The Welfare Effects of Greenhouse Gas Emissions in German Pork Production

Greenhouse gas (GHG) emissions are an externality of the pork production process. To respond to climate change concerns and reduce GHG emissions, internalizing this external effect using a market-based economic instrument would be economically efficient. We calculate the welfare effects of GHG emissions using a partial equilibrium model of the German pork market. Sensitivity analysis is used to investigate the impacts of emission prices and emission rates on the welfare effects of reducing GHG emissions. Potential overall welfare gains amount to roughly € 360,000 in the base setting and increase to roughly € 3 million when emission prices are tripled. This sensitivity highlights the need for more dependable estimates of key parameters such as emission prices and emission rates. However, even the largest estimates of these welfare gains are relatively small. By contrast, the distributional effects of internalizing GHG externalities in pork production for producers, consumers and the state are large in all scenarios. The large redistribution effects that follow from even a small pork price increase as a result of internalizing GHG emissions indicate that attempts to tie German pork production into such policies would be highly controversial but may create incentives to invest in technologies which mitigate GHG emissions.