co-effects of cc and ghg mitigation policies bruce mccarl distinguished and regents professor of...
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Co-Effects of CC and GHG Mitigation PoliciesCo-Effects of CC and GHG Mitigation Policies
Bruce McCarl
Distinguished and Regents Professor of Agricultural Economics
Texas A&M University
Presented atClimate Change Segment of Advanced Resources Class
College Station, Feb 2011
Discussion OutlineDiscussion 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
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.
CO-Effects of CC and GHG Mitigation: Economic PerspectiveCO-Effects of CC and GHG Mitigation: Economic Perspective
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AF Strategies for GHG MitigationAF Strategies for GHG Mitigation
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.
CO-Effects of CC Policies: Economic PerspectiveCO-Effects of CC Policies: Economic Perspective
FuelSecurity
LifeStyles
RecreationalImpacts
Direct Effects
CCEffects
CO-Effects
EnvironEffects
EconEffects
SocialEffects
Land UseChange
EndangeredSpecies
AirQuality
JobCreation
WaterQuality
SoilQuality
Bio-diversity
RuralEcon
TechProgress
ETC.
Ag CO-Effects of CC Policies FrameworkAg CO-Effects of CC Policies Framework
PublicHealth
?? ?? ?? ??
Do Co-Effects Matter?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$/tC.
Source: Climate Change 2001: Working Group III: Mitigation http://www.grida.no/climate/ipcc_tar/wg3/337.htm
MC + Externality Costs
CarbonTax ($/TCE)
Emission Reduction (tons)
MC
Figure 2. Marginal Cost Curve for Carbon Emission Reductions
Tax0
Q0 Q2
Do Co-Effects Matter?Do Co-Effects Matter?
Inclusion of CO-Effects will affect cost of reductions.
MC + Externality Benefits
Q1
Do Co-Effects Matter?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* < Q1) with too high price (P* > P1).If there are externality costs, society produces too much energy(Q* > Q2) with too little price (P* < P2).
$
Energy
MCprivate
SMC = MCprivate + Externality Costs
Figure 1. Social Marginal Benefit and Marginal Cost Curve for Energy
P*
Q2 Q*
P2
SMB
Q1
P1
Do Co-Effects Matter?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 COSTSSOCIAL 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 > SC2 so society favors mitigation 2
But the order of the private costs is reversed
PC2 > 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 SectorCo-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).
Measure and Quantify Co-EffectsMeasure 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
Multi-environmental Indicators
40
50
60
70
80
90
100
0 50 100 150 200 250 300
Po
llu
tio
n (
%/a
cre)
Carbon price ($/tce)
Nitrogen Percolation
Nitrogen Subsurface Flow
Soil erosion
Phosphorus loss through sediment
Measure and Quantify Co-EffectsMeasure and Quantify Co-Effects
Monetization
Development of methods to quantify Co-Effects in terms of dollar
values
Econometric techniques such as non-market valuation, ricardian
model, etc.
Note that: If a policy focuses on the environmental quality and in doing
so this policy affects the CC, then now the CC effects are
considered Co-Effects to this policy.
For example, a policy focusing on cutting air pollution also
benefits the climate through reduction of GHG emissions.
Would you be willing to pay __$ on
an annual basis for a management
program designed to preserve
endangered species XX?
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ASMGHG
Carbon Prices
RegionalCrop Mixinput useEnv loads
EPICRunoff
Sim.
Case Studies of Co-Effects: Case Studies of Co-Effects: Water QualityWater Quality
WaterQualityIndex
Reference: Pattanayak et al. 2002
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
ComputeGHG%WQI%
elasticity benefits-Co
NWPCAM
Regionalizing Model
Ag Census NRI State Annual Crop Acreage
CountyCrop Mix
and percent loads
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Case Studies of Co-Effects: Case Studies of Co-Effects: Water QualityWater 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 => Low/no till cropland management
• High C price => 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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Change in WQIfrom Baseline
-40 to -101 to 56 to 100
Preliminary Results, at $25/tC
Source: Pattanayak et al. 2002
Co-Benefits: Water Quality Changes due to Changes in Cropland Management and Afforestation
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Case Studies of Co-Effects: Case Studies of Co-Effects: Water QualityWater 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
Case Studies of Co-Effects: Case Studies of Co-Effects: Environmental benefitsEnvironmental benefits
EstimateLand Use
Get Acres ofAfforested
Land
DetermineC Seq.& Environ.Characteristics
Estimate Environ.Benefits
Empirical ProcedureEmpirical Procedure
Landik = fik (net return, population density, land quality )fik = logistic function using SUR procedure Net return to forest=> + effect on the forest but – on the agricultureNet return to Ag => – effect on the forest but + on the agriculture
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).
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).
Using estimation from previous studies to quantify environmental benefits. Under 25% conversion scenario => soil erosion benefits = 32-42% of cost of Cseq. program => wildlife habitat benefits = 25% of cost of Cseq. program => non-consumptive use benefits =25% of cost of Cseq. program
Reference: Plantinga and Wu 2003
Case Studies of Co-Effects: Case Studies of Co-Effects: Environmental benefitsEnvironmental benefits
Remarks: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
Case Studies of Co-Effects: Case Studies of Co-Effects: BiodiversityBiodiversity
Study of land use changes impacts on biodiversity in South Carolina, Maine, and Southern Wisconsin
Two types of land use => agricultural and Forestry lands
Two types of birds => 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
Reference: Matthews, O’Connor, and Plantinga 2002
Category Maine South Carolina Wisconsin
Percent ChangeForest Birds 3.2 2.5 21.8
Farmland Birds -10.8 -12.2 -11.7
Forest & Farmland Birds -2.0 -2.3 -1.1
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Negative the net Co-benefits (CB) 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
)DISC1(*QGHGO
)CBGC*φMTCPAIC PDC (tonpercostSocial
Reference: McCarl.B.A , Tanveer A. B , Man,K. Kim, Cost of Carbon
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Examples about potential ancillary benefits or costs 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 SequestrationCo-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?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-effectsCo-effects
GHGE Mitigation Co-effects
Agricultural Involvement
Mitigation in Energy Sector
Co-effects Co-effects
Transportation
Co-effects
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Ag vs Non Ag share of a given amount of emissions Ag vs Non Ag share of a given amount of emissions controlcontrol
CN CA
Q
CA is cost of abatement by Ag, CN is cost of abatement by Non Ag,
All agAll Non-ag
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Ag vs Non Ag share of a given amount of emissions Ag vs Non Ag share of a given amount of emissions controlcontrol
CN CA
Q
Ag co benefits only and ag share increases
Ag cobenefits
Q’ All agAll Non-ag
C’A
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Ag vs Non Ag share of a given amount of emissions Ag vs Non Ag share of a given amount of emissions controlcontrol
CN CA
Q
Ag and non ag co benefits and share depends on relative size
Ag cobenefits
Q’ All agAll Non-ag
Non Ag cobenefits
Q’’
C’N
C’A
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Case Studies of Co-Effects: Case Studies of Co-Effects: Environmental benefitsEnvironmental benefits
Remarks: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
ChallengeChallenge
Complexity => multiple co-effects, double count, global
vs. local effects, etc.
Quantifiability => methodologies
Policy Design
Distributional effects => CDM
Uncertainty
CCCCMitigation
WaterQuality
AirQuality
HumanHealth
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