Monetary Incentives, Landowner Preferences: Estimating Cross-Elasticities in Farmland Conversion to Renewable Energy

TL;DR

This paper introduces a new econometric approach to estimate how monetary incentives influence farmland conversion to renewable energy, considering landowner preferences, local regulations, and alternative land uses.

Contribution

It develops a novel method that accounts for diverse landowner circumstances and preferences, improving understanding of factors affecting farmland conversion decisions.

Findings

Monetary incentives influence farmland conversion mainly in areas with development potential.

Landowner preferences significantly affect land use decisions.

Regulatory context plays a crucial role in the effectiveness of incentives.

Abstract

This study examines the impact of monetary factors on the conversion of farmland to renewable energy generation, specifically solar and wind, in the context of expanding U.S. energy production. We propose a new econometric method that accounts for the diverse circumstances of landowners, including their unordered alternative land use options, non-monetary benefits from farming, and the influence of local regulations. We demonstrate that identifying the cross elasticity of landowners' farming income in relation to the conversion of farmland to renewable energy requires an understanding of their preferences. By utilizing county legislation that we assume to be shaped by land-use preferences, we estimate the cross-elasticities of farming income. Our findings indicate that monetary incentives may only influence landowners' decisions in areas with potential for future residential development, underscoring the importance of considering both preferences and regulatory contexts.