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Benefits of pollution monitoring technology for greenhouse gas offset markets

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  • Amy W. Ando

    ()
    (University of Illinois at Urbana-Champaign)

  • Shibashis Mukherjee

    ()
    (University of Illinois at Urbana-Champaign)

Abstract

Environmental economists have shown that tradable emission permit markets can reduce the costs to society of pollution reduction. However, when emissions are difficult to monitor and verify, offset credits from pollution reductions may be subject to price discounts that reduce social welfare. In this paper, we estimate the extent to which social welfare could be improved by using new technology to increase the accuracy with which pollution flows from agricultural fields can be monitored. We use a hypothetical case study of a situation in which farmers can reduce nitrous oxide (N2O) emissions from Midwest agricultural land parcels and sell the resulting offset permits in a greenhouse gas tradable permit market. We simulate market outcomes with and without an inexpensive technology that increases the accuracy of emission estimates, reduces the discount to which agricultural offset permits are subject, and improves the performance of tradable permit system. We find that the benefits from such technology range as high as $138 for a 100 acre field if N2O emissions are an exponential function of nitrogen application rates. However, variation in the benefits to farmers of eliminating price discounts may mean efficient technology adoption is not uniform across space.

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Bibliographic Info

Article provided by AccessEcon in its journal Economics Bulletin.

Volume (Year): 32 (2012)
Issue (Month): 1 ()
Pages: 122-136

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Handle: RePEc:ebl:ecbull:eb-11-00644

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Keywords: tradable permit; greenhouse gases; uncertainty; technology;

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  1. Golub, Alla & Hertel, Thomas & Lee, Huey-Lin & Rose, Steven & Sohngen, Brent, 2009. "The opportunity cost of land use and the global potential for greenhouse gas mitigation in agriculture and forestry," Resource and Energy Economics, Elsevier, vol. 31(4), pages 299-319, November.
  2. Vermont, Bruno & De Cara, Stéphane, 2010. "How costly is mitigation of non-CO2 greenhouse gas emissions from agriculture?: A meta-analysis," Ecological Economics, Elsevier, vol. 69(7), pages 1373-1386, May.
  3. Lyubov A. Kurkalova, 2005. "Carbon Sequestration in Agricultural Soils: Discounting for Uncertainty," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 53(4), pages 375-384, December.
  4. Stavins Robert N., 1995. "Transaction Costs and Tradeable Permits," Journal of Environmental Economics and Management, Elsevier, vol. 29(2), pages 133-148, September.
  5. Kurkalova, Lyubov A. & Kling, Catherine L. & Zhao, Jinhua, 2004. "Value of Agricultural Nonpoint Source Pollution Measurement Technology: Assessment from a Policy Perspective," Staff General Research Papers 12328, Iowa State University, Department of Economics.
  6. Glenn Sheriff, 2005. "Efficient Waste? Why Farmers Over-Apply Nutrients and the Implications for Policy Design," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 27(4), pages 542-557.
  7. Stéphane Cara & Martin Houzé & Pierre-Alain Jayet, 2005. "Methane and Nitrous Oxide Emissions from Agriculture in the EU: A Spatial Assessment of Sources and Abatement Costs," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 32(4), pages 551-583, December.
  8. Brink, Corjan & van Ierland, Ekko & Hordijk, Leen & Kroeze, Carolien, 2005. "Cost_effective emission abatement in agriculture in the presence of interrelations: cases for the Netherlands and Europe," Ecological Economics, Elsevier, vol. 53(1), pages 59-74, April.
  9. Kim, Man-Keun & McCarl, Bruce A., 2009. "Uncertainty Discounting for Land-Based Carbon Sequestration," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 41(01), April.
  10. Richard D. Horan, 2001. "Differences in Social and Public Risk Perceptions and Conflicting Impacts on Point/Nonpoint Trading Ratios," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 83(4), pages 934-941.
  11. Antle, John M. & Capalbo, Susan M. & Mooney, Sian & Elliott, Edward T. & Paustian, Keith H., 2001. "Economic Analysis Of Agricultural Soil Carbon Sequestration: An Integrated Assessment Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 26(02), December.
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