U.S. Climate Policy Revisited: Spatially Distributed Spillover Effects on Agricultural Production, Trade and Land Use

Agriculture is the largest emitter of non-CO2 greenhouse gas emissions, but it seems unlikely that these emissions will be covered by climate policies in the near future. However, even if carbon pricing were applied to CO2 emissions alone, as is the case with the EU emissions trading scheme (ETS), the agricultural sector would be impacted through the increasing costs of intermediate energy inputs, rising fertilizer prices and changing food demand in response to changing prices and incomes. Considering the tremendous heterogeneity of agricultural production systems across the continental U.S., it is also important to not only understand the potential macroeconomic and sectoral implications of the climate mitigation measures, but also the spatial distribution of the corresponding impacts. In this paper, we apply a harmonized macro-gridded modeling framework to provide an assessment of spatially distributed spillover effects of climate mitigation policies on U.S. crop sector. Our results suggest that even if mitigation measures would be implemented in a form of CO2 pricing only (i.e. non-CO2 GHGs would not be directly targeted), the crop sector would be impacted through a number of channels, with rising fertilizer prices being the key one. Overall, we find substantial environmental co-benefits achieved through this channel and resulting in a reduction of cropland use, nitrogen leaching and water withdrawals. In particular, we find that such a climate policy would yield substantial water quality co-benefits, mitigating nitrate leaching to a greater extent than current voluntary environmental policies targeting water quality directly.