The Cost of Greenhouse Gas Mitigation in U.S. Agriculture and Forestry

Transcription

1 1 The Cost of Greenhouse Gas Mitigation in U.S. Agriculture and Forestry Bruce A. McCarl, 1 Uwe A. Schneider 2* 1 Department of Agricultural Economics, Texas A&M University, College Station, TX , USA. 2 Center for Agricultural and Rural Development, Department of Economics, Iowa State University, Ames, IA, , USA. *To whom correspondence should be addressed. uwe@iastate.edu The authors contributed equally to this work.

2 2 Agricultural and forestry (AF) activities may mitigate greenhouse gas emissions (GHGE) through: (i) direct emission reductions, (ii) terrestrial carbon sink expansions, and (iii) production of replacements for emission intensive products (1). Uncertainty and controversy exist about AF's practical mitigation potential. While some consider AF activities a cheap mitigation source, others believe the AF potential is exaggerated. This controversy results partially from a lack of aggregate studies. Most mitigation potential estimates are based on localized studies of individual strategies (1). To better judge AF potential, we conducted a multi-mitigation strategy examination across the U.S. AF sectors. The heterogeneity and management interdependencies in AF make it difficult to assess aggregate economic mitigation potential. Soil properties, climate conditions, and land management history are heterogeneous and collectively result in unique GHGE mitigation potential for each field. U.S. carbon concentrations in mineral soil surface horizons range from less than one percent organic C on sandy soils in warm, dry climates to over four percent on clay soils in cold, wet climates. Peat soils contain as much as 50 percent organic carbon. Potential carbon sequestration depends on carbon lost during previous cultivation. Highly degraded soils with low carbon holding capacity may have greater sequestration potential than fairly undisturbed soils with high carbon holding capacity. Interdependencies of crop and livestock management affect the costs and potential for agricultural GHGE mitigation in four principal ways. First, many agricultural mitigation strategies either compete with or enhance traditional agricultural production. For example, farmers who plant trees cease production of traditional crops on those lands. Thus, carbon sequestration must be worth enough to compensate for forgone revenues. On the other hand, long-term soil carbon buildups enhance agricultural productivity. Second,

3 3 agricultural mitigation strategies either compete with or complement one another. Fields cultivated with switchgrass for biomass electricity generation are unavailable for afforestation. Reduced tillage, on the other hand, increases soil carbon sequestration and reduces fossil fuel use and accompanying emissions. Third, interactions arise from the multi-gas emissions. Increased nitrogen fertilization can increase nitrous oxide emissions, soil carbon sequestration, and GHGE during fertilizer manufacture. Fourth, GHGE abatement strategies can impact other environmental properties such as soil erosion and nutrient leaching. Accounting for all these interdependencies is important to find the true costs of agricultural GHGE mitigation strategies. To appraise the total mitigation potential, we expanded an existing agricultural sector model (2) to include GHG treatment. The new model, hereafter called ASMGHG (3) portrays farmers' choices across regions among a broad set of crop and livestock management options including tillage, fertilization, irrigation, manure treatment, and feeding alternatives. ASMGHG depicts production and consumption in 63 U.S. regions for 22 traditional and 3 biofuel crops, 29 animal products, and more than 60 processed agricultural products. It also depicts eight crops being traded within 28 international regions. Emission coefficients, environmental effects, basic cost changes, and yield adjustments for each combination of management, soil category, and geographic location were derived by linking ASMGHG data to a variety of economic and environmental simulation models from the agricultural, forestry, and energy sector. A list of these models, important characteristics and assumptions, and the GHG accounts modeled is provided in Supplemental data (4). ASMGHG equilibrates demand and supply in agricultural markets of the U.S. and major trading partners. The equilibrium solution reveals commodity and factor prices; levels of domestic production; export and import quantities; agricultural

