Including Harvested Grain Biogenic CO2 to Address a Critical Flaw in Climate Accounting

The international climate accounting system excludes both the biogenic CO2 sequestered in harvested crops and the biogenic CO2 emissions that occur when grain is digested or burned as biofuel. Despite being described in the literature as a critical flaw in climate accounting all parties within the United Nations Framework Convention on Climate Change continue to treat these large biogenic CO2 fluxes as carbon‐neutral activities, while analysis of the accounting issue remains largely absent from the extensive literature examining international carbon leakage and GHG mitigation policy. Using a partial‐equilibrium trade model, I analyse the economic implications of measuring harvested‐grain biogenic CO2 and find in the presence of traded grain and internationally heterogeneous GHG mitigation policy, measurement would change optimal domestic agricultural GHG mitigation policy. Given estimated CO2 damage costs of $185/t, the unmeasured external biogenic benefit from grain production, and the unmeasured external biogenic cost from grain consumption, are equal in magnitude to the price of grain. Including the biogenic harvested‐grain CO2 in Canada's national inventory reduces measured emissions by 80 million tonnes per year. The size of these effects suggest that the measurement of harvested‐grain biogenic CO2 could be extremely consequential for the design of optimal GHG mitigation policy. JEL Classifications: Q15, Q54