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An Agricultural Sector Model to Analyze Greenhouse Gas Emission Mitigation from Forests and Agriculture Bruce A. McCarl Texas A&M University Uwe A. Schneider Iowa State University
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ASM History ASM evolved from work cooperative with USDA and a thesis by Baumes (as did USMP) and has been expanded over the years in projects with EPA, USDA, USDOE, USAID ASM simulates market equilibrium in 63 U.S. regions and 28 foreign regions for 7 commodities, plus world market for rest of commodities Solutions reveal commodity and factor prices, levels of production, export and imports, management adoption, resource usage, and environmental impact indicators
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Sector Model Structure
Household Demand Cropland Domestic Demand Water Markets Crop Production Labor Export Natl. Inputs Processing Import Other Resources Livestock Production Feed Mixing Pasture Land AUM Grazing
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ASM Tableau for Single Region
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Sector Model Output Social Welfare Consumer Surplus
Producer Surplus - Net Income Foreign Surplus Government Payments Deficiency Payments Marketing Loan Payments Primary Production Quantity Price Imports Exports Processing Use Program Participation Secondary Production Factor Inputs Labor - Family and Hired Labor Use Wage Water - Surface and Pumped Water Use Water Value Land - Cropland, Pasture and AUMS Land Use Rental Rate Harvested Acreage Dryland Irrigated Diverted National Input Use Cost Soil Erosion Water (USLE) Water Sediment Delivery Wind
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U.S. Regions in ASM MOUNTAIN PACIFIC LAKE STATES NORTH ERN PLAINS
EAST MOUNTAIN CORN BELT APPALACHIAN DELTA STATES SOUTH EAST SOUTHERN PLAINS
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Foreign Regions in ASM 10 12 13 14 25 26 17 29 30 6 7 5 3 2 1 28 15 20 22 21 19 8 27 23 11 16
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Primary Products in ASM
Cotton, Corn, Soybeans, Four Wheat Types, Sorghum, Rice, Barley, Oats, Silage, Hay, Sugar Cane, Sugar Beets, Potatoes, Fresh Tomatoes, Processed Tomatoes, Fresh Oranges, Processed Oranges, Fresh Grapefruits, Processed Grapefruits, Milk, Cull Dairy Cows, Cull Dairy Calves, Cull Beef Cows, Calves, Yearlings, Non-Fed Beef, Fed Beef, Veal Calves, Cull Sows, Hogs, Feeder Pigs, Cull Ewes, Wool, Feeder Lambs, Slaughter Lambs, Unshorn Lambs, Wool Subsidy, Other Livestock, Broilers, Turkeys, Eggs
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Processed Products in ASM
Soybean Meal, Soybean Oil, Raw Sugar, Refined Sugar, Corn Starch, Corn Gluten Feed, Corn Oil, Ethanol, HFCS, Corn Syrup, Dextrose, Confectioneries, Beverages, Baked Goods, Canned Goods, Dried Potatoes, Chipped Potatoes, Frozen Potatoes, Feed Grains, Dairy Concentrate, Swine Protein Feed, Cattle Protein Feed, Range Cubes, Cow Protein Feed, Sheep Protein Feed, Egg Protein Feed, Broiler Protein Feed, Turkey Protein Feed, Fluid Milk, Skim Milk, Non Fat Dry Milk, Cream,Butter, Ice Cream, American Cheese, Other Cheese, Cottage Cheese, Fed Beef, Non Fed Beef, Veal, Pork, Chicken, Whole Turkeys, Orange Juice, Grapefruit Juice
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ASM -- Major Assumptions
Crop and Livestock Mixes 30-year history by state and crop Livestock production across states Account for unobservable constraints Prevent specialization in LP
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ASM -- Major Assumptions
Profit calculation Farm budgets do not meet market Perfect competition assumption Marginal revenue = marginal cost Aggregate supply and demand before profit Profit demand after profit
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ASMGHG
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ASMGHG Multiple GHG mitigation strategy setup
Detailed GHG emission accounting National GHG balance GWP weighted sum of all GHG accounts Policy implementation
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Extensions from Basic ASM
New mitigation strategies Afforestation Biofuels Alternative management (tillage, fertilization) Emission / sequestration accounting for all agricultural activities GHG policy
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New Crop Management Alternatives
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New Crop Management Alternatives
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New Crop Management Alternatives
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GHG Accounts in ASMGHG
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ASMGHG analyzes simultaneously:
Major Ag/Forestry GHG emission mitigation strategies Traditional agriculture Other Ag related environmental externalities
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ASMGHG Basic Results
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Mitigation Strategy Contribution
500 CH4 N2O Afforestation Biofuel offsets Ag-Soil sequestration 400 300 Carbon price ($/tce) 200 100 20 40 60 80 100 120 140 160 180 200 Emission reduction (mmtce)
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Strategy Mix Different strategies dominate at different price levels
Sensitive competition between biofuel and afforestation Small importance of CH4 and N2O
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Strategy Potentials Existing measures of potential Technical Economic
single strategy multiple strategy
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U.S. Ag-Soil Carbon Potentials
500 Competitive Potential Economic Potential Technical Potential 400 300 Carbon price ($/tce) 200 100 20 40 60 80 100 120 140 160 Soil carbon sequestration (mmtce)
