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The Short-Term Impact of a Domestic Cap-and-Trade Climate Policy on Local Agriculture: A Policy Simulation with Producer Behavior

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  • Yong Jiang

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  • Won Koo

Abstract

This study is intended to develop understanding of possible impact of a domestic cap-and-trade climate policy on local agriculture. We focus the study on the transition period after the policy has raised input prices for production but before establishment of new equilibrium in agricultural commodity markets. We construct a policy simulation model based on production economics that explicitly considers producer behavior in the focal period. We apply the model to a production region in the US to quantify the impact of different levels of carbon price on production cost, production value, and farm income. Our case study shows that: (1) producers have ability to alleviate the cost impact, (2) producers may benefit by selling carbon credits in the carbon market but the revenue is likely to be limited, (3) the economic return of farm production is critical to the impact assessment, (4) the impact may vary across producers, and (5) regulation on the fertilizer industry is an important policy element that can influence the assessment of the impact. This study has important implications for climate policy design. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Yong Jiang & Won Koo, 2014. "The Short-Term Impact of a Domestic Cap-and-Trade Climate Policy on Local Agriculture: A Policy Simulation with Producer Behavior," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 511-537, August.
  • Handle: RePEc:kap:enreec:v:58:y:2014:i:4:p:511-537
    DOI: 10.1007/s10640-013-9737-9
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    References listed on IDEAS

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    More about this item

    Keywords

    Greenhouse gas; Cap and trade; Climate change; Agriculture; Economics; Carbon markets; Q54; Q52; Q58;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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