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Greenhouse Gas Offsets: Analysis Of Baseline Rules And Additionality For Reduced Nitrogen Application On Wheat

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  • JOHN HOROWITZ

    (Office of Tax Policy, U.S. Department of the Treasury, USA)

Abstract

Agriculture is a source of greenhouse gas emissions that could be included as offsets in a cap-and-trade system. This paper describes offset rules that could be applied to reduced nitrogen fertilizer application on wheat, a source of nitrous oxide emissions. Unlike other papers that have examined offset rules, we do not assume that farmers' business-as-usual nitrogen emissions can be perfectly predicted. We construct a structural model of wheat production and use this, along with Agricultural Resource Management Survey data, to model or estimate participation in the offset market, offset supply conditional on participation, and business-as-usual emissions. We find that roughly two-thirds of the supplied offsets would be non-additional at an allowance price of $15/tonneCO2-e. Under assumptions about the social damages from greenhouse gas emissions, we find that allowing nitrogen offsets would marginally pass a standard benefit-cost test.

Suggested Citation

  • John Horowitz, 2014. "Greenhouse Gas Offsets: Analysis Of Baseline Rules And Additionality For Reduced Nitrogen Application On Wheat," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 5(02), pages 1-27.
    • Handle: RePEc:wsi:ccexxx:v:05:y:2014:i:02:n:s201000781450002x
    DOI: 10.1142/S201000781450002X
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    References listed on IDEAS

    as
    1. Claassen, Roger & Aillery, Marcel P. & Nickerson, Cynthia J., 2007. "Integrating Commodity and Conservation Programs: Design Options and Outcomes," Economic Research Report 6703, United States Department of Agriculture, Economic Research Service.
    2. Francisco Rosas & Bruce A. Babcock & Dermot J. Hayes, 2011. "A Nonlinear Offset Program to Reduce Nitrous Oxide Emissions Induced by Excessive Nitrogen Application," Food and Agricultural Policy Research Institute (FAPRI) Publications (archive only) 11-wp521, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Marshall, Elizabeth P. & Weinberg, Marca, 2012. "Baselines in Environmental Markets: Tradeoffs Between Cost and Additionality," Economic Brief 138922, United States Department of Agriculture, Economic Research Service.
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