4 4 welfare distribution; adoption of specific management alternatives; resource usage; and a wide variety of environmental impact indicators. To derive the multi-strategy economic potential for AF GHGE mitigation, alternative carbon prices were introduced in ASMGHG. The implied policy instrument is thus a combined emission tax/ sequestration subsidy. Because policy transaction costs are excluded, our estimates represent a lower bound on marginal abatement cost. Methane and nitrous oxide emissions were jointly regulated with equivalency made based on the IPCC's 100-year global warming potentials (5) as suggested in (6). Table 1 summarizes ASMGHG results for AF mitigation at selected carbon prices. At the highest price level, AF annually removes about 425 million metric tons of carbon equivalent (mmtce). Total mitigation potential, however, is price sensitive and low incentives result in low abatement levels. Individual AF mitigation strategies exhibit different relative importance depending on price level (fig 1). Low cost strategies include soil carbon sequestration, afforestation, and to some extent non-carbon emission mitigation. At high prices, emission abatements stem mainly from forestry and biofuels. The total contribution of non-carbon strategies is relatively small and does not exceed 30 mmtce. This small share arises in part due to lack of efficient mitigation strategies or consistent data associated with them. To place these marginal costs in perspective, Weyant and Hill's (7) report of Energy Modeling Forum estimates for compliance with the Kyoto Accord show a range of industrial cost estimates averaging from $44 - $89 per ton carbon depending on the trading assumption and reaching as high as $227.

5 5 The composition of the strategy portfolio varies regionally. Soil-based strategies dominate in the Cornbelt while biofuels dominate in the Lake states and afforestation in the Delta states (4). These differences suggest that a multi-strategy program, which gives landowners greater flexibility to choose the strategy most suitable to regional characteristics, may facilitate AF GHG policy acceptance. In addition, unilateral reliance on individual strategies increases mitigation cost (4). Experiments with ASMGHG also illustrate an important difference between economic and technical potential. Technical potential refers to the maximum physical mitigation potential where costs are ignored. For example, in (8) an estimate is presented indicating that U.S. croplands could sequester MMT annually for 20 to 50 years. ASMGHG results indicate that with costs considered the economic potential smaller with lower levels achieved even under extreme prices ($ 500 per ton) and that at lower carbon prices, substantially less is sequestered (4). Furthermore, when agricultural soil carbon strategies are considered simultaneously along with other strategies such as afforestation and biofuels, resource competition makes the maximum sequestration level substantially smaller. National efforts to mitigate GHGE through AF operations impact traditional agriculture (table 1, 4). Adoption of strategies such as afforestation, biofuel generation, reduced fertilization, and smaller animal populations decrease overall agricultural production for traditional food, fiber, and livestock products but increase their prices. U.S. exports diminish and international production increases. While not accounted for here, this would likely increase emissions in other countries creating leakage. The costs of emissionabatement are not shared equally among market segments. Higher operational costs to

6 6 farmers are more than offset by higher revenues due to increased prices. U.S. consumers of agricultural commodities, on the other hand, lose substantially. Many possible AF GHGE mitigation strategies have environmental quality attributes (tillage intensity reduction, manure management, land retirement etc.) ASMGHG results (table 1, 4) show reduced levels of erosion and phosphorus and nitrogen pollution on traditional cropland as carbon prices increase. The environmental co-benefits tend to stabilize at higher prices. Increased afforestation and biofuel production create economic incentives to stop or even undo adoption of crop management strategies which limit production. Summarizing our results, we do not find evidence that AF directed GHG mitigation efforts may be sufficient to fulfill Kyoto Protocol like emission reduction obligations and that large-scale AF mitigation efforts are cost-efficient from a pure GHG view. However, AF mitigation programs may generate substantial side benefits. Higher market prices for agricultural commodities reduce the need for expensive income support currently paid to farmers. Correlations among AF based environmental impacts suggest a combined conservation program may be more efficient than targeting various environmental goals separately including separate funding. Several issues remain to be explored in addition to empirical improvements of this analysis. Foremost is inclusion of discounts for permanence and leakage, along with addition of transactions costs estimates for practical program implementation.

