Lessons from the ILUC Phenomenon

The impact of greenhouse gas emissions on climate change occurs both through direct life cycle emissions and direct land use change as well as through indirect land use change (ILUC). The latter, in particulars are uncertain and front-loaded: land conversion leads to a large initial discharge that is paid back through reduced direct carbon intensity relative to fossil fuels in the future. This chapter discusses approaches to make policy decisions about accounting for ILUC effects in the presence of uncertainty about the magnitude of the effect and the need to balance a precautionary desire to delay investment till the uncertainty is resolved with the cost of delaying a switch from fossil fuels to biofuels. Given the temporal variation in the trajectory of emissions, policymakers should consider using metrics other than the cumulative discharges to capture the impact of emissions on the climate and the time profile of that impact and costs of positive and negative errors in incorporating ILUC effects in policy implementation. It is also important to recognize the presence of other market-mediated effects such as the fuel rebound effect that can also offset some of the direct savings in carbon emissions from switching to biofuels.