Impact Of Greenhouse Gas Abatement Targets On Agricultural Activity

1. Impact Of Greenhouse Gas Abatement Targets On Agricultural Activity Patrick Gillespie Rural Economy Research Centre (RERC) Teagasc RERC Seminar 21st September, 2009 Rural Economy Research Centre

2. Introduction • Background • Methodology • Results • Conclusion/Discussion Rural Economy Research Centre

3. 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 Rural Economy Research Centre

4. 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 Rural Economy Research Centre

5. Background • Agriculture is a significant component (>25%) 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 Rural Economy Research Centre

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8. 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 Rural Economy Research Centre

9. 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) Rural Economy Research Centre

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17. 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 Rural Economy Research Centre

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22. 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 Rural Economy Research Centre

23. Methodology Model Interactions Rural Economy Research Centre

24. 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.) Rural Economy Research Centre

25. Methodology Rural Economy Research Centre

26. 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.) Rural Economy Research Centre

27. 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 Rural Economy Research Centre

28. 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 Results - 30% GHG Reduction2020 compared with 2005 Rural Economy Research Centre

29. Reference Run Results2020 compared with 2005 Rural Economy Research Centre

30. Results and discussion • GHG emissions reduction scenario • 30% reduction in agriculture’s 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% Rural Economy Research Centre

31. 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 Rural Economy Research Centre

32. 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 Rural Economy Research Centre

33. Poultry 0% Other Livestock 0% Soil Emissions 21% Pigs 3% Sheep 6% Cattle 70% Conclusions Decomposition of CO2-equivalent GHG Emissions Rural Economy Research Centre

34. 1 Million Suckler Cows 1 Million Dairy Cows Progeny Dairy Beef Production Conclusions Rural Economy Research Centre

35. 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 Conclusions World Ag Model EU Ag Model Ireland Ag Model MacroModels GHG Model Rural Economy Research Centre

36. 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 Rural Economy Research Centre

37. 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 doesn’t necessarily correspond to drastic reduction in animal production • Little if any ‘silver lining’ to this cloud Rural Economy Research Centre

38. 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 Rural Economy Research Centre

39. Thank You Rural Economy Research Centre