Inclusion of the agricultural sector in Inclusion of the agricultural sector in greenhouse gas mitigation policiesgreenhouse gas mitigation policies

Problems and potential instrumentsProblems and potential instruments

Uwe A. Schneider

Research Unit Sustainability and Global Change

KlimaCampus, Hamburg University

Public Trade Policy Research and Analysis Symposium Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security June 27 - 29, 2010 Stuttgart-Hohenheim, Germany

Contributions from Bruce McCarl, Erwin Schmid, Christine Schleupner, and others

Agricultural Mitigation BenefitsAgricultural Mitigation Benefits

Increases technical mitigation potentialIncreases technical mitigation potential

Could increase net benefits of mitigation Could increase net benefits of mitigation

to societyto society

Challenges?Challenges?

Agricultural Mitigation ChallengesAgricultural Mitigation Challenges

HeterogeneityHeterogeneity

ComplexityComplexity

UncertaintyUncertainty

HeterogeneityHeterogeneity

Weather & ClimateWeather & Climate

Soils & LandscapeSoils & Landscape

Management (history)Management (history)

Mitigation Strategies Mitigation Strategies

Mitigation Impacts Mitigation Impacts

rr

Space

Time

Dry Biomass Yields (t/ha)Dry Biomass Yields (t/ha)

Reed Canary Gras

Miscanthus

Soil Carbon (t/ha, <30cm)Soil Carbon (t/ha, <30cm)

Reed Canary Gras

MiscanthusReed Canary Gras

Miscanthus

Mitigation StrategiesMitigation Strategies Emission reductionsEmission reductions

Land and forest stateLand and forest state Livestock systemsLivestock systems Energy input / product outputEnergy input / product output Non-C from fertilizerNon-C from fertilizer

Emission sinksEmission sinks Biomass and soil organic carbonBiomass and soil organic carbon Geo-engineering (Terra preta)Geo-engineering (Terra preta)

Emission offsets in other sectorsEmission offsets in other sectors Bioenergy, BiomaterialBioenergy, Biomaterial Production factors (Fertilizer)Production factors (Fertilizer)

Emission Impacts

Mitigation StrategiesMitigation Strategies Crop choiceCrop choice Livestock choiceLivestock choice Genetic engineering Genetic engineering Crop rotationCrop rotation TillageTillage FertilizationFertilization Water managementWater management Residue managementResidue management Animal housingAnimal housing Manure managementManure management Management intensityManagement intensity

Agricultural Production

Mitigation StrategiesMitigation Strategies Diet Diet

Share of vegetarian, local, seasonal, Share of vegetarian, local, seasonal, processed foodprocessed food

EducationEducation Internalize emission impacts in consumer Internalize emission impacts in consumer

preferencespreferences

Population Growth Population Growth

TransparencyTransparency emissions for production, transportation, emissions for production, transportation,

preservation, processingpreservation, processing

Agricultural Product Demand

2030 Scenarios

Schneider et al. 2010

HeterogeneityHeterogeneity

Insufficient observations, comprehensive Insufficient observations, comprehensive

mitigation assessments require models to mitigation assessments require models to

generate missing datagenerate missing data

Leads to inaccurate assessments due to Leads to inaccurate assessments due to

simplifications, errors, data gaps, computational simplifications, errors, data gaps, computational

limitslimits

Increases transaction cost of mitigation Increases transaction cost of mitigation

(measuring, monitoring, verification)(measuring, monitoring, verification)

HeterogeneityHeterogeneity

Optimal mitigation actions differ across space Optimal mitigation actions differ across space

and timeand time

Diverse mitigation costsDiverse mitigation costs

Complexity of Agricultural Mitigation Complexity of Agricultural Mitigation

Interdependencies due to resource scarcity Interdependencies due to resource scarcity andand competition competition

Emission leakage due to commodity tradeEmission leakage due to commodity trade

Multiple market, environmental, and social Multiple market, environmental, and social impacts impacts

Interdependencies with other societal Interdependencies with other societal objectives (food, water, biodiversity)objectives (food, water, biodiversity)

EU27 Wetland Economic Potentials (free Trade with NonEU27)