7 7 References 1. McCarl, B.A. and U.A. Schneider. Agriculture's Role in a Greenhouse Gas Emission Mitigation World: An Economic Perspective. Rev. Agricult. Econ. 22, (2000). 2. Chang, C.C., B.A. McCarl, J.W. Mjelde and J.W. Richardson. Sectoral Implications of Farm Program Modifications. Amer. J. Agricult. Econ. 74, (1992). 3. Schneider, U. Agricultural Sector Analysis on Greenhouse Gas Emission Mitigation in the U.S., PhD Dissertation, Texas A&M University, December Supplemental data at www. **** 5. Intergovernmental Panel on Climate Change, Climate Change: The IPCC Scientific Assessment, Cambridge, England: Cambridge University Press (1991). 6. Reilly, J., R. Prinn, J. Harnisch, J. Fitzmaurice, H. Jacoby, D. Kicklighter, J. Melillo, P. Stone, A. Sokolov, C. Wang, "Multigas Assessment of the Kyoto Protocol." Nature, 401 (7 October, 1999), Weyant, John P., and Jennifer Hill. "The Costs of the Kyoto Protocol: A Multi- Model Evaluation." The Energy Journal, John Weyant (ed.), 1999.

8 8 8. Lal, R., J. Kimble, R. Follett, and C. Cole. The Potential of U.S. Cropland to Sequester Carbon and Mitigate the Greenhouse Effect, 128 pp., Sleeping Bear Press Inc., Chelsea MI, This work was partially supported by the Environmental Protection Agency, the Consortium for Agricultural Soils Mitigation of Greenhouse Gases (CASMGS), the Department of Energy (DOE), the CSITE center for carbon sequestration, the Texas Agricultural Experiment Station (TAES) and the USAID SANREM CRSP.

9 Carbon price ($/tce) CH4 and N2O strategies Soil sequestration Afforestation Biofuel offsets Emission reduction (mmtce) Fig. 1. Competitive economic potentials for agricultural and forest GHG emission mitigation strategies in the U.S. All strategies were simultaneously examined. Decreasing levels of emission reductions as prices increase reflect competition among strategies.

10 10 Table 1. Summary of mitigation policy impacts on U.S. agricultural sector Category Carbon price ($/tce) Total GHG emission abatement (mmtce) Carbon dioxide Methane Nitrous oxide Total carbon equivalents Crop management Traditional crops (mill acres) Pasture (mill acres) Perennial energy crops (mill acres) Afforestation (mill acres) Reduced tillage (%) Irrigation (%) Nitrogen fertilizer (1,000 t) 10,527 10,451 10,344 10,007 9,240 8,221 7,148.9 Livestock management impacts (% of population) Dairy - liquid manure treatment Swine - liquid manure treatment Dairy - BST treatment Agricultural markets (fisher index) U.S. crop production U.S. crop prices U.S. crop exports U.S. livestock production U.S. livestock prices Agricultural welfare impacts (bill $) U.S. farmers gross welfare U.S. farmers net welfare U.S. ag-consumers welfare Foreign ag-sector welfare U.S. ag-sector welfare Non-GHG environmental impacts (per acre change) Wind and water erosion Nitrogen loss through percolation Nitrogen loss in subsurface flow Phosphorus loss in sediment

11 11 Supplemental data section Table 2. Mitigation strategies in ASMGHG Mitigation strategy Afforestation / timberland management Biofuel production Data source/reference FASOM model (1,2) - POLYSIS analysis (3), GREET model (4), EPIC model (5) Greenhouse gas affected CO 2 CH 4 N 2 O - +/- + Crop mix alteration EPIC model (5) +/- +/- Rice acreage reduction EPA (6) - Crop fertilizer rate reduction EPIC model (5), IMPLANT software (7) +/- - Other crop input alteration USDA data (8) +/- Crop tillage alteration EPIC model (5) +/- +/- Grassland conversion EPIC model (5) - Irrigated /dry land conversion Ag-Census (9) +/- +/- Livestock management EPA data (6,10), IPCC (11) +/- Livestock herd size alteration EPA data (6), IPCC (11) +/- +/- Livestock production system substitution EPA data (6), IPCC (11) +/- +/- Liquid manure management EPA data (12), IPCC (11) -

12 Land use (mill acres) Pasture and grazing land Traditional crop land Afforested land Perennial energy crop land Carbon price ($/tce) Fig. 2. The effect of carbon prices on agricultural land uses. Perennial energy crops include switchgrass, willow, and hybrid poplar.

