Greenhouse Gas Markets as an Economic Driver for - Farm Foundation

Document Sample
Greenhouse Gas Markets as an Economic Driver for - Farm Foundation Powered By Docstoc
					An Economic Exploration of Biofuel based Greenhouse Gas Emission Mitigation
Bruce A. McCarl Regents Professor of Agricultural Economics Texas A&M University

Presented at Workshop on Agriculture as a Producer and Consumer of Energy Washington D.C. June 24-25, 2004

Other Collaborators
Darius Adams, Oregon State Ralph Alig, USDA Forest Service Brian Murray, RTI Uwe Schneider, University of Hamburg Subhrendu Pattanayak, RTI Ben DeAngelo EPA Ken Andrasko, EPA Ron Sands, PNNL, Maryland Francisco Delachesnaye, EPA Mahmood El-Halwgi, TAMU Heng-Chi Lee, University of Western Ontario Dhazn Gillig, AMEX Xiaoyun Qin , TAMU

Basic Components of Talk

     

Project Goals Policy Context Project Scope Key Findings Policy Implications of Results Directions Being Pursued

Project Goals


Examine the portfolio of land based GHG mitigation

strategies


Identify ones for further scrutiny considering Afforestation, Forest management, Biofuels, Ag soil, Animals,

Fertilization, Rice, Grassland expansion, Manure, Crop
mix


Look at market and time conditions under which strategies dominate

  

Educate on needed scope of economic analysis Bring in a full cost and GHG accounting Look at market effects and co benefits/ costs

Paper/Study Objectives



Assess the economic potential of U.S. agriculture and forestry to mitigate emissions considering carbon dioxide, nitrous oxide and methane
Focus on the role of Biofuel strategies Examine the dynamics of mitigation strategies

 

Policy Context



U.S. is outside of the context of Kyoto Protocol
U.S. has a largely voluntary policy to reduce GHG emission intensity by 18% by 2012. Intensity is emissions divided by

GDP. This commitment is 1/6 the size of Kyoto obligation.


Many U.S. states proceeding unilaterally, Northeast, West Coast, Texas and others. Virtually all U.S. companies have climate change offices and emissions are becoming of widespread concern Chicago Climate Exchange is emerging but price low. I think something will happen, but when?



 

Background


Society has concerns about build-up in atmospheric concentrations of greenhouse gases Scientific consensus emerging that buildup will affect the global climate, stimulating warming.





Disturbances caused by GHG concentrations will take a long time to reverse.
IPPC asserts a) b) c) centuries for sea level to stop rising decades for atmospheric GHG to stabilize once emissions stabilize decades to retrofit/replace equipment and technology causing current emissions.



Background


Society faces decision i) let emission increases continue ii) reduce emissions in effort to stabilize atmospheric concentrations. Decision involves uncertain future effects of GHG induced climate change






Implications for many sectors of the economy
Decision involves whether to insure against possible future deleterious effects by either reducing emissions, creating sinks, or creating offsets. Irreversibility dimensions to decision



Mitigation related role of Ag & Forestry
 

Agriculture and forestry can play a role Small emitters of the most prevalent greenhouse gas (carbon dioxide - CO2), Other emissions important U.S. agricultural GHG emissions contribute 7% of total carbon equivalent emissions 28% of methane emissions (GWP 21) 70% of nitrous oxide(GWP 310). U.S. forests are large but shrinking sink for carbon dioxide 14% of 1997 emissions, 23% in 1990.

 



Mitigation related role of Ag & Forestry


Agriculture has substantial potential for offsetting emissions



Sink augmenting GHG absorption,
changes in tillage conversion of ag land to grassland or forest.



Increasing production of commodities, which can serve as feedstocks for the production of biofuel or offset GHG emission intensive commodities (steel, concrete)

Finally Biofuels


Biofuel production contributes to reduction in net GHG emissions because As plant grows photosynthesis absorbs CO2 from atmosphere concentrating it in the feedstock When burned this is released

 

Thus Biofuel use involves recycled carbon. Offsets net GHG emissions relative to fossil fuels by about 75-95 percent for power use about 35% for liquid fuel

Finally Biofuels


Never has been an economic proposition.



