Meeting multiple policy objectives under GHG emissions reduction targets
Since many countries already pursue a range of environmental objectives for agriculture, in particular the supply of positive externalities or public goods (e.g., wildlife habitat, water supply management, provision of landscape amenities) as well as the reduction of negative externalities, such as soil erosion or water pollution, efforts to reduce GHG emissions may have to be balanced against other environmental objectives. We examine this problem by considering an agricultural sector that supplies a positive environmental attribute (landscape amenity) as well as two negative attributes (GHG emissions and nutrient contamination of ground and surface water). The sector can also engage in production activities that contribute to reductions in the concentration of carbon in the atmosphere (carbon sequestration activities). In our model this involves devoting agricultural land to growing trees (agro-forestry). We use the model to examine policy choices designed to increase the positive domestic environmental contribution of agriculture, while at the same time reducing its negative contribution. We also use the model to examine the implications for achieving domestic environmental objectives of the imposition of an internationally determined GHG emission reduction requirement on agriculture. In the case where the socially optimal level of GHG emissions from agriculture based on the national social damage function for GHG emissions is below the global command and control target for the country, the levels of subsidies and taxes on inputs needed to maximize domestic social welfare lead to GHG reductions in excess of the global target. In contrast, the national social value assigned to the domestic damage due to GHG emissions could be at odds with the global social value of the damage implicit in the command and control target level of emission reductions assigned to the country and applied by that country to agriculture. In this case, domestic social welfare could be improved by allowing for an additional unit of GHG emissions by the sector. Thus, from a domestic point of view, the global command and control target level of reductions assigned to the country is too high. We also argue that the most practical way to achieve multiple environmental objectives, including GHG mitigation in agriculture is to focus on inputs – specifically how land is used and what inputs are applied to that land. In this way negative externalities can be reduced and the supply of positive externalities and public goods can be increased. Since it is unlikely to prove politically acceptable to use explicit taxes on inputs to correct for negative externalities in agriculture, a more likely approach is one based on payments for environmental services designed specifically to translate the non-market values of the environment services into financial incentives for local actors to provide such services.
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"Optimal Taxation with Joint Production of Agriculture and Rural Amenities,"
CEPR Discussion Papers
6615, C.E.P.R. Discussion Papers.
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