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

Perennial energy crops, in particular short rotation coppice (SRC), have gained an interest among both farmers and policy makers. SRC is characterized by fast growing nature, low-input production and managerial flexibility. In addition, SRC provides environmental benefits compared with competing crops and is essential for the transition process towards renewable energy sources. Yet, the combination of high irreversible costs and uncertainties hampers SRC adoption by farmers. Currently implemented policy instruments have failed to foster large scale SRC adoption. Although a number of policy instruments have been discussed in the literature, there is a lack of studies providing a comprehensive policy analysis. We contribute filling this gap by assessing different policies in terms of their efficiency and farm-level effect, using the real options theory and hence taking into account uncertainties related to SRC cultivation. In particular, we analyse four policy instruments toward SRC cultivation, such as a planting subsidy, a price floor, a fixed price, and increasing the “Ecological Focus Area” weighting coefficient. Our results show that the recently implemented planting subsidy could indeed create incentives to adopt short rotation coppice and increase the farm income; yet other policy instruments are more efficient.