10

20

30

40

50

60

70

80

90

0 500 1000 1500 2000 2500 3000

EU

27 w

etla

nd a

rea

in m

illio

n H

a

Annual EU27 wetland subsidy in Euro/Ha

Technical Potential

Deforestation < 90%, No Biomass

Deforestation < 90%, 400 Mt Biomass

Deforestation < 10%, No Biomass

Deforestation < 10%, 400 Mt Biomass

Schleupner & Schneider 2010

EU27 Wetland Economic Potentials (fixed Trade with NonEU27)

10

20

30

40

50

60

70

80

90

0 500 1000 1500 2000 2500 3000

EU

27 w

etla

nd a

rea

in m

illio

n H

a

Annual EU27 wetland subsidy in Euro/Ha

Technical Potential

Deforestation < 90%, No Biomass

Deforestation < 90%, 400 Mt Biomass

Deforestation < 10%, No Biomass

Deforestation < 10%, 400 Mt Biomass

Schleupner & Schneider 2010

Food Price and Wetlands in EU27 (free Trade with NonEU27)

100

105

110

115

120

125

130

135

140

0 500 1000 1500 2000 2500 3000

EU

27 f

ood

pric

e (B

ase=

100%

)

Annual Wetland Subsidy in Euro/Ha

Deforestation < 10%, 400 Mt Biomass

Deforestation < 10%, No Biomass

Deforestation < 90%, 400 Mt Biomass

Deforestation < 90%, No Biomass

Schleupner & Schneider 2010

Food Price and Wetlands in EU27 (fixed Trade with NonEU27)

80

100

120

140

160

180

200

220

240

260

280

300

0 500 1000 1500 2000 2500 3000

EU

27 f

ood

pric

e (B

ase=

100%

)

Annual Wetland Subsidy in Euro/Ha

Deforestation < 10%, 400 Mt Biomass

Deforestation < 10%, No Biomass

Deforestation < 90%, 400 Mt Biomass

Deforestation < 90%, No Biomass

Schleupner & Schneider 2010

Agricultural GHG MitigationAgricultural GHG Mitigation

0

50

100

150

200

250

300

350

400

450

500

0 100 200 300 400 500 600 700 800

Car

bon

pric

e (E

uro/

tce)

Greenhouse Gas Emission Mitigation (mmtce)

TechnicalPotential

CompetitiveEconomic Potential

Schneider et al., Agricultural Systems, 2007

Agricultural GHG MitigationAgricultural GHG Mitigation

Schneider et al., Agricultural Systems, 2007

0

50

100

150

200

250

300

350

400

450

500

0 50 100 150 200 250 300 350 400 450

Car

bon

pric

e ($

/tce)

Emission reduction (mmtce)

Major Agricultural GHG Components

CH4 and N2O strategies

Afforestation

Soil sequestration

Biofuel offsets

Total

-10

-8

-6

-4

-2

0

2

4

6

8

0 20 40 60 80 100

Bil

lion

$

Carbon price ($/tce)

Welfare ChangesWelfare Changes

Gross Producer Surplus

Emission Payments

Net Producer Surplus

Consumer Surplus

Schneider, McCarl, and Schmid, Agricultural Systems, 2007

Agricultural MarketsAgricultural Markets

20

40

60

80

100

120

140

160

180

200

220

0 50 100 150 200 250 300

Fis

her

ind

ex

Carbon price ($/tce)

Crop prices

Livestock prices

Livestock production

Crop productionCrop exports

Schneider et al., Agricultural Systems, 2007

Optimal Mitigation Strategy MixOptimal Mitigation Strategy Mix

0

100

200

300

400

500

0 20 40 60 80 100 120 140 160 180 200

Car

bon

pri

ce (

$/tc

e)

Emission reduction (mmtce)

CH4 N2ODecrease

Tillage CarbonSink

AfforestationSink

Bioenergy EmissionOffsets

McCarl and Schneider, Science, 2001

Tillage Carbon SinkTillage Carbon Sink

0

100

200

300

400

500

0 20 40 60 80 100 120 140 160

Car

bon

pric

e ($

/tce

)

Soil carbon sequestration (mmtce)