13 13 Ag-soil sequestration Afforestation Biofuel offsets CH4+N2O strategies Emission reduction (mmtce) LS-20 LS-50 LS-100 LS-200 CB-20 CB-50 CB-100 CB-200 DS-20 DS-50 DS-100 DS-200 Fig. 3. Regional adoption of major mitigation strategies in agriculture and forestry for selected U.S. regions (LS=Lake States, CB=Cornbelt, DS=Delta States) and for selected carbon prices (20, 50, 100, and 200 $/tce).

14 Carbon price ($/tce) Technical Potential Economic Potential Competitive Potential Soil carbon sequestration (mmtce) Fig. 4. Various measures of soil carbon sequestration potential on U.S. traditional crop and pasture land. The technical potential represents the annual physical limit on soil carbon sequestration and was computed by changing ASMGHG's economic objective function from solving for the international agricultural market equilibrium to maximization of soil carbon sequestration. The [single strategy] economic potential shows the soil carbon sequestration response when only soil carbon is regulated. The competitive [economic] potential shows the soil carbon sequestration response when all agricultural GHG accounts are regulated simultaneously.

15 15 Fisher index Crop prices Livestock prices Livestock production Crop production Crop exports Carbon price ($/tce) Fig. 5. Impacts of agricultural GHG emission mitigation policies on traditional crop and livestock production. All indexes were computed using the Fisher ideal index.

16 16 Welfare changes (bill $) U.S. Producers (Gross) U.S. Producers (Net) U.S. Consumers Foreign Countries Carbon price ($/tce) Fig. 6. Impacts of agricultural GHG emission mitigation policies on agricultural welfare distribution. U.S. agricultural producers' gross impacts are welfare changes due to changes in production levels and market prices. Net impacts are gross impacts plus GHG credits minus GHG taxes.

17 17 Non-GHG pollution on U.S. cropland (%/acre) Nitrogen Percolation Nitrogen Subsurface Flow Soil erosion Phosphorus loss in sediment Carbon price ($/tce) Fig. 7. Average per acre impacts of agricultural GHG emission mitigation incentives on various unregulated non-ghg externalities from cropping agriculture. ASMGHG estimates on crop management distribution were multiplied with pollution coefficients for each crop management from the EPIC crop growth simulation model (5) and summed across all U.S. cropland. The total pollution impacts were divided by total cropland acreage to obtain the average per acre impact.

18 18 References: 1. Adams, D.M., R.J. Alig, B.A. McCarl, J.M. Callaway, and S.M. Winnett. The Forest and Agricultural Sector Optimization Model: Model Structure and Applications. USDA FS Research Paper PNW-RP-495, Portland, Oregon (1996). 2. Alig, R.J., D.M. Adams and B.A. McCarl. Impacts of Incorporating Land Exchanges Between Forestry and Agriculture in Sector Models. Journal of Agricultural and Applied Economics 30(2), (1998). 3. Walsh, M. E., and R. Graham. "Biomass Feedstock Supply Analysis: Production Costs, Land Availability, Yields." Working Report from the Biofuels Feedstock Development Program, Oak Ridge National Laboratory, Oak Ridge, TN, Wang, M.Q. GREET 1.5 Transportation Fuel Cycle Model. Argonne National Laboratory Report ANL/ESD-39, August Williams, J. R., C. A. Jones, J. R. Kiniry, and D. A. Spaniel. The EPIC Crop Growth Model. Transactions of The American Society of Agricultural Engineers 32, (1989). 6. Environmental Protection Agency (EPA). "Inventory of U.S. Greenhouse Gas Emissions and Sinks, " EPA-236-R , Washington DC, April Olson, D. and S. Lindall. IMPLAN Professional Software, Analysis, and Data Guide. Minnesota IMPLAN Group, Inc., 1940 South Greeley Street, Suite 101,

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