This paper explores the intersectoral and land-use dynamics behind bio-energy’s development as a climate change policy by employing a computable general equilibrium (CGE) with a land use change (LUC) model. It assesses the economic and social costs of bio-energy development both in terms of the financial investment needed for its market penetration and in terms of the tradeoffs its future supply will entail upon the land-use system. It analyzes how policies directed to
develop bio-energy affect the pattern of energy mix and land use in the economy and their contribution to carbon dioxide (CO2) mitigation. Policies analyzed include carbon tax with revenues recycled upon bio-energy subsidy and upon direct tax reductions. It presents as well the implications of extending the scope of carbon tax not only upon energy emissions but also LUC emissions.