Uwe A. Schneider Research Unit Sustainability and Global Change KlimaCampus, Hamburg University

1. Inclusion of the agricultural sector in greenhouse gas mitigation policiesProblems and potential instruments Uwe A. Schneider Research Unit Sustainability and Global Change KlimaCampus, Hamburg University Contributions from Bruce McCarl, Erwin Schmid, Christine Schleupner, and others Public Trade Policy Research and Analysis Symposium Climate Change in World Agriculture: Mitigation, Adaptation, Trade and Food Security June 27 - 29, 2010 Stuttgart-Hohenheim, Germany

2. Agricultural Mitigation Benefits Increases technical mitigation potential Could increase net benefits of mitigation to society Challenges?

3. Agricultural Mitigation Challenges Heterogeneity Uncertainty Complexity

4. Heterogeneity • Weather & Climate • Soils & Landscape • Management (history) • Mitigation Strategies • Mitigation Impacts r Space Time

5. Dry Biomass Yields (t/ha) Reed Canary Gras Miscanthus

6. Soil Carbon (t/ha, <30cm) Reed Canary Gras Reed Canary Gras Miscanthus Miscanthus

7. Mitigation Strategies • Emission reductions • Land and forest state • Livestock systems • Energy input / product output • Non-C from fertilizer • Emission sinks • Biomass and soil organic carbon • Geo-engineering (Terra preta) • Emission offsets in other sectors • Bioenergy, Biomaterial • Production factors (Fertilizer) Emission Impacts

8. Mitigation Strategies • Crop choice • Livestock choice • Genetic engineering • Crop rotation • Tillage • Fertilization • Water management • Residue management • Animal housing • Manure management • Management intensity Agricultural Production

9. Mitigation Strategies • Diet • Share of vegetarian, local, seasonal, processed food • Education • Internalize emission impacts in consumer preferences • Population Growth • Transparency • emissions for production, transportation, preservation, processing Agricultural Product Demand

10. 2030 Scenarios Schneider et al. 2010

11. Heterogeneity • Insufficient observations, comprehensive mitigation assessments require models to generate missing data • Leads to inaccurate assessments due to simplifications, errors, data gaps, computational limits • Increases transaction cost of mitigation (measuring, monitoring, verification)

12. Heterogeneity • Optimal mitigation actions differ across space and time • Diverse mitigation costs

13. Complexity of Agricultural Mitigation Interdependencies due to resource scarcity and competition Emission leakage due to commodity trade Multiple market, environmental, and social impacts Interdependencies with other societal objectives (food, water, biodiversity)

14. EU27 Wetland Economic Potentials (free Trade with NonEU27) Schleupner & Schneider 2010

15. EU27 Wetland Economic Potentials (fixed Trade with NonEU27) Schleupner & Schneider 2010

16. Food Price and Wetlands in EU27 (free Trade with NonEU27) Schleupner & Schneider 2010

17. Food Price and Wetlands in EU27 (fixed Trade with NonEU27) Schleupner & Schneider 2010

18. Agricultural GHG Mitigation 500 450 400 350 Technical Potential Competitive Economic Potential 300 Carbon price (Euro/tce) 250 200 150 100 50 0 0 100 200 300 400 500 600 700 800 Greenhouse Gas Emission Mitigation (mmtce) Schneider et al., Agricultural Systems, 2007

19. Agricultural GHG Mitigation Schneider et al., Agricultural Systems, 2007

20. Welfare Changes 8 6 4 Gross Producer Surplus 2 Net Producer Surplus 0 Billion $ -2 Emission Payments -4 -6 ConsumerSurplus -8 -10 0 20 40 60 80 100 Carbon price ($/tce) Schneider, McCarl, and Schmid, Agricultural Systems, 2007

21. Agricultural Markets 220 200 Crop prices 180 160 140 Livestock prices Fisher index 120 Livestock production 100 80 60 Crop production Crop exports 40 20 0 50 100 150 200 250 300 Carbon price ($/tce) Schneider et al., Agricultural Systems, 2007

22. Optimal Mitigation Strategy Mix 500 Afforestation Sink 400 Tillage Carbon Sink 300 Carbon price ($/tce) CH4 N2O Decrease 200 Bioenergy Emission Offsets 100 0 0 20 40 60 80 100 120 140 160 180 200 Emission reduction (mmtce) McCarl and Schneider, Science, 2001

23. Tillage Carbon Sink 500 400 Economic Potential 300 Carbon price ($/tce) Competitive Economic Potential 200 Technical Potential 100 0 0 20 40 60 80 100 120 140 160 Soil carbon sequestration (mmtce) McCarl and Schneider, Science, 2001

