Impact Of Greenhouse Gas Abatement Targets On Agricultural Activity

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Impact Of Greenhouse Gas Abatement Targets On
Agricultural Activity

• Patrick Gillespie
• Rural Economy Research Centre (RERC)
• Teagasc
• RERC Seminar
• 21st September, 2009

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• Introduction
• Background
• Methodology
• Results
• Conclusion/Discussion

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Introduction

• National Reduction Target 20 to 30 on 2005
  levels by 2020
• Member States decide how to meet targets
• Emissions Trading Scheme
• Non-ETS sectors
• No specific reduction targets for Agriculture (to
  date), however
• Prominence of Agriculture makes sig. reduction
  target likely

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Introduction

• What effect will various reductions have?
• Policy Question - What is an appropriate target
  for Agriculture?
• Ultimately a Political decision, this analysis
  informs that debate
• What profile will Agriculture have in a
  sustainable Irish economy?
• ESRI ISus project
• FAPRI-Ireland GHG as subcomponent
• What effect has the downturn had already w.r.t.
  GHGs from Irish Ag?
• Silver Lining Hypothesis?
• Latest Update Sept. 2009
• Preliminary Results

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Background

• Agriculture is a significant component (gt25) of
  total Irish GHG Emission
• Ambitious reduction targets are likely
• Livestock based production is dominant in Ireland
• Bovines are a major GHG source (CH4 Methane and
  N2O Nitrous Oxide)
• Agriculture is not part of the Emissions Trading
  Scheme (ETS)
• Therefore, no prospect for buying further
  emissions rights in this sector
• other non-ETS sources include transport,
  households, services, small industrial
  installations waste
• Irish Agriculture constituted about 40 of
  non-ETS sector in 2006

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Background
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Background
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Background

• IPCC EPA Classifications
• EPA responsible for GHG accounts
• EPA follows IPCC methodology
• Tiered Hierarchy
• Default Emission Factors
• Research into Country/Region specific EFs
  encouraged
• Default EFs used for all except cattle

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Background

• Data Sources
• Primarily Central Statistics Office
• DAFF
• SEI
• EPA and Teagasc
• Main Reporting Documents
• NIR - National Inventory Reports (Govt. Public)
• CRF - Common Reporting Format (IPCC)

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Methodology

• FAPRI-Ireland GHG model
• A partial equilibrium economic model of Irish
  agriculture
• The model simulates over a 10/15 year horizon and
  projects
• crop areas harvested and animal inventories
• commodity supply and use balances
• input and output prices
• Input use and expenditures
• sector output, input and income accounts
• The model is nested within a larger model of EU
  and global agriculture
• This allows it to incorporate market and policy
  developments at EU (CAP reform) and International
  levels (WTO)
• Model converts agricultural activities to
  emissions

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Methodology

• Interactions with ESRI models
• Inputs from HERMES
• Population, Price Deflators, Industrial Wage
  Rate, GDP, and Exchange Rates
• Outputs to ISus
• CH4, N2O, NH3, Output, Fertilisers, Pesticides,
  Energy
• FAPRI-Ireland GHG spreadsheet based, ESRI models
  use MATLAB
• Full conversion to MATLAB originally planned
• Resource constraints (software licenses) made
  that infeasible
• Now GHG calculation for Agriculture happens in
  the Excel based model, and outputs are exported
  back to the larger ISus model

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Methodology
Model Interactions
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Methodology

• Commodity model provides
• Livestock numbers, enterprise areas and input
  applications
• Livestock emission factors provide
• amount of methane produced by the animal on an
  annual basis
• vary by animal type (dairy cow highest, horses,
  goats lowest)
• Emissions factors for fertiliser animal waste
• Converted to Methane and Nitrous Oxide
• GWP factors used to bring to common base of
  Carbon Dioxide equivalents (CO2 Eq.)

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Methodology
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Meeting National Objectives

• New targets for Irish GHG emissions for 2020
• 10 reduction on 2005 (target about 17.1 Mt CO2
  Eq.)
• 20 reduction on 2005 (target about 15.3 Mt CO2
  Eq.)
• 30 reduction on 2005 (target about 13.3 Mt CO2
  Eq.)

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Results - Reference Run 2020 compared with 2005

• Total cattle population ? 11
• Beef production ? 10
• Cattle prices ?13
• Prices rise as EU production falls
• Operating surplus ? 5
• GHG reduction of 10 almost met

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Results - 30 GHG Reduction2020 compared with
2005

• Total cattle population ? 35
• Beef production ? 32
• Cattle prices ?16
• Prices rise as EU production falls
• Value of cattle output ?
• Total input expenditure ? more
• Operating surplus ? 2
• GHG reduction of 30 achieved

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Reference Run Results2020 compared with 2005
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Results and discussion

• GHG emissions reduction scenario
• 30 reduction in agricultures GHG emissions by
  2020
• Very large fall in suckler cow numbers required
  if adjustment were only to occur in suckler cow
  numbers
• By 2020 the suckler herd would have to decline by
  over 70
• Such a decline leads to a 35 decline in total
  cattle numbers and total beef production
• Beef output value would decline by 23

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Results and discussion

• Reference Scenario Results
• By 2020 Agricultural GHG emissions projected to
  decline by 8.5 versus 2005
• Decline in emissions largely due to projected
  reductions in cattle numbers
• This decline driven by projected contraction in
  suckler cow numbers
• Dairy cow numbers increase as milk quota
  increases and is eliminated in 2015
• Increased dairy cow numbers lead to increased GHG
  emissions but these are more than offset by
  reduced suckler cow numbers

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Results and discussion

• Update Reference Run
• GHG emissions now projected to be slightly lower
  in 2020 (? 0.17 relative to original reference
  run)
• Very little change from original reference run,
  probably down to
• Income inelastic demand
• Export focus in agriculture
• Sunk costs (investment in Cattle)
• Results still being worked through

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Conclusions
Decomposition of CO2-equivalent GHG Emissions
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Conclusions

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Conclusions
World Ag Model

• Irish Agri sector is highly export focused
• 90 of beef exported
• 80 of dairy products exported
• Need a global dimension to modelling framework
• Prospects for Irish agriculture are largely
  influenced by factors external to Ireland

EU Ag Model
Ireland Ag Model
Macro Models
GHG Model
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Conclusions

• Adoption of new abatement technologies will
  reduce the need for policy based GHG reduction
  strategies
• However, such technologies will not get us all
  the way to the targets
• Reductions in the levels of Irish agricultural
  activity are likely to be necessary, but such
  reductions will not realistically occur in the
  short term and policy must reflect this.
• Our analysis illustrates the magnitude of the
  reductions in levels of agricultural activity
  that would be required in the absence of new
  abatement technologies

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Conclusions

• The effect of the downturn is less than dramatic
• Food demand is income inelastic
• Cattle are a not a short term investment and are
  a sig. sunk cost, culling highly improbable
• Irish Ag is export focused
• Some markets not as badly effected
• Sterling depreciation hurts value of exports to
  UK
• Even apparent worsening of value of exports to UK
  doesnt necessarily correspond to drastic
  reduction in animal production
• Little if any silver lining to this cloud

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Conclusions

• Assumptions and Uncertainties
• Policy uncertainty is a major unknown
• Agricultural policy is frequently changing
• Environmental Policy
• Global (e.g. WTO)
• EU (e.g. CAP Reform, milk quota)
• Domestic
• Main driver in history
• Agricultural policy
• Main driver in the future
• market based supply and demand factors
• Macro outlook, exchange rates, population growth

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Thank You