Linking Land use, Biophysical, and Economic Models for Policy Analysis Catherine L. Kling Iowa State University October 13, 2015 Prepared for “Coupling Economic Models with Agronomic, Hydrologic, and Bioenergy Models for sustainable Food, Energy, and Water Systems” NSF funded workshop

Charge to Session Participants: 1)briefly summarize an integrated modeling effort you’ve worked on that has integrated across one or more dimensions of crops, land use, and/or water quality models and 2)identify the shortcomings and challenges that you ran into along the way

All Models are Wrong: Some are Useful* What makes a model useful? If it helps answer a question of interest Conference goal: how to make models more useful? *Box, G. E. P. (1979), "Robustness in the strategy of scientific model building", in Launer, R. L.; Wilkinson, G. N., Robustness in Statistics, Academic Press, pp. 201–236Academic Press

5 Questions of Interest to Economists: Human System Drivers to Decisions How do changes in market prices and policy alter crop choices, management, conservation practices? How do these changes impact ecosystem service(s)?

6 Questions of Interest to Economists: FEW System Products What are the market price impacts of individual decisions? What are the nonmarket (ecosystem service) impacts? How much worse (or better off) are people due to the changes in ecosystem services?

7 Questions of Interest to Economists: Policy and Market Feedbacks Do markets and existing policy provide correct signals for making people as well off as possible within the system? What can be done to improve outcomes? Taxes, subsidies, regulations, What other factors can change outcome (nudges, peer effects, presence of watershed groups)

8 Goal FEW System: to make people as well off as possible Benefit-Cost Analysis – Value of improvements in ecosystem services – Vs. costs (usually market) Policy Design: design and evaluate policies to bring these costs and benefits into decisions

1. Policy Design Evaluate policy scenarios – Posit changes in prices or policies (taxes, cap and trade, etc.) – Model to predict changes in land use (shift crop choices, implement conservation practices, retire land from production, plant biofuel crops) – Model to evaluate environmental effects of a changed land use configuration (C sequestration, water quality, climlate impact, erosion etc.)

1. Policy Design Example 1. Policy Design Example “Green Subsidies in Agriculture: Estimating the Adoption Costs of Conservation Tillage from Observed Behavior,” Canadian Journal of Agricultural Economics 54(2006): (with Lyubov Kurkalova and Jinhua Zhao). What does it take for farmers to adopt conservation tillage practices? Profit loss from switching Profit loss from switching Reluctance (or premium) due to uncertainty Reluctance (or premium) due to uncertainty risk aversion, value of information Estimate The subsidy needed for adoption at each parcel The subsidy needed for adoption at each parcel Generated supply curve of conservation tillage Generated supply curve of conservation tillage Linked to biophysical model (EPIC) produce supply of soil erosion reduction Linked to biophysical model (EPIC) produce supply of soil erosion reduction

How many conservation services can Iowa provide? Baseline Soil loss due to erosion, tons/ac/year

How many conservation services can Iowa provide? Green Payments $3.25/acre Soil loss due to erosion, tons/ac/year

How many conservation services can Iowa provide? Green Payments $10.40/acre Soil loss due to erosion, tons/ac/year

1. Policy Design Challenge: scale Goldilocks models: relevant to human scales Not too small: C sequestration, field averages fine, more detail not useful Not too big: Climate change, world wide average changes will not support understanding of adaptation issues Just right: field, farm, watershed, landscape scales But, just right is question specific

Policy Design Challenge: Connection to human system, land use options Economists want to perform scenarios, what if questions Cost effectiveness nitrate reductions from adoption of cover crops vs. wetlands vs. bioreactors vs. tile drain management… Model each of these “levers” at similar accuracy/detail ideally same model)

Policy Design Challenge: climate and weather Characterize uncertainties: – Weather – climate – Model parameters – Ability to formally do Monte Carlo analysis great! But don’t get obsessive: qualitative is better than nothing

Policy Design Challenge: Temporal and Dynamics of Systems Soil C storage is intertemporal process Some economic decisions have important dynamic/intertemporal components Biggest challenge when both physical and human system have dynamic components

2. Benefit-Cost Analysis 1. Humans make land use decisions to produce food and energy 2. Decisions impact natural system locally, regionally, and globally (nutrients, pesticides, GHGs, SO 2, etc) 3. Create Market Products (food) and Nonmarket Products (ecosystem services) 4. Valuing ecosystem services: how much are people willing to trade off food/fuel for ecosystem services?

Would you be willing to pay $25/year in property taxes to support a project to improve the conditions of Storm Lake to those described below?

Challenge: linking through multiple biophysical processes Storm Lake: Model how changes in Lake alter various ecosystem service An additional layer: how does a change land use in the watershed affect Storm Lake then how does that alter services? How much is it worth to have a farmer in a specific location install a wetland?

Valuing ecosystem service: Iowa Nutrient Reduction Strategy Scenario: cover crops, nutrient changes and wetlands on most of Iowa's 22 million acres How do these change multitude of environmental endpoints and where? water quality, habitat, pollinators, flood risk reduction How do these translate into ecosystem service changes?

Making Linked Models more Useful 1.Ideally model is developed with question in mind 2.All expertise is at table on front end 3.Realistically, will often not happen….