24. Environmental Co-Effects 100 N Subsurface Flow 90 80 N Percolation Pollution (%/acre) 70 Soil Erosion 60 50 P Loss 40 0 50 100 150 200 250 300 Carbon price ($/tce) McCarl and Schneider, Science, 2001

25. Emission Leakage 160 Non-Annex I crop net exports for agricultural GHG mitigation policy in: 150 140 Fisher’s Ideal Index 130 USA Only 120 Annex I Countries 110 100 All Countries 0 20 40 60 80 100 Carbon price ($/tce) Lee et al. Mitigation and Adaptation Strategies for Global Change, 2007

26. Complexity of Agricultural Mitigation Mathematical models needed Resource scarcity increases opportunity costs Positive externalities decrease costs

27. Complexity of Agricultural Mitigation Substantial differences between economic and technical (engineering / geographic) assessments Different policy proposals between economists and engineers

28. Smeets and Faaij, 2010

29. Sustainable Bioenergy? Does “Surplus land” exist to avoid food and biodiversity conflict? What are the transaction costs for complicated rules? Where is the global (benevolent) dictator to prevent leakage? Economic alternative: 1) protect globally old growth forests and nature reserves, 2) let markets regulate competition between food, timber, and energy

30. Uncertainty • Inadequate observations • Uncertain baseline (soil and biomass carbon) • Highly variable processes (trace gases) • High measuring cost • Inadequate understanding / models • Related to insufficient observations • Diverse assessment methodologies • Non-permanence, volatility

31. Uncertainty Internalization Agricultural Soil Carbon Sequestration - 20 Years A) payment and practice stop, carbon is released:36% B) Payment and practice continue, carbon stays constant: 55% C) payment stops, practice continues, carbon stays constant: 100% Afforestation Program - 80 Years E) forest reserve: 98% F) 20-year pulpwood rotation: 65-70% G) 50 year saw timber stand: 85-87%. After sequestration contract ends: McCarl et al. 2001

32. 250 250 250 250 200 200 200 200 150 150 150 150 100 100 100 100 50 50 50 50 0 0 0 0 Carbon Sink Credits Discounted Soil Sequestration 50% Discount Afforestation 25% Discount Carbon price ($/tce) 0 50 100 150 200 250 0 50 100 150 200 250 Biofuels No discount CH4 + N2O No discount 0 50 100 150 200 250 0 50 100 150 200 250 Emission reduction (mmtce) McCarl et al. 2001

33. Uncertainty • Decreases mitigation policy efficiency • Increases mitigation cost (risk penalty) • Reduces acceptance

34. Conclusions • Efficient internalization of agricultural mitigation is challenging • Integrated assessments needed which account for heterogeneity, complexity, and uncertainty • Transaction cost and other externality impacts of policy instruments important

35. Conclusions • Solve Ag mitigation jointly addressed with other objectives • Agricultural role for mitigation is a dynamic process • Avoided deforestation early • Over time different policies and strategies • Technical progress (incl. monitoring technologies)

36. Conclusions Use market forces and governmental power in optimal combination Let today’s solution not become tomorrow’s problem

37. Referecnes • Lee, H.C., B.A. McCarl, U.A. Schneider, and C.C. Chen (2007). “Leakage and comparative advantage implications of agricultural participation in greenhouse gas emission mitigation.” Mitigation and Adaptation Strategies for Global Change 12(4):471-494 Available online. • McCarl, B.A. and U.A. Schneider (2001). “Climate change - Greenhouse gas mitigation in US agriculture and forestry.” Science 294(5551):2481-2482 Available online. • McCarl, B. A., B.C. Murray, and U. A. Schneider. "Influences of Permanence on the Comparative Value of Biological Sequestration versus Emissions Offsets." CARD Working Paper 282. 2001. Download • Schneider, U.A., McCarl, B.A., and Schmid, E. (2007). “Agricultural sector analysis on greenhouse gas mitigation in US agriculture and forestry.” Agricultural Systems 94:128-140Available online. • Smeets E.M.W. and A.P.C. Faaij (2010). “The impact of sustainability criteria on the costs and potentials of bioenergy production - Applied for case studies in Brazil and Ukraine.” Biomass and Bioenergy 34(3):319-333 Available online • Schleupner, C. and U.A. Schneider (2010). "Effects of bioenergy policies and targets on European wetland restoration options", submitted to Environmental Science & Policy.

38. Thank you