Transcript Topic 11: Co-Effects of CC and GHG Mitigation Policies

Co-Effects of CC and GHG Mitigation Policies
Bruce McCarl
Distinguished and Regents Professor of
Agricultural Economics
Texas A&M University
Presented at
Climate Change Segment of Advanced Resources Class
College Station,
Feb 2011
Discussion 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
CO-Effects of CC and GHG Mitigation: Economic Perspective

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.
AF Strategies for GHG Mitigation
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CO-Effects of CC Policies: Economic Perspective
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.
Ag CO-Effects of CC Policies Framework
Land Use
Change
CC
Effects
Social
Effects
Direct Effects
Air
Quality
Job
Creation
Public
Health
Fuel
Security
Water
Quality
Life
Styles
Environ
Effects
Econ
Effects
CO-Effects
Soil
Quality
Biodiversity
Recreational
Impacts
Rural
Econ
Endangered
Species
Tech
Progress
ETC.
??
??
??
??
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$/tC.
Source: Climate Change 2001: Working Group III: Mitigation
http://www.grida.no/climate/ipcc_tar/wg3/337.htm
Do Co-Effects Matter?

Inclusion of CO-Effects will affect cost of reductions.
Carbon
Tax ($/TCE)
MC + Externality Benefits
MC
MC + Externality Costs
Tax0
Q1
Q0
Q2
Emission Reduction (tons)
Figure 2. Marginal Cost Curve for Carbon Emission Reductions
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).
SMC = MCprivate + Externality Costs
$
MCprivate
SMB
P2
P*
P1
Q2
Q* Q1
Energy
Figure 1. Social Marginal Benefit and Marginal Cost Curve for Energy
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 COSTS
SOCIAL 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
Co-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).
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Measure 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
100
Nitrogen Subsurface Flow
Pollution (%/acre)
90
80
Nitrogen Percolation
70
60
Soil erosion
50
40
Phosphorus loss
through sediment
0
50
100
150
200
Carbon price ($/tce)
250
300
Measure and Quantify Co-Effects
Monetization
 Development of methods to quantify Co-Effects in terms of dollar
values
 Econometric techniques such as non-market valuation, ricardian
model, etc.
Would you be willing to pay __$ on
an annual basis for a management
program designed to preserve
endangered species XX?
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.
Case Studies of Co-Effects: Water Quality
Carbon
Prices
ASMGHG
Reference: Pattanayak et al. 2002
Ag Census
NRI
State Annual
Crop Acreage
Regional
Crop Mix
input use
Env loads
Regionalizing
Model
County
Crop Mix
and
percent loads
NWPCAM
Water
Quality
Index
EPIC
Runoff
Sim.

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

Compute
Co- benefits elasticity 
%WQI
%GHG
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Case Studies of Co-Effects: Water 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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Co-Benefits: Water Quality Changes due to
Changes in Cropland Management and
Afforestation
Preliminary Results, at $25/tC
Change in WQI
from Baseline
-40 to -1
0
161 to 5
6 to 100
Source: Pattanayak et al. 2002
Case Studies of Co-Effects: Water 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
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Case Studies of Co-Effects: Environmental benefits
Empirical Procedure
Reference: Plantinga and Wu 2003
Estimate
Land Use
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 agriculture
Net return to Ag => – effect on the forest but + on the agriculture
Get Acres of
Afforested
Land
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).
Determine
C Seq.& Environ.
Characteristics
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).
Estimate
Environ.
Benefits
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
Case Studies of Co-Effects: Environmental benefits
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: Biodiversity
Category
Maine
South Carolina Wisconsin
3.2
Percent Change
2.5
21.8
Farmland Birds
-10.8
-12.2
-11.7
Forest & Farmland Birds
-2.0
-2.3
-1.1
Forest Birds
Reference: Matthews, O’Connor, and Plantinga 2002

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
=>
Negative the net Co-benefits (CB)
( PDC  PAIC  MTC  φ *GC  CB)
Social cost per ton 
QGHGO*(1 DISC )

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
Reference: McCarl.B.A , Tanveer A. B , Man,K. Kim, Cost of Carbon
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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 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?

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-effects
GHGE Mitigation
Agricultural
Involvement
Co-effects
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
control
CN
All Non-ag
CA
Q
All ag
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CA is cost of abatement by Ag, CN is cost of abatement by Non Ag,
Ag vs Non Ag share of a given amount of emissions
control
CN
CA
C’A
Ag cobenefits
All Non-ag
Q
Q’
Ag co benefits only and ag share increases
All ag
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Ag vs Non Ag share of a given amount of emissions
control
CN
C’N
All Non-ag
CA
C’A
Non Ag cobenefits
Q’’
Q
Ag cobenefits
Q’
All ag
Ag and non ag co benefits and share depends on relative size
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Case Studies of Co-Effects: Environmental benefits
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
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Challenge
 Complexity
=> multiple co-effects, double count, global vs.
local effects, etc.
CC
Air
Quality
Human
Health
Mitigation
Water
Quality
 Quantifiability => methodologies
 Policy Design
 Distributional effects =>
 Uncertainty
CDM
Reference
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