IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v58y2014i4p511-537.html
   My bibliography  Save this article

The Short-Term Impact of a Domestic Cap-and-Trade Climate Policy on Local Agriculture: A Policy Simulation with Producer Behavior

Author

Listed:
  • Yong Jiang
  • Won Koo

Abstract

This study is intended to develop understanding of possible impact of a domestic cap-and-trade climate policy on local agriculture. We focus the study on the transition period after the policy has raised input prices for production but before establishment of new equilibrium in agricultural commodity markets. We construct a policy simulation model based on production economics that explicitly considers producer behavior in the focal period. We apply the model to a production region in the US to quantify the impact of different levels of carbon price on production cost, production value, and farm income. Our case study shows that: (1) producers have ability to alleviate the cost impact, (2) producers may benefit by selling carbon credits in the carbon market but the revenue is likely to be limited, (3) the economic return of farm production is critical to the impact assessment, (4) the impact may vary across producers, and (5) regulation on the fertilizer industry is an important policy element that can influence the assessment of the impact. This study has important implications for climate policy design. Copyright Springer Science+Business Media Dordrecht 2014

Suggested Citation

  • Yong Jiang & Won Koo, 2014. "The Short-Term Impact of a Domestic Cap-and-Trade Climate Policy on Local Agriculture: A Policy Simulation with Producer Behavior," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 58(4), pages 511-537, August.
  • Handle: RePEc:kap:enreec:v:58:y:2014:i:4:p:511-537
    DOI: 10.1007/s10640-013-9737-9
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1007/s10640-013-9737-9
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1007/s10640-013-9737-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Schneider, Uwe A. & McCarl, Bruce A. & Schmid, Erwin, 2007. "Agricultural sector analysis on greenhouse gas mitigation in US agriculture and forestry," Agricultural Systems, Elsevier, vol. 94(2), pages 128-140, May.
    2. Dahl, Carol & Duggan, Thomas E., 1996. "U.S. energy product supply elasticities: A survey and application to the U.S. oil market," Resource and Energy Economics, Elsevier, vol. 18(3), pages 243-263, October.
    3. Schneider, Uwe A. & McCarl, Bruce A., 2005. "Implications of a Carbon-Based Energy Tax for U.S. Agriculture," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 34(2), pages 1-15, October.
    4. Lutz Kilian, 2008. "The Economic Effects of Energy Price Shocks," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 871-909, December.
    5. Joost M.E. Pennings & Scott H. Irwin & Darrel L. Good, 2002. "Surveying Farmers: A Case Study," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 24(1), pages 266-277.
    6. Daniel McFadden, 2001. "Economic Choices," American Economic Review, American Economic Association, vol. 91(3), pages 351-378, June.
    7. Jorgenson, Dale & Goettle, Richard & Ho, Mun Sing & Wilcoxen, Peter, 2009. "Cap and trade climate policy and U.S. economic adjustments," Journal of Policy Modeling, Elsevier, vol. 31(3), pages 362-381, May.
    8. Chavas, Jean-Paul & Holt, Matthew T, 1996. "Economic Behavior under Uncertainty: A Joint Analysis of Risk Preferences and Technology," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 329-335, May.
    9. Lubowski, Ruben N. & Plantinga, Andrew J. & Stavins, Robert N., 2006. "Land-use change and carbon sinks: Econometric estimation of the carbon sequestration supply function," Journal of Environmental Economics and Management, Elsevier, vol. 51(2), pages 135-152, March.
    10. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521766555.
    11. Newell, Richard G. & Stavins, Robert N., 2000. "Climate Change and Forest Sinks: Factors Affecting the Costs of Carbon Sequestration," Journal of Environmental Economics and Management, Elsevier, vol. 40(3), pages 211-235, November.
    12. Elbakidze, Levan & McCarl, Bruce A., 2007. "Sequestration offsets versus direct emission reductions: Consideration of environmental co-effects," Ecological Economics, Elsevier, vol. 60(3), pages 564-571, January.
    13. Feng, Hongli & Kurkalova, Lyubov A. & Kling, Catherine L. & Gassman, Philip W., 2005. "Transfers and Environmental Co-Benefits of Carbon Sequestration in Agricultural Soils: Retiring Agricultural Land in the Upper Mississippi River Basin," Staff General Research Papers Archive 12439, Iowa State University, Department of Economics.