Technical Potential

Economic Potential

Competitive EconomicPotential

McCarl and Schneider, Science, 2001

Environmental Co-EffectsEnvironmental Co-Effects

40

50

60

70

80

90

100

0 50 100 150 200 250 300

Pol

luti

on (

%/a

cre)

Carbon price ($/tce)

N Percolation

N Subsurface Flow

Soil Erosion

P Loss

McCarl and Schneider, Science, 2001

Emission LeakageEmission Leakage

100

110

120

130

140

150

160

0 20 40 60 80 100

Fis

her

’s I

dea

l In

dex

Carbon price ($/tce)

USA Only Annex I Countries

All Countries

Non-Annex I crop net exports foragricultural GHG mitigation policy in:

Lee et al. Mitigation and Adaptation Strategies for Global Change, 2007

Complexity of Agricultural Mitigation Complexity of Agricultural Mitigation

Mathematical models neededMathematical models needed

Resource scarcity increases opportunity Resource scarcity increases opportunity costscosts

Positive externalities decrease costs Positive externalities decrease costs

Complexity of Agricultural Mitigation Complexity of Agricultural Mitigation

Substantial differences between economic Substantial differences between economic and technical (engineering / geographic) and technical (engineering / geographic) assessmentsassessments

Different policy proposals between Different policy proposals between economists and engineers economists and engineers

16 Concerns Strict set of sustainability criteria for energy crop production

Food supply Energy crop production is not allowed to endanger the supply of food

Deforestation Energy crop production is not allowed to result in deforestation

Child labor Child labor is not allowed

Wages Comparable fair wages must be paid to avoid poverty

Employment Energy crop production must contribute to overall employment

Education Education must be provided for the workers’ children by the energy crop producer

Health care Health care services must be provided for all workers’ family members by the energy crop producer.

Soil erosion Soil erosion rates are not allowed to increase compared to conventional agricultural land use and must be decreased to the natural soil regeneration capacity

Depletion of fresh water resources Depletion of fresh water resources is not allowed

Nutrient losses and soil nutrient depletion

Soil nutrient depletion and nutrient leaching must be prevented as far as reasonably is achievable

Pollution from chemicals

The use of certain types of agro-chemicals is forbidden and pollution from agro-chemicals must be prevented as reasonable is achievable

Biodiversity Biodiversity must be protected Smeets and Faaij, 2010

Sustainable Bioenergy? Sustainable Bioenergy?

Does Does “Surplus land” “Surplus land” exist to avoid food and biodiversity exist to avoid food and biodiversity conflict?conflict?

What are the transaction costs for complicated rules?What are the transaction costs for complicated rules?

Where is the global (benevolent) dictator to prevent Where is the global (benevolent) dictator to prevent leakage?leakage?

Economic alternative: 1) protect globally old growth Economic alternative: 1) protect globally old growth forests and nature reserves, 2) let markets regulate forests and nature reserves, 2) let markets regulate competition between food, timber, and energycompetition between food, timber, and energy

UncertaintyUncertainty

Inadequate observationsInadequate observations Uncertain baseline (soil and biomass carbon)Uncertain baseline (soil and biomass carbon)

Highly variable processes (trace gases)Highly variable processes (trace gases)

High measuring costHigh measuring cost

Inadequate understanding / modelsInadequate understanding / models Related to insufficient observationsRelated to insufficient observations

Diverse assessment methodologiesDiverse assessment methodologies

Non-permanence, volatilityNon-permanence, volatility

Uncertainty InternalizationUncertainty Internalization

Agricultural Soil Carbon Sequestration - 20 Years

A) payment and practice stop, carbon is released: 36%

B) Payment and practice continue, carbon stays constant: 55%

C) payment stops, practice continues, carbon stays constant: 100%

Afforestation Program - 80 Years

E) forest reserve: 98%

F) 20-year pulpwood rotation: 65-70%

G) 50 year saw timber stand: 85-87%.

