Growing concern about energy security and climate change has led to increasing interest in developing renewable, domestic energy sources for meeting electricity, heating and fuel needs in the United States. The Midwest has significant potential for growing bioenergy crops, including perennial grasses such as miscanthus, and switchgrass. Land requirements from growing bioenergy crops compete with more traditional agricultural uses. This study discusses the spatial and economic conditions for introducing bioenergy crops which vary across the landscape, including soil quality, climate, and variable agricultural costs. A spatial dynamic model is introduced to explore the process by which individual farmer agents select crops and minimize cost. To represent the changing land allocation among competing uses spatial dynamic modeling tools and agent-based models are combined with data from Geographic Information Systems (GIS). The spatial dynamics is influenced by crop demand and price, transportation costs and the location of ethanol production plants, and by policy measure such as subsidies and carbon pricing schemes.