Inclusion of the agricultural sector in greenhouse gas mitigation policies Problems 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 , 2010 Stuttgart-Hohenheim, Germany Contributions from Bruce McCarl, Erwin Schmid, Christine Schleupner, and others

Agricultural Mitigation Benefits Increases technical mitigation potential Could increase net benefits of mitigation to society Challenges?

Agricultural Mitigation Challenges Heterogeneity Complexity Uncertainty

Heterogeneity Weather & Climate Weather & Climate Soils & Landscape Soils & Landscape Management (history) Management (history) Mitigation Strategies Mitigation Strategies Mitigation Impacts Mitigation Impactsr Space Time

Dry Biomass Yields (t/ha) Reed Canary Gras Miscanthus

Soil Carbon (t/ha, <30cm) Reed Canary Gras Miscanthus Reed Canary Gras Miscanthus

Mitigation Strategies Emission reductions Emission reductions Land and forest state Land and forest state Livestock systems Livestock systems Energy input / product output Energy input / product output Non-C from fertilizer Non-C from fertilizer Emission sinks Emission sinks Biomass and soil organic carbon Biomass and soil organic carbon Geo-engineering (Terra preta) Geo-engineering (Terra preta) Emission offsets in other sectors Emission offsets in other sectors Bioenergy, Biomaterial Bioenergy, Biomaterial Production factors (Fertilizer) Production factors (Fertilizer) Emission Impacts

Mitigation Strategies Crop choice Crop choice Livestock choice Livestock choice Genetic engineering Genetic engineering Crop rotation Crop rotation Tillage Tillage Fertilization Fertilization Water management Water management Residue management Residue management Animal housing Animal housing Manure management Manure management Management intensity Management intensity Agricultural Production

Mitigation Strategies Diet Diet Share of vegetarian, local, seasonal, processed food Share of vegetarian, local, seasonal, processed food Education Education Internalize emission impacts in consumer preferences Internalize emission impacts in consumer preferences Population Growth Population Growth Transparency Transparency emissions for production, transportation, preservation, processing emissions for production, transportation, preservation, processing Agricultural Product Demand

2030 Scenarios Schneider et al. 2010

Heterogeneity Insufficient observations, comprehensive mitigation assessments require models to generate missing data Insufficient observations, comprehensive mitigation assessments require models to generate missing data Leads to inaccurate assessments due to simplifications, errors, data gaps, computational limits Leads to inaccurate assessments due to simplifications, errors, data gaps, computational limits Increases transaction cost of mitigation (measuring, monitoring, verification) Increases transaction cost of mitigation (measuring, monitoring, verification)

Heterogeneity Optimal mitigation actions differ across space and time Optimal mitigation actions differ across space and time Diverse mitigation costs Diverse mitigation costs

Complexity of Agricultural Mitigation Interdependencies due to resource scarcity and competition Emission leakage due to commodity trade Multiple market, environmental, and social impacts Interdependencies with other societal objectives (food, water, biodiversity)

EU27 Wetland Economic Potentials (free Trade with NonEU27) Schleupner & Schneider 2010

EU27 Wetland Economic Potentials (fixed Trade with NonEU27) Schleupner & Schneider 2010

Food Price and Wetlands in EU27 (free Trade with NonEU27) Schleupner & Schneider 2010

Food Price and Wetlands in EU27 (fixed Trade with NonEU27) Schleupner & Schneider 2010

Agricultural GHG Mitigation Carbon price (Euro/tce) Greenhouse Gas Emission Mitigation (mmtce) Technical Potential Competitive Economic Potential Schneider et al., Agricultural Systems, 2007

Agricultural GHG Mitigation Schneider et al., Agricultural Systems, 2007

Billion $ Carbon price ($/tce) Welfare Changes Gross Producer Surplus Emission Payments Net Producer Surplus Consumer Surplus Schneider, McCarl, and Schmid, Agricultural Systems, 2007

Agricultural Markets Fisher index Carbon price ($/tce) Crop prices Livestock prices Livestock production Crop production Crop exports Schneider et al., Agricultural Systems, 2007

Optimal Mitigation Strategy Mix Carbon price ($/tce) Emission reduction (mmtce) CH4 N2O Decrease Tillage Carbon Sink Afforestation Sink Bioenergy Emission Offsets McCarl and Schneider, Science, 2001

Tillage Carbon Sink Carbon price ($/tce) Soil carbon sequestration (mmtce) Technical Potential Economic Potential Competitive Economic Potential McCarl and Schneider, Science, 2001