McCarl et al. 2001

After sequestration contract ends:

Carbon Sink Credits DiscountedC

arb

on

pri

ce

($/t

ce)

0

50

100

150

200

250

0 50 100 150 200 250

BiofuelsNo discount

Emission reduction (mmtce)

0

50

100

150

200

250

0 50 100 150 200 250

CH4 + N2ONo discount

0

50

100

150

200

250

0 50 100 150 200 250

Soil Sequestration50% Discount

0

50

100

150

200

250

0 50 100 150 200 250

Afforestation 25% Discount

McCarl et al. 2001

UncertaintyUncertainty

Decreases mitigation policy efficiencyDecreases mitigation policy efficiency

Increases mitigation cost (risk penalty)Increases mitigation cost (risk penalty)

Reduces acceptanceReduces acceptance

Conclusions Conclusions

Efficient internalization of agricultural Efficient internalization of agricultural mitigation is challengingmitigation is challenging

Integrated assessments needed which Integrated assessments needed which account for heterogeneity, complexity, account for heterogeneity, complexity, and uncertainty and uncertainty

Transaction cost and other externality Transaction cost and other externality impacts of policy instruments importantimpacts of policy instruments important

Conclusions Conclusions

Solve Ag mitigation jointly addressed with Solve Ag mitigation jointly addressed with other objectivesother objectives

Agricultural role for mitigation is a Agricultural role for mitigation is a dynamic processdynamic processAvoided deforestation earlyAvoided deforestation earlyOver time different policies and strategiesOver time different policies and strategiesTechnical progress (incl. monitoring Technical progress (incl. monitoring

technologies)technologies)

Conclusions Conclusions

Use market forces and governmental Use market forces and governmental power in optimal combinationpower in optimal combination

Let today’s solution not become tomorrow’s Let today’s solution not become tomorrow’s problemproblem

Referecnes Referecnes Lee, H.C., B.A. McCarl, U.A. Schneider, and C.C. Chen (2007). “Leakage and comparative Lee, H.C., B.A. McCarl, U.A. Schneider, and C.C. Chen (2007). “Leakage and comparative

advantage implications of agricultural participation in greenhouse gas emission mitigation.” advantage implications of agricultural participation in greenhouse gas emission mitigation.” Mitigation and Adaptation Strategies for Global ChangeMitigation and Adaptation Strategies for Global Change 12(4):471-494 12(4):471-494 Available online. .

McCarl, B.A. and U.A. Schneider (2001). “Climate change - Greenhouse gas mitigation in US McCarl, B.A. and U.A. Schneider (2001). “Climate change - Greenhouse gas mitigation in US agriculture and forestry.” agriculture and forestry.” ScienceScience 294(5551):2481-2482 294(5551):2481-2482 Available online.

McCarl, B. A., B.C. Murray, and U. A. Schneider. "Influences of Permanence on the McCarl, B. A., B.C. Murray, and U. A. Schneider. "Influences of Permanence on the Comparative Value of Biological Sequestration versus Emissions Offsets." CARD Working Comparative Value of Biological Sequestration versus Emissions Offsets." CARD Working Paper 282. 2001. Paper 282. 2001. Download

Schneider, U.A., McCarl, B.A., and Schmid, E. (2007). “Agricultural sector analysis on Schneider, U.A., McCarl, B.A., and Schmid, E. (2007). “Agricultural sector analysis on greenhouse gas mitigation in US agriculture and forestry.” greenhouse gas mitigation in US agriculture and forestry.” Agricultural SystemsAgricultural Systems 94:128-140 94:128-140 Available online. .

Smeets E.M.W. and A.P.C. Faaij (2010). “The impact of sustainability criteria on the costs and Smeets E.M.W. and A.P.C. Faaij (2010). “The impact of sustainability criteria on the costs and potentials of bioenergy production - Applied for case studies in Brazil and Ukraine.” potentials of bioenergy production - Applied for case studies in Brazil and Ukraine.” Biomass Biomass and Bioenergyand Bioenergy 34(3):319-333 34(3):319-333 Available online

Schleupner, C. and U.A. Schneider (2010). "Effects of bioenergy policies and targets on Schleupner, C. and U.A. Schneider (2010). "Effects of bioenergy policies and targets on European wetland restoration options", submitted to European wetland restoration options", submitted to Environmental Science & PolicyEnvironmental Science & Policy..

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