It has been suggested that the large scale use of biofuel, that is, fuel derived from biological materials, especially in combination with reforestation of large areas, can lead to a low-cost reduction of atmospheric carbon dioxide levels. In this paper, a model of three markets: fuel, wood products, and land are considered with the aim of evaluating the impact of large scale biofuel production and forestry on these markets, and to estimate the cost of a policy aimed at the reduction of carbon dioxide in the atmosphere. It is shown that the costs are lower than had been previously expected.
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