For the past fifteen years, discussions around indirect land-use change (ILUC) have shaped how ethanol is judged in carbon markets. The idea originated from the belief that rising biofuel demand could lead to additional cropland being developed somewhere else in the world, cancelling out the environmental benefits of renewable fuel. While the concept sounds logical, its application has relied more on economic assumptions than verifiable data.
Understanding the Origins of ILUC
How the Theory Gained Influence
ILUC entered mainstream environmental policy after a 2008 study suggested that using U.S. crops for biofuel production could trigger cropland expansion in other countries. The attention this research received helped embed ILUC into government policy.
When the Renewable Fuel Standard (RFS) was finalized in 2010, ILUC penalties were added to the carbon scores of renewable fuels. As a result, U.S. ethanol producers and farmers were required to absorb financial penalties based not on actual land-use changes but on theoretical modeling outcomes.
Why ILUC Remains Problematic
Models Without Measurable Evidence
The challenges with ILUC do not stem from its general concept but from the reality that ILUC cannot be directly measured. Instead, regulators rely on economic models that attempt to predict how global farmers might react to increasing demand for crops like corn and sorghum.
One model may forecast a major land-use shift, while another suggests minimal or no response. Despite this inconsistency, these projections were written into policies that continue to affect ethanol markets, grain prices, and producer revenue.
Real-World Data Paints a Different Picture
Stable Acreage, Higher Yields
Actual agricultural data contradicts the ILUC assumption. U.S. grain acreage has remained steady, and yields have steadily improved, even as ethanol production expanded. This pattern shows no evidence of global crop shortages or widespread land clearing triggered by U.S. biofuel demand.
Models assume that when a bushel of corn or sorghum becomes ethanol, another plot of land is cleared somewhere. Yet, real-world evidence does not support that theory.
The Sorghum Advantage
Grown on Low-Impact Land
Sorghum offers a unique benefit in the ILUC debate. It is frequently grown on marginal lands, including:
- Areas previously left fallow in wheat-fallow rotations
- Fields used for double-cropping after another harvest
- Fields where another crop failed early in the season
These factors indicate that sorghum-based ethanol likely results in even lower ILUC impacts — assuming ILUC exists at all. Unfortunately, these on-the-ground realities rarely appear in the regulatory math used by carbon programs.
The Economic Consequences of ILUC Assumptions
Penalties That Don’t Reflect Reality
ILUC penalties have tangible financial consequences. Programs such as California’s Low Carbon Fuel Standard (LCFS) reduce the value of ethanol credits when ILUC penalties are applied, lowering the amount ethanol plants can offer for grain.
At the same time, Brazilian sugarcane ethanol often receives more favorable carbon scores, even though land-use conversion and deforestation continue to occur in some regions of Brazil. This creates a market imbalance where American growers face penalties despite stable acreage, while producers in regions with active land clearing benefit.
Shifting Perspectives on ILUC
New Research and Policy Changes
Recent studies show that ILUC penalties may be exaggerated and that global agriculture has largely met rising crop demand through yield improvements, not new land clearing. Recognizing this, Congress omitted ILUC from the Section 45Z clean fuel production credit, and several countries are beginning to reconsider their reliance on unverified models.
On Nov. 6, the California Air Resources Board (CARB) was set to review ILUC-related rules. Any shift in policy could significantly influence ethanol markets and potentially raise grain prices across the High Plains and other agricultural regions.