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Markets for Agricultural Greenhouse Gas Offsets: The Role of Policy Design on Abatement Efficiency

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  • Garnache, Cloe
  • Merel, Pierre R.
  • Lee, Juhwan
  • Six, Johan

Abstract

This article investigates the role of greenhouse gas (GHG) offset payment design on abatement efficiency in agriculture. We develop a regionally disaggregated positive mathematical programming model of California agriculture calibrated to economic and agronomic information. Regional yield and GHG emission responses to production practices are derived from a biophysical process model. The economic optimization model allows for simultaneous and continuous changes in water, nitrogen fertilizer, and tillage intensities, and captures crop substitution effects. Empirical results show that second-best policies relying on regionally aggregated emission factors lead to small abatement efficiency losses relative to the first-best policy with finer-scale emission factors. Because the costs of such second-best policies are substantially lower, this finding suggests that they could be cost-effective in California. In contrast, second-best policies targeting a single GHG or a single input entail significant abatement efficiency losses, which nonetheless can be reduced by combining policy instruments.

Suggested Citation

  • Garnache, Cloe & Merel, Pierre R. & Lee, Juhwan & Six, Johan, 2014. "Markets for Agricultural Greenhouse Gas Offsets: The Role of Policy Design on Abatement Efficiency," 2014 Annual Meeting, July 27-29, 2014, Minneapolis, Minnesota 170718, Agricultural and Applied Economics Association.
  • Handle: RePEc:ags:aaea14:170718
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    File URL: http://purl.umn.edu/170718
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    Keywords

    Greenhouse gas emission; agricultural production; pollution abatement; policy design; mathematical programming; Agricultural and Food Policy; Environmental Economics and Policy; C6; Q1; Q5;

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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