Transcript No Slide Title

Economic Assessment of GHG Mitigation
Strategies for Canadian Agriculture: Role
of market mechanisms for soil sinks
Robert Flick & Bob MacGregor
Agriculture and Agri-Food Canada,
Presentation to GHG Modeling Forum
Shepherdstown, WV, October 8-11, 2002
Outline of Presentation
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Background & Goal
Modelling Objectives
The structure of CEEMA
Preliminary results
Limitations
Next steps
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Background & Goal
• Agriculture and Agri-Food Canada (AAFC) has a research
program in place to assess alternative GHG mitigation
strategies.
• Canadian Economic and Emissions Model for Agriculture
(CEEMA) is used to assess the economic and emission
impacts.
• Current efforts now include endogenizing adoption rates
within CEEMA to respond to variable carbon prices.
• The goal is to derive a supply curve for carbon removals.
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Modelling Objectives
• If we are going to use a market mechanism such as DET &
offsets, need to estimate at what world prices for CO2 different
mitigation actions would be adopted
• In Phase I only looking at tillage practices and price for CO2
to test methodology in CEEMA
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Schematic of the Components of CEEMA
Land Base
Non-land
resources
Uncultivated
Land
Cultivated Land
Technology of
Production
Economic Optimization Model
(Canadian Regional Agricultural Model)
Farm
Input
Demand
Science of
Greenhouse
Gas Emissions:
Estimation of
coefficients
Level of
Crop and
Livestock
Productio
n
Product and
Input Markets
Shipment
s and
Trade
Greenhouse Gas Emissions Model
Greenhouse Gas Emissions from the
Agriculture and Agri-Food Sector
Producer and
Consumer
Surplus
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Policy Model - CRAM
• Static, non-linear optimization model
• Maximizes producer + consumer surplus
• Integrates all sectors of primary agriculture
• Regional supply/demand
• Inter-provincial and international trade
• Government policies/subsidies
• Transportation and handling
• Land is the only resource constraint
• Crop supply response determined by relative
profitability of alternative crops
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Greenhouse Gas Emissions Module
• 100 year Global Warming Equivalent estimates of CO2, CH4
and N2O emissions
• Emission coefficients based on latest scientific information
- biophysical models (CENTURY)
- expert opinion (AAFC Research Branch, IPCC and
Environment Canada)
• Disaggregate approach - emissions of each GHG are
estimated for each region, crop and livestock production
activities, and source of GHG emissions
• Estimated emissions = emissions coefficient *
production activity level
• Flexibility in method of summation (e.g. total agriculture and
agri-food sector vs. IPCC/Inventory methodology)
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Features that Allow us to endogenize carbon
• CRAM has crop production in the Prairies specified by
rotation in terms of fallowing, crop type, tillage
technology and region
• The GHG module provides sequestration coefficients in
a consistent manner, but by soil zone vs. region
•The model is calibrated to represent the base year
employing Positive Math Programming
•Information is obtained from the Census (every 5 years)
plus other sources
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Testing Model for various carbon prices
• Using a loop routine in GAMS, carbon prices in the
objective function were increased incrementally
•This has the impact of increasing returns to those cropping
activities that sequester more carbon
•This is interpreted as impacting the adoption rate for
different tillage practices
•Other GHG not initially account for, nor costs of adoption
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Preliminary testing of Model
NO TILL ADOPTION RATES
% OVER BASE
25.00
20.00
CANADA
15.00
ALTA
10.00
SASK
MAN
5.00
0.00
0.00
20.00 40.00 60.00 80.00 100.00 120.00
CARBON PRICE ($/t of C)
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Economic Value to Sector
CARBON REVENUE (000's)
CARBON REVENUE
180000
160000
140000
120000
100000
80000
60000
40000
20000
0
0.00
CARBON REVENUE
10.00
20.00
30.00
40.00
CARBON PRICE ($/t of CO2)
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To complete Phase I we have some
more work to do on the Model
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Cost curves in model are only short run in nature, we
need to replace with long run marginal factor cost
curves to reflect true costs
• Current cost information needs to be improved
• Adoption cost must be incorporated
• Need to incorporate any longer term economic and
environmental benefits from practices
• Transaction costs must be incorporated
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Further Research Activities
• Look at other offset possibilities
•both sinks and emission reductions
• Investigate Generalized Maximum Entropy to fill in data
gap on cost of production
•Incorporate other mitigation technologies or production
options into the modelling system
• Evaluate dynamic issues in terms of managing sinks over
longer time horizon
• Evaluate different design options to reduce transaction
costs.
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