Ag

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Co-Effects of CC and GHG Mitigation Policies
Bruce McCarl Distinguished and Regents Professor
of Agricultural Economics Texas AM University
Presented at Climate Change Segment of Advanced
Resources Class College Station, Feb 2011
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Discussion Outline

• What are Co-Effects of CC and GHG mitigation
  Policies?
• Do Co-Effects Matter?
• Ways to Measure and Quantify Co-Effects
• (EPIC, CENTURY, NWPCAM, Econometric techniques)
• Case Studies of Co-Effects e.g. water quality,
  soil erosion, wildlife habitat, and biodiversity
• Government Intervention
• Policy Design for Co-Effects

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CO-Effects of CC and GHG Mitigation Economic
Perspective

• CC resulting from an increase in atmospheric
  concentrations of GHGEs is a public externality.
• Externality Benefits or costs arise from an
  activity which is created by a person and that
  person does not take full account of the impacts
  on the others.
• Externality is a result of a market failure. A
  market does not efficiently allocate resources
  either too much or too little.
• GHG mitigation policies can also cause
  externalities.
• Example of externalities related to CC policies
• e.g. a tax on carbon in the energy sector
• Positive Negative
• Human health improvement High energy prices
• Endangered species, etc. Unemployment, etc.

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AF Strategies for GHG Mitigation
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CO-Effects of CC Policies Economic Perspective

• Example of externalities and other effects
  related to GHG mitigation policies
• e.g. a tax on carbon in the agricultural and
  forestry sectors
• Positive Negative
• Water quality improvement High food prices
• Less erosions, etc. More pesticide use, etc.
• Many terminologies are used to describe
  CO-EFFECTS which refers to effects arising from
  GHG mitigation polices such as co-benefits/costs,
  income distributional shifts, ancillary
  benefits/costs, side-benefits, secondary
  benefits/costs, cleaner water, reduced runoff,
  increases across GHG accounts etc.
• Few studies address these issues especially
  negative co-effects e.g. use of more pesticides
  or irrigation, effects on other GHGs.

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Ag CO-Effects of CC Policies Framework
Land Use Change
Direct Effects
CO-Effects
Environ Effects
Social Effects
CC Effects
Econ Effects

Water Quality
Rural Econ
Tech Progress
ETC.
Air Quality
Job Creation
Soil Quality
Bio- diversity
Public Health
??
??
??
??
Fuel Security
Life Styles
Recreational Impacts
Endangered Species
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Do Co-Effects Matter?

• Previous studies indicate that there are
  significant CO-Effects associated with GHGE
  mitigation, but most of the studies focus on
  positive CO-Effects (co-benefits).

Figure 8.9 Summary of ancillary benefits
estimates in 1996 US/tC.
Source Climate Change 2001 Working Group III
Mitigation http//www.grida.no/climate/ipcc_tar/wg
3/337.htm
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Do Co-Effects Matter?

• Inclusion of CO-Effects will affect cost of
  reductions.

Carbon Tax (/TCE)
MC Externality Benefits
MC
MC Externality Costs
Tax0
Q2
Q0
Q1
Emission Reduction (tons)
Figure 2. Marginal Cost Curve for Carbon Emission
Reductions
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Do Co-Effects Matter?

• Inclusion of CO-Effects will affect cost of
  abating of emissions and quantity.
• At market equilibrium, society would produce Q
  at P.
• If there are externality benefits, society
  produces too little energy
• (Q lt Q1) with too high price (P gt P1).
• If there are externality costs, society produces
  too much energy
• (Q gt Q2) with too little price (P lt P2).

SMC MCprivate Externality Costs

MCprivate
SMB
P2
P
P1
Q2
Q1
Q
Energy
Figure 1. Social Marginal Benefit and Marginal
Cost Curve for Energy
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Do Co-Effects Matter?

• Inclusion of CO-Effects will affect overall
  mitigation assessment.
• The social optimal output is at the quantity
  where
• SOCIAL BENEFITS SOCIAL COSTS
• SOCIAL COSTS PRIVATE COST - EXTERNALITY
  BENEFITS/COSTS
• Problem how to get the accurate measures of
  these externalities?
• These externalities can over- or underestimate
  social welfare gain under different mitigation
  policies.
• Suppose that the social costs for 2 mitigation
  policies is such that
• SC1 gt SC2 so society favors mitigation 2
• But the order of the private costs is reversed
• PC2 gt PC1 so private groups prefer mitigation
  1
• Numerical Example
• SC1 150 , but PC1 50 Externality 100
• SC2 100 , but PC2 100 no Externality

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Co-effects of Emission Reductions by Energy Sector

• Coal use releases sulfur dioxide, particulates,
  chemicals that contribute to air pollution
  including ozone
• 10 per ton carbon tax could result in 3 health
  benefit from associated NOx reductions (Burtraw,
  1999)
• Approximate by using marginal costs as social
  willingness to pay, 15 per ton of CO2 (EIA,
  1995).

