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The economic consequences of substituting carbon payments for crop subsidies in U.S. agriculture

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  • J. Callaway
  • Bruce McCarl

Abstract

There is a growing body of literature on the costs of sequestering carbon. However, no studies have examined the interplay between farm commodity programs and carbon sequestration programs. This study investigates two dimensions of the interaction between farm commodity programs and afforestation programs, using a price-endogenous sector model of agriculture in the United States. First, this study compares the fiscal and welfare costs of achieving specific carbon targets through afforestation, with and without current farm programs. Second, it examines the welfare, fiscal, and carbon consequences of replacing existing farm subsidies, wholly or in part, with payments for carbon. Two approaches, Hicksian and Marshallian, are investigated. In the first, the sector model is used to quantify the carbon consequences and fiscal costs associated with various combinations of farm commodity and carbon sequestration programs that leave consumers and producers in the U.S. agricultural sector no worse off than under existing farm programs. The second approach focuses on the carbon and welfare consequences of various farm commodity and carbon sequestration programs that hold total program fiscal costs constant at current levels. Althouth the methodology and data are applied to the United States, the issues addressed are common in a number of developed nations, particularly within the European Union (EU). Adapting existing sector models in these nations to perform similar analyses would provide policy makers with more precise information about the nature of the trade-offs involved with second-best policies for replacing farm commodity subsidies with tree planting subsidies. Copyright Kluwer Academic Publishers 1996

Suggested Citation

  • J. Callaway & Bruce McCarl, 1996. "The economic consequences of substituting carbon payments for crop subsidies in U.S. agriculture," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 7(1), pages 15-43, January.
  • Handle: RePEc:kap:enreec:v:7:y:1996:i:1:p:15-43
    DOI: 10.1007/BF00420425
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    References listed on IDEAS

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    1. Spreen, Thomas H., 2006. "Price Endogenous Mathematical Programming Models and Trade Analysis," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 38(02), August.
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    Citations

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    Cited by:

    1. G. Cornelis van Kooten & Susanna Laaksonen-Craig & Yichuan Wang, 2007. "Costs of Creating Carbon Offset Credits via Forestry Activities: A Meta-Regression Analysis," Working Papers 2007-03, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    2. Robert N. Stavins, 1998. "A Methodological Investigation of Cost of Carbon Sequestration," Journal of Applied Economics, Universidad del CEMA, vol. 1, pages 231-277, November.
    3. Kim, Taeyoung & Langpap, Christian, 2012. "Private Forest Landowners’ Response to Incentives for Carbon Sequestration," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124362, Agricultural and Applied Economics Association.
    4. Kim, Taeyoung & Langpap, Christian, 2012. "Private Landowners’ Response to Incentives for Carbon Sequestration in Forest Management," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 130709, Agricultural and Applied Economics Association.
    5. Lubowski, Ruben N. & Plantinga, Andrew J. & Stavins, Robert N., 2006. "Land-use change and carbon sinks: Econometric estimation of the carbon sequestration supply function," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 135-152, March.
    6. Ralph Alig & Darius Adams & Bruce McCarl & J. Callaway & Steven Winnett, 1997. "Assessing effects of mitigation strategies for global climate change with an intertemporal model of the U.S. forest and agriculture sectors," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 9(3), pages 259-274, April.
    7. Kim, Taeyoung & Langpap, Christian, 2016. "Agricultural landowners’ response to incentives for afforestation," Resource and Energy Economics, Elsevier, vol. 43(C), pages 93-111.
    8. Jung, Martina, 2003. "The Role of Forestry Sinks in the CDM - Analysing the Effects of Policy Decisions on the Carbon Market," HWWA Discussion Papers 241, Hamburg Institute of International Economics (HWWA).
    9. Jepkemei, Busienei Vivian, 2010. "Potential Economic Value Of Carbon Sequestration In Kakamega Forest And Surrounding Farms," Research Theses 117803, Collaborative Masters Program in Agricultural and Applied Economics.
    10. Newell, Richard G. & Stavins, Robert N., 2000. "Climate Change and Forest Sinks: Factors Affecting the Costs of Carbon Sequestration," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 211-235, November.
    11. Lehtonen, Heikki & Peltola, Jukka & Sinkkonen, Marko, 2006. "Co-effects of climate policy and agricultural policy on regional agricultural viability in Finland," Agricultural Systems, Elsevier, vol. 88(2-3), pages 472-493, June.
    12. Szulczyk, Kenneth R. & McCarl, Bruce A., 2010. "Market penetration of biodiesel," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(8), pages 2426-2433, October.
    13. Benitez, Pablo C. & Obersteiner, Michael, 2006. "Site identification for carbon sequestration in Latin America: A grid-based economic approach," Forest Policy and Economics, Elsevier, vol. 8(6), pages 636-651, August.
    14. Stavins, Robert & Plantinga, Andrew & Lubowski, Ruben, 2005. "Land-Use Change and Carbon Sinks," Discussion Papers dp-05-04, Resources For the Future.
    15. Szulczyk, Kenneth R. & McCarl, Bruce A. & Cornforth, Gerald, 2010. "Market penetration of ethanol," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(1), pages 394-403, January.
    16. Robert N. Stavins, 1999. "The Costs of Carbon Sequestration: A Revealed-Preference Approach," American Economic Review, American Economic Association, vol. 89(4), pages 994-1009, September.

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