In U.S. ethanol subsidies often amount to over 50% of product sale price.
Bolstered by sugar program





It likely to remain uneconomic in the near future in absence of subsidies.
Can climate change contribute a new subsidy source?



Mitigation Assessment



Multi-period analysis of ag/forest response
Examines overall and component response at varying carbon equivalent prices



Also observe commodity and factor prices, levels of production, exports and imports, management choices, resource usage, and environmental impacts



Simultaneous across all agricultural GHG mitigation strategies including biofuels Simultaneous modeling of other agricultural environmental problems





Based on life cycle comparisons

GHG Activities in FASOMGHG
 

Multiple GHG mitigation strategy setup Detailed GHG emission accounting
• • • • •

Forest carbon Soil carbon N2O CH4 Fuel use carbon emissions

  

National GHG balance GWP weighted sum of all GHG accounts

GHG Policy implementation

FASOMGHG MITIGATION OPTIONS
Strategy Crop Mix Alteration Crop Fertilization Alteration Crop Input Alteration Crop Tillage Alteration Grassland Conversion Irrigated /Dry land Mix Biofuel Production Afforestation Existing timberland Management Deforestation Stocker/Feedlot mix Enteric fermentation Livestock Herd Size Livestock System Change Manure Management Rice Acreage Basic Nature Emis, Seq Emis, Seq Emission Emission Sequestration Emission Offset Sequestration Sequestration Emission Emission Emission Emission Emission Emission Emission CO2 X X X X X X X X X X X X X X X X X CH4 N2O X X X X X X

X

X X X X

Biomass Option

 

Fast growing trees or switchgrass plus corn Feedstock for electrical power plants or liquid fuel production Offsets fossil fuels  recycles emissions Requires land  Opportunity cost Sustainable, verifiable

  

Why not just biofuels
We consider biofuel net contribution to GHG emissions considering carbon dioxide, nitrous oxide and methane not biofuels in isolation

We examine relative desirability as compared to other GHG mitigation strategies
Why? incredible interrelatedness of ag economy opportunity cost of resources Land to crops to feed to cattle all involved with GHG

Portfolio Composition
Afforestation
30
$ /Ton of CO2

Biomass Offsets CH4&N2O Forest Management Crop Management FF Soil Sequestration
0 500 1000 1500 2000

25 20 15 10 5 0

Emission Reduction in MMT CO 2 Equivalent

Ag soil goes up fast then plateaus and even comes down Why – Congruence and partial low cost Lower per acre rates than higher cost alternatives Biofuel takes higher price No Ethanol

Dynamic Role of Strategies Results
30000 25000
CH4 & N2O Soil Sequestration Crop Management FF All Forest

200000

CH4 & N2O Biomass offsets Soil Sequestration Crop Management FF All Forest

MMT CO2 Eq

20000 15000 10000 5000 0

MMT CO2 Eq

150000 100000 50000 0

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Time

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Time

Cumulative Contribution at a $5 per tonne CO2 Price

Cumulative Contribution at a $50 Price

30000 25000

MMT CO2 Eq

20000 15000 10000 5000 0

Biomass offsets CH4 & N2O Soil Sequestration Crop Management FF All Forest

Note Effects of saturation on sequestration Growing nonco2 and biofuels

2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Time

Cumulative Contribution at a $15 Price

Source Lee, H.C., B.A. McCarl and D. Gillig, "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," 2003.

Dynamic Role of Strategies Results

>30 years

Time from now

Limited forest and afforest
Non co2

Bio fuels
Non co2

O to30 years

Ag soils Forest management Non co2

Limited Ag soils
Forest and afforest Biofuels Non co2

<$15/metric ton >$15/metric ton Level of Price
Source Lee, H.C., B.A. McCarl and D. Gillig, "The Dynamic Competitiveness of U.S. Agricultural and Forest Carbon Sequestration," 2003.