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Measure and Quantify Co-Effects

• Quantitative Indicators
• Although some Co-Effects are not monetized,
  quantitative indicators are useful.
• Use biophysical simulation or other air/water
  quality simulation models such as EPIC, CENTURY,
  SWAT, NWPCAM
• EPIC

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Measure and Quantify Co-Effects

• Monetization
• Development of methods to quantify Co-Effects in
  terms of dollar values
• Econometric techniques such as non-market
  valuation, ricardian model, etc.
• Note that If a policy focuses on the
  environmental quality and in doing so this
  policy affects the CC, then now the CC effects
  are considered Co-Effects to this policy.
• For example, a policy focusing on cutting air
  pollution also benefits the climate through
  reduction of GHG emissions.

Would you be willing to pay __ on an annual
basis for a management program designed to
preserve endangered species XX?
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Case Studies of Co-Effects Water Quality
Ag Census NRI State Annual
Crop Acreage
Reference Pattanayak et al. 2002
Carbon Prices
Regional Crop Mix input use Env loads
Water Quality Index
NWPCAM
County Crop Mix and percent loads
ASMGHG
Regionalizing Model
EPIC Runoff Sim.

• Run ASMGHG at GHG prices of 25, and 50/tonne
  CE
• Link NWPCAM to ASMGHG outputs
• Run NWPCAM at elevated loadings corresponding to
  2 GHG prices (25 and 50)
• Estimate WQI at two levels
• Compute

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Case Studies of Co-Effects Water Quality

• Overall Results
• Economic
• Agricultural production declines (2-4) and
  prices increase (3-8)
• CS decreases, PS increases, Export earnings fall
  (3 5).
• GHG (not co-effects)
• National GHG emissions decline (89 and 156
  MMTCE/yr under 25 and 50 /ton CE,
  respectively).
• Agriculture becomes a net sink at high GHG price.
• Low C price gt Low/no till cropland management
• High C price gt Biofuel offsets and
  afforestation
• Land use
• Traditionally cropped lands decline(0.1 6)
• Irrigated lands decline(3 7 )
• Afforestation increases(5 12 million acres)

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Co-Benefits Water Quality Changes due to Changes
in Cropland Management and Afforestation
Preliminary Results, at 25/tC
Source Pattanayak et al. 2002
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Case Studies of Co-Effects Water Quality

• Overall Results
• Loadings
• N and P decline at low price
• All loadings decline at high price
• Erosion reductions most dramatic
• National WQ increased nearly 2
• Future Extensions
• Co-effects
• Monetized
• Multiple co-effects biodiversity
• Omitted loadings in forestry and livestock

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Case Studies of Co-Effects Environmental benefits
Reference Plantinga and Wu 2003
Empirical Procedure
Landik fik (net return, population density,
land quality ) fik logistic function using SUR
procedure Net return to forestgt effect on the
forest but on the agriculture Net return to Ag
gt effect on the forest but on the
agriculture
Estimate Land Use
Five values of subsidies are used to achieve
conversion of 5, 10, 15, 20, and 25 of the
baseline ag land. Average costs for
afforestation rise from 200 (5 conversion) to
600 per acre (25 conversion).
Get Acres of Afforested Land
Using Birdsey forest carbon function to estimate
additional C seq. through afforestation. Using
the Natural Resource Inventory (NRI) and the Soil
Interpretation Record System (SOILS5) to predict
locations, agricultural land conversion, and
environmental characteristics (e.g. soil type,
permeability).
Determine C Seq. Environ. Characteristics
Using estimation from previous studies to
quantify environmental benefits. Under 25
conversion scenario gt soil erosion benefits
32-42 of cost of Cseq. program gt
wildlife habitat benefits 25 of cost of
Cseq. program gt non-consumptive use benefits
25 of cost of Cseq. program
Estimate Environ. Benefits
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Case Studies of Co-Effects Environmental benefits
Remarks
(1). Co-Benefits appear to be substantial. Soil
erosion Wildlife habitat (Use Value) Non-Use
Value ? Cseq Cost 42 M
30 M 31 M
101-132M (under 25 conversion
scenario) (2). The number of potential
co-benefits and co-costs are not included (e.g.
water quality improvement, negative effects on
wildlife habitat). (3). Unrealistic fixed prices
assumption on timber and agricultural products
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Case Studies of Co-Effects Biodiversity
Reference Matthews, OConnor, and Plantinga 2002