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Implications Costs matter
Technical potential expensive to achieve or not achievable at all Sum of individual assessments biased
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GHG Mitigation Impacts on Traditional Ag-Sector
Economic Impacts Production Prices Trade Welfare Environmental Impacts Erosion Water Pollution Air Pollution Recreation Wildlife
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GHG Mitigation and Ag-Markets
220 200 Crop prices 180 160 Livestock prices 140 Fisher index 120 100 Livestock production Crop exports Crop production 80 60 40 20 50 100 150 200 250 300 Carbon price ($/tce)
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U.S. Ag-Producer Welfare
140 Net Change 120 100 Mitigation Payments 80 Welfare changes (bill $) 60 Market Welfare 40 20 -20 50 100 150 200 250 300 Carbon price ($/tce)
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Ag-Sector Welfare Welfare changes (bill $) Carbon price ($/tce) 150
U.S. Producers (Net) 100 50 Welfare changes (bill $) Foreign Countries Dead Weight Loss U.S. Consumers -50 -100 50 100 150 200 250 300 Carbon price ($/tce)
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Multi-environmental Impacts
100 Nitrogen Subsurface Flow Nitrogen Percolation Phosphorus loss through sediment Soil erosion 90 80 Pollution (%/acre) 70 60 50 40 50 100 150 200 250 300 Carbon price ($/tce)
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A Simple Example
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Constant Corn Price
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Endogenous Corn Price Rainfed Corn Irrigated Corn Biofuel 250 200 150
Revenue in $/Acre 100 50 0 (1.80) 25 (1.98) 50 (2.16) 100 (2.88) Carbon Price in $/tce (Corn price in $/bu)
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Traditional Cropland Intensity
70 Intensive Tillage Intensive Nitrogen 60 50 Share of traditional cropland (%) 40 30 Irrigated 20 10 50 100 150 200 250 300 Carbon price ($/tce)
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Additional ASMGHG Tasks
Examination of Carbon permanence issues - saturation and volatility GHG Leakage Transaction cost implementation
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Carbon Saturation and Volatility
Soil and tree carbon saturates Yet another question regarding sequestration involves the way a decision maker might view AF sequestration relative to say an emissions reduction given the opportunity to buy one or the other.
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Carbon Saturation and Volatility
We use net present value analysis to find the breakeven carbon price from
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Case A: Agricultural Soil Carbon
If it saturates after 20 years, and payments stop then and practice ceases, releasing (volatilizing) the carbon it is only worth 36% of an equivalent emission offset If payments continue but carbon saturates it is worth 55% as much If payment stops but practice continues, it is worth 100% as much
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Case B: Forest carbon Saturates in 80 years (in U.S. south)
Forest reserve worth 98% of emission 20-year pulpwood rotation worth 65-70% 50 year saw timber stand comes out at 85-87%.
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Carbon Sink Credits Discounted
250 Biofuels CH4 N2O Afforestation Soil Sequestration 200 150 Carbon price ($/tce) 100 50 50 100 150 200 250 Emission reduction (mmtce)
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Impact of Permanence Discount value not necessarily proportional to impact on discounted sink Impact big if alternative mitigation strategy exist which is permanent Forests vs. Biofuels
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Types of GHG Leakage Leakage to unregulated agricultural emission sources Leakage to unregulated non-agricultural sources Leakage to unregulated U.S. regions Leakage to unregulated countries
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Biofuel Policy: Livestock Emissions
7 Total Livestock Emission Reductions 6 5 Less Enteric Fermentation 4 Emission reduction (mmtce) 3 2 Manure Emission Reductions 1 50 100 150 200 250 300 350 400 450 500 Biofuel carbon price ($/tce)
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Biofuel Policy: Crop Emissions
35 Irrigation Use 30 25 20 15 Emissions (kg ce/acre) 10 Nitrogen Fertilizer 5 Ag-Soil Carbon Fossil Fuel Use -5 -10 -15 50 100 150 200 250 300 350 400 450 500 Biofuel carbon price ($/tce)
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Strategy Leakage Irrigation intensifies Higher emissions
Higher soil carbon sequestration Moist conditions promote organic matter buildup Similar patterns from individual biofuel and tree policies
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Forest Policy: Crop Emissions
15 Irrigation Use 10 Nitrogen Fertilizer 5 Emissions (kg ce/acre) Ag-Soil Carbon Fossil Fuel Use -5 -10 -15 50 100 150 200 250 300 Carbon price ($/tce)
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Leakage to Unregulated Countries
160 150 Non-Annex I crop net exports for agricultural GHG mitigation policy in: Annex I Countries 140 USA Only Fisher’s Ideal Index 130 120 110 All Countries 100 90 20 40 60 80 100 Regulated country’s carbon price ($/tce)
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Types of Transaction Costs
Policy implementation Upstream policies Monitoring Verification Enforcement Uncertainty discounts
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Cost of Upstream vs. Downstream
14 Upstream soil carbon policy: Tax/Subsidy on tillage system 12 10 8 Program cost (mill $) 6 Downstream soil carbon policy: Tax/subsidy on emissions 4 2 10 20 30 40 50 60 70 Emission reduction (mmtce)
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