Consumers' Willingness-to-Pay for Perennial Grass Conversion to Renewable Energy in South-Central Minnesota
Creators: name: Pham, Matthew V.
name: Pham, Matthew V.
Publisher: name: Unknown
Year: 2011
Subjects: subject: Environmental Economics and Policy
subject: Resource /Energy Economics and Policy
subject: Willingness-to-pay
subject: Perennial Grass
subject: Contingent Valuation
subject: Economic Feasibility
subject: Credit Stacking
subject: Minnesota
subject: Row Crops

description: The recent energy crisis in the late 2000s has driven researchers and the public to utilize alternative energy sources in order to reduce production costs. One alternative energy source is to combust perennial grass to generate electricity. There has been an interest in growing perennial grass on marginal croplands to provide electricity and recreational services in the Madelia, Minnesota region. In addition to providing electricity from combusting perennial grass, planting and maintaining the perennial grass will also provide enhanced environmental and recreational benefits to the surrounding area. Such benefits include, but are not limited to, improved water quality, increased plant biodiversity, reduced carbon emissions, and increased land area for camping and bird watching. Policymakers and landowners want to know if it is economically feasible for farmers to convert row crops, such as corn and soybean, to perennial crops since the conversion will only take place only under the right economic conditions. Since a market for valuing recreational and environmental services resulting from the cropping change does not currently exist in this region, a questionnaire was designed to elicit information from Carver, Dakota, and Scott county residents to determine the economic conditions necessary for the cropping change to occur. The respondents were randomly selected using telephone directories and secondary sources, such as birth records, voter registration, and real estate transactions. The only restriction placed on selecting respondents was that each person had to be 18 years of age or older at the time of questionnaire mailing. Out of 2,500 mailed packages, which included a cover letter, questionnaire, definitions and a map of the region, and a postage-paid return envelope, 725 were returned, which gave a response rate of 29 percent. The data gathered from the returned questionnaires was used in the contingent valuation and hypothetical trip cost models to determine the main factors in one’s WTP. The variables hypothesized to influence a respondent’s WTP included the respondent’s age, years of formal education, number of people living in the respondent’s household, sex, geographic distance between the converted land and the respondent’s household, the average interest in recreational services, the ranks of the importance of global climate change and increased green/open space, and the change in the length of a visit to a converted area for the contingent valuation model. To analyze the data, OLS and Tobit regressions were conducted. The Tobit regression was conducted since a significant number of respondents indicated that they were not WTP any amount, and hence data censoring was needed to determine a meaningful relationship between the hypothesized variables and the non-zero WTP values. Although some support exists for the perennial grass conversion, 52 percent would not be WTP for the conversion, and 64 percent would not visit the converted land. Education, the ranks of importance of global climate change and increased green/open space, and length of visit to a converted area were significant at the 1, 5, and 10 percent significant levels in the OLS and Tobit regressions for the travel cost and hypothetical trip cost models. Using the estimated WTP amount from the contingent valuation model, calculations were performed to determine the total benefits a farmer would receive from converting to a perennial grass crop. The total benefits consist of payments made from selling the perennial grass for combustion, the payment, such as an admission fee, from the visitors to the converted land, and the ecological services created or enhanced as a result of the perennial grass conversion. In most cases, a farmer growing corn and soybean crops would not convert due to the higher revenue earned from growing corn and soybean, with rotation. However, the farmer will convert to perennial crops if unlimited credit stacking, or payments for multiple ecological benefits, are allowed. There are certain issues still to be explored concerning what economic and political conditions will permit the usage of perennial grass combustion as an energy source. One issue deals with the extent to which credit stacking should be utilized to allow farmers to receive payments for ecosystem services. Some believe that farmers should get all payments from all environmental changes while others only want to give payments resulting from a specified change instead of an unintended change caused by the original, or intended, change. Another issue concerns the sensitivity analysis used in the economic calculations as these can affect whether or not a situation is economically feasible. Finally, public perception of the overall project was an issue amongst the respondents. For instance, respondents were concerned that the food supply would diminish as a result of taking land out of agricultural production for environmental purposes. In practice, food crops grown on marginal land have not been productive in terms of crop yield, and alternative crops, such as perennial grass, have the potential to be more effective in terms of economics and actual production or yield.
description: Poster prepared for presentation at the Agricultural &amp; Applied Economics Association’s 2011 AAEA &amp; NAREA Joint Annual Meeting, Pittsburgh, Pennsylvania, July 24-26, 2011