• Study of land use changes impacts on biodiversity
  in South Carolina, Maine, and Southern Wisconsin
• Two types of land use gt agricultural and
  Forestry lands
• Two types of birds gt farmland and forest
  birds (651 species)
• Using an econometric model to estimate land use
  changes due to afforestation subsidies
• Achieving a 10 reduction in agricultural land by
  giving afforestation subsidies as an incentive
• Using an estimated land use change to estimate
  bird abundance

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Negative the net Co-benefits (CB)

• Some co-effects are beneficial and can help
  offset the costs of producing practices from a
  social perspective
• eg Improving water quality from low tillage
• eg. Enhancing producer incomes from conversion
  of cropland to grasslands
• The co-benefits likely to be partially offset by
  co-costs
• Expanded emissions in the energy sector vs. the
  offsets gained from CS
• Co-effect are relevant in all sectors of the
  economy ? accounting needs to be evenhanded

Reference McCarl.B.A , Tanveer A. B , Man,K.
Kim, Cost of Carbon
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Examples about potential ancillary benefits or
costs

• Particle pollution ? fossil fuel use
• Recreational sites ? reforestation programs
• Technological efficiency ? new technologies and
  unit costs fall
• Welfare ? carbon taxation
• Road-use related mortality ? public transport
• Congestion ? public transport
• Employment ? GHG projects with excess supply of
  labor
• Higher electricity prices ?reductions in
  electricity ? reduce educational opportunities
  for children
• Reduced electrification rates ? increases in
  household air pollution
• Costs associated with ghg projects ? decreased
  economic activity ? decline in employment

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Co-effects from Agriculture and Forestry
Sequestration

• Watson 2000 co-benefits
• soil productivity could be improved through
  increased capacity to retain water and nutrients
• long-lived valuable products (wood) are produced
• marginal lands could be improved and riparian
  ecosystems restored
• Erosion reduction
• Antle 2000
• Reduced erosion, improved land quality, water
  quality, recreation sites, bio-diversity, farmer
  income support .

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AM Assessed in monetary terms AP Assessed in
physical terms, possibly partly in monetary
terms. NA Not assessed, they may be important.
NE No effect of significance is anticipated. 1.
SO2 and NOx include acid deposition impacts. 2.
Effects of PM10, NOx and SO2 on amenity arise
with respect to visibility. In previous studies
these have not been found to be significance in
Europe, although they are important in the US. 3.
Routine operations generate externalities through
mining accidents, transport accidents, power
generation accidents, construction and
dismantling accidents and occupation health
impacts. All these involve mortality and
morbidity effects. 4. Water pollution effects
include impacts of mining (including solid
wastes) on ground and surface water, power plant
emissions to water bodies, acid deposition and
its impacts on lakes and rivers (partly
quantified).
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Co-effects consider or not?

• Consideration could speed up implementation
• High cost of climate change mitigation might be
  largely offset by ancillary benefits
• Policy benefits of incorporating co-effects
• Design policy on inclusive set of effects
• Support GHG initiatives with broader
  environmental co-effects (no regrets)
• Justify interventions in favor of terrestrial
  activities
• Safely ignored
• If these effects are small relative to the
  other costs or the benefits of reducing GHGs
• Simplifies an already complex debate.

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Co-effects
GHGE Mitigation
Co-effects
Agricultural Involvement
Mitigation in Energy Sector
Transportation
Co-effects
Co-effects
Co-effects
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Ag vs Non Ag share of a given amount of emissions
control
CN
CA
All Non-ag
Q
All ag
CA is cost of abatement by Ag, CN is cost of
abatement by Non Ag,
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Ag vs Non Ag share of a given amount of emissions
control
CN
CA
CA
Ag cobenefits
All Non-ag
Q
Q
All ag
Ag co benefits only and ag share increases
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Ag vs Non Ag share of a given amount of emissions
control
CN
CA
CA
CN
Non Ag cobenefits
Ag cobenefits
All Non-ag
Q
Q
Q
All ag
Ag and non ag co benefits and share depends on
relative size
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Case Studies of Co-Effects Environmental benefits
Remarks
(1). Co-Benefits appear to be substantial. Soil
erosion Wildlife habitat (Use Value) Non-Use
Value ? Cseq Cost 42 M
30 M 31 M
101-132M (under 25 conversion
scenario) (2). The number of potential
co-benefits and co-costs are not included (e.g.
water quality improvement, negative effects on
wildlife habitat). (3). Unrealistic fixed prices
assumption on timber and agricultural products
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Challenge

• Complexity gt multiple co-effects, double count,
  global vs. local effects, etc.
• Quantifiability gt methodologies
• Policy Design
• Distributional effects gt CDM
• Uncertainty

Air Quality
CC Mitigation
Human Health
Water Quality
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Reference

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Reference

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