly recognize the importance of renewable energy in combating climate change, achieving energy independence, and stimulating rural redevelopment. In addition to wind and solar power, biomass-based energy from crops and forests holds significant untapped potential. Projections indicate that by 2030 the U.S. will consume 329 million dry tons of forest and agricultural feedstocks for energy production, primarily for co-firing electricity generation facilities. (1) State renewable portfolio standards (2) and limits on stationary source emissions of greenhouse gasses (GHGs) (3) are incentivizing electricity generators and other large emission sources to seek out a long-term, reliable supply of combustible agricultural and forest biomass. (4) Likewise, mandates embedded within the federal Renewable Fuel Standard (RFS2) (5) will require significant biomass supplies to produce up to sixteen billion gallons of advanced biofuels each year. On the supply-side, the Biomass Crop Assistance Program (BCAP) attempts to link agricultural producers of crops, such as Miscanthus, switchgrass, hybrid poplar, and camelina with qualified biomass conversion facilities.

Mandates and subsidies aside, scholars who have empirically evaluated producers' willingness to participate in the biomass industry have unearthed a plethora of critical issues that farmers face in the adoption of energy crops. (6) Producers unfamiliar with novel cropping and harvesting practices must adopt new techniques and invest in production infrastructure that is costly and involves substantial risk. Adding to the novelty of a perennial cropping system is the likelihood that producers will be obligated to meet environmental and social sustainability requirements incorporated within bioenergy policies. For example, the European Union's Renewable Energy Directive requires sustainability certification to protect against conversion of high conservation and carbon value lands, and agricultural pollution. (7) U.S. producers seeking to access Europe's emerging renewable energy market must obtain third-party certification under an approved sustainability standard. Domestically, the RFS2 excludes biofuels derived from newly converted agricultural or forest land (8) and, depending on the outcome of U.S. Environmental Protection Agency (EPA) studies, (9) may require in the future some form of sustainability accounting.

Although organic certification has been available in the U. …


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