Dynamic Role of Strategies Results
Saturation of Sequestration Ag Soils and Forests
Results – C accumulation vs. time with
change from conventional till to no-till
Figure 2. Cumulative Carbon sequestration in a Southeastern U.S. pine plantation Source: Data Drawn form Birdsey (1996)
120
500
g /m 2 /y r

1000

100

Metric tons C/ac

0

80

-500

60

C in trees and underst C in soil and litter Total C

40

-1000 0 5 10 15
ye a r

20

25

30

35

20

0 0 20 40 60 Age (years) 80 100 120

West and Post, Oakridge NL
Note saturation by year 20

Birdsey et al, USFS, FORCARB
Note saturation by year 80

G H G M itig a tio n an d A g - M a rk ets
220 200 180

F ish er in d ex

160 140 120 100 80 60

C ro p p rices L iv esto ck p rices

L iv esto ck p ro d u ctio n

C ro p p ro du ction C ro p exp o rts

40 20 0 50 100 150 200 250 300

C arb on p rice ($/tce)

Tradeoff between carbon and traditional production – ag prices rise, forest products fall
Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality Co-Benefits of
Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.

Results: Co-Benefits, Economic & Envir.
Ag-Sector Welfare
150

Multi-environmental Impacts
100 Nitrogen Subsurface Flow 90

Welfare changes (bill $)

100

Pollution (%/acre)

U.S. Producers (Net)

50 Foreign Countries Dead Weight Loss -50 U.S. Consumers -100

80 Nitrogen Percolation 70 60 50 Phosphorus loss through sediment Soil erosion

0

0

50

100

150

200

250

300

40

Carbon price ($/tce)
   

0

50

100

150

200

250

300

Carbon price ($/tce)

Producers gain & Consumers lose Exports reduced Environmental gains High prices erode co-benefits due to intensification

•

Some co-benefits do not saturate over time but continue to be accrued (erosion, runoff, farm income).

•

Ecosystem gains in habitat may saturate

Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality Co-Benefits of
Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.

Co-Benefits: Water Quality Changes
Preliminary Results, at $25/tC

Change in W Q I from B aseline

-40 to -1 0 1 to 5 6 to 10 0

Source: Pattanayak, S.K., A.J. Sommer, B.C. Murray, T. Bondelid, B.A. McCarl, and D. Gillig, "Water Quality CoBenefits of Greenhouse Gas Reduction Incentives in Agriculture and Forestry," Report to EPA, 2002.

Total Economy Competitive Potential
SGM CGE Model
Composition of U.S. Emissions Reductions (remain at year 2000 emissions)
1 ,0 0 0 900 800 700 600

o th e r e n e rg y s ys te m c a rb o n c a p tu re a n d d is p o s a l a ffo re s ta tio n s o il s e q u e s tra tio n c o m m e rc ia l b io fu e ls

m illio n tC

500 400 300 200 100 0 2000 2005 2010 2015 2020 2025 2030

From Sands, R.D., B.A. McCarl, and D. Gillig, "Assessment of Terrestrial Carbon Sequestration Options within a United States Market for Greenhouse Gas Emissions Reductions," Presented at the Second Conference on Carbon Sequestration , Alexandria, VA, May 7, 2003.

200

Conclusions

 Biofuels could play an important part in a GHGE mitigating world if price was above $50 per ton of carbon.  150 low prices opportunity cost of resources exceeds value of At feedstocks generated.  Only the ability to collect benefits 100 the biofuels competitive.
Biomass for Power Plants from carbon savings makes Soil Carbon Sequestration Pine Trees on AG-Land Ethanol as Gasoline

 Competitive because biofuels continually offset fossil fuel emissions in comparison to changing tillage which saturates
50

 Biofuels may also yield other ancillary benefits.  Big question: Will society choose to reward their carbon 0 recycling characteristics?  This will entail society deciding to attach a substantial price to Carbon Value in Dollars per TCE the right to emit GHGs into the atmosphere.
0 100 200 300 400 500


				
DOCUMENT INFO
Shared By:
Categories:
Tags:
Stats:
views:8
posted:9/11/2009
language:English
pages:26
Lingjuan Ma Lingjuan Ma
About