Environmental Co-Effects Pollution (%/acre) Carbon price ($/tce) N Percolation N Subsurface Flow Soil Erosion P Loss McCarl and Schneider, Science, 2001

Emission Leakage Fisher’s Ideal Index Carbon price ($/tce) USA Only Annex I Countries All Countries Non-Annex I crop net exports for agricultural GHG mitigation policy in: Lee et al. Mitigation and Adaptation Strategies for Global Change, 2007

Complexity of Agricultural Mitigation Mathematical models needed Resource scarcity increases opportunity costs Positive externalities decrease costs

Complexity of Agricultural Mitigation Substantial differences between economic and technical (engineering / geographic) assessments Different policy proposals between economists and engineers

16 ConcernsStrict set of sustainability criteria for energy crop production Food supplyEnergy crop production is not allowed to endanger the supply of food DeforestationEnergy crop production is not allowed to result in deforestation Child laborChild labor is not allowed WagesComparable fair wages must be paid to avoid poverty EmploymentEnergy crop production must contribute to overall employment EducationEducation 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 BiodiversityBiodiversity must be protected Smeets and Faaij, 2010

Sustainable Bioenergy? Does “Surplus land” exist to avoid food and biodiversity conflict? What are the transaction costs for complicated rules? Where is the global (benevolent) dictator to prevent leakage? Economic alternative: 1) protect globally old growth forests and nature reserves, 2) let markets regulate competition between food, timber, and energy

Uncertainty Inadequate observations Inadequate 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 cost High measuring cost Inadequate understanding / models Inadequate understanding / models Related to insufficient observations Related to insufficient observations Diverse assessment methodologies Diverse assessment methodologies Non-permanence, volatility Non-permanence, volatility

Uncertainty 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 After sequestration contract ends:

Carbon Sink Credits Discounted Carbon price ($/tce ) Biofuels No discount Emission reduction (mmtce) CH4 + N2O No discount Soil Sequestration 50% Discount Afforestation 25% Discount McCarl et al. 2001

Uncertainty Decreases mitigation policy efficiency Decreases mitigation policy efficiency Increases mitigation cost (risk penalty) Increases mitigation cost (risk penalty) Reduces acceptance Reduces acceptance

Conclusions Efficient internalization of agricultural mitigation is challenging Efficient internalization of agricultural mitigation is challenging Integrated assessments needed which account for heterogeneity, complexity, and uncertainty Integrated assessments needed which account for heterogeneity, complexity, and uncertainty Transaction cost and other externality impacts of policy instruments important Transaction cost and other externality impacts of policy instruments important

Conclusions Solve Ag mitigation jointly addressed with other objectives Solve Ag mitigation jointly addressed with other objectives Agricultural role for mitigation is a dynamic process Agricultural role for mitigation is a dynamic process Avoided deforestation early Avoided deforestation early Over time different policies and strategies Over time different policies and strategies Technical progress (incl. monitoring technologies) Technical progress (incl. monitoring technologies)

Conclusions Use market forces and governmental power in optimal combination Let today’s solution not become tomorrow’s problem

Referecnes 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.” Mitigation and Adaptation Strategies for Global Change 12(4): Available online. 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.” Mitigation and Adaptation Strategies for Global Change 12(4): Available online.Available onlineAvailable online McCarl, B.A. and U.A. Schneider (2001). “Climate change - Greenhouse gas mitigation in US agriculture and forestry.” Science 294(5551): Available online. McCarl, B.A. and U.A. Schneider (2001). “Climate change - Greenhouse gas mitigation in US agriculture and forestry.” Science 294(5551): Available online.Available online.Available online. 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 Paper Download 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 Paper DownloadDownload Schneider, U.A., McCarl, B.A., and Schmid, E. (2007). “Agricultural sector analysis on greenhouse gas mitigation in US agriculture and forestry.” Agricultural Systems 94: Available online. Schneider, U.A., McCarl, B.A., and Schmid, E. (2007). “Agricultural sector analysis on greenhouse gas mitigation in US agriculture and forestry.” Agricultural Systems 94: Available online. Available online Available online 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.” Biomass and Bioenergy 34(3): Available online 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.” Biomass and Bioenergy 34(3): Available onlineAvailable onlineAvailable online Schleupner, C. and U.A. Schneider (2010). "Effects of bioenergy policies and targets on European wetland restoration options", submitted to Environmental Science & Policy. Schleupner, C. and U.A. Schneider (2010). "Effects of bioenergy policies and targets on European wetland restoration options", submitted to Environmental Science & Policy.

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