    14. Rose, Steven K. & Ahammad, Helal & Eickhout, Bas & Fisher, Brian & Kurosawa, Atsushi & Rao, Shilpa & Riahi, Keywan & van Vuuren, Detlef P., 2012. "Land-based mitigation in climate stabilization," Energy Economics, Elsevier, vol. 34(1), pages 365-380.
    15. Robert N. Stavins, 1999. "The Costs of Carbon Sequestration: A Revealed-Preference Approach," American Economic Review, American Economic Association, vol. 89(4), pages 994-1009, September.
    16. Baffes, John, 2009. "More on the energy / non-energy commodity price link," Policy Research Working Paper Series 4982, The World Bank.
    17. Harri, Ardian & Nalley, Lanier & Hudson, Darren, 2009. "The Relationship between Oil, Exchange Rates, and Commodity Prices," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 41(2), pages 501-510, August.
    18. Jiang, Yong & Koo, Won W., 2010. "Short-Term Impact of Cap-and-Trade Climate Policy and Agricultural Adjustment," Policy Issues 94314, Agricultural and Applied Economics Association.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wang, Feng & Liu, Xiying & Nguyen, Tue Anh, 2018. "Evaluating the economic impacts and feasibility of China's energy cap: Based on an Analytic General Equilibrium Model," Economic Modelling, Elsevier, vol. 69(C), pages 114-126.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Garnache, Cloe & Merel, Pierre R., 2012. "Carbon market policy design: Investigating the role of payments aggregation," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124960, Agricultural and Applied Economics Association.
    2. Garnache, Cloé & Mérel, Pierre R. & Lee, Juhwan & Six, Johan, 2017. "The social costs of second-best policies: Evidence from agricultural GHG mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 82(C), pages 39-73.
    3. Oladipo S. Obembe & Nathan P. Hendricks, 2022. "Marginal cost of carbon sequestration through forest afforestation of agricultural land in the southeastern United States," Agricultural Economics, International Association of Agricultural Economists, vol. 53(S1), pages 59-73, November.
    4. Favero, Alice & Mendelsohn, Robert & Sohngen, Brent, 2016. "Carbon Storage and Bioenergy: Using Forests for Climate Mitigation," MITP: Mitigation, Innovation and Transformation Pathways 232215, Fondazione Eni Enrico Mattei (FEEM).
    5. Murphy, Rose & Gross, Dominique M. & Jaccard, Mark, 2018. "Use of revealed preference data to estimate the costs of forest carbon sequestration in Canada," Forest Policy and Economics, Elsevier, vol. 97(C), pages 41-50.
    6. Michetti, Melania & Rosa, Renato, 2012. "Afforestation and timber management compliance strategies in climate policy. A computable general equilibrium analysis," Ecological Economics, Elsevier, vol. 77(C), pages 139-148.
    7. Susaeta, Andres & Chang, Sun Joseph & Carter, Douglas R. & Lal, Pankaj, 2014. "Economics of carbon sequestration under fluctuating economic environment, forest management and technological changes: An application to forest stands in the southern United States," Journal of Forest Economics, Elsevier, vol. 20(1), pages 47-64.
    8. Robert N. Stavins, 2017. "The Evolution Of Environmental Economics: A View From The Inside," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 62(02), pages 251-274, June.
    9. Zhao, Xin & Calvin, Katherine & Wise, Marshall, 2020. "The critical role of conversion cost and comparative advantage in modeling agricultural land use change," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304204, Agricultural and Applied Economics Association.
    10. 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.
    11. Kovacs, Kent F. & Haight, Robert G. & Moore, Karli & Popp, Michael, 2021. "Afforestation for carbon sequestration in the Lower Mississippi River Basin of Arkansas, USA: Does modeling of land use at fine spatial resolution reveal lower carbon cost?," Forest Policy and Economics, Elsevier, vol. 130(C).
    12. Adetoye, Ayoade Matthew & Okojie, Luke O. & Akerele, Dare, 2018. "Forest carbon sequestration supply function for African countries: An econometric modelling approach," Forest Policy and Economics, Elsevier, vol. 90(C), pages 59-66.
    13. Yemshanov, Denys & McCarney, Geoffrey R. & Hauer, Grant & Luckert, M.K. (Marty) & Unterschultz, Jim & McKenney, Daniel W., 2015. "A real options-net present value approach to assessing land use change: A case study of afforestation in Canada," Forest Policy and Economics, Elsevier, vol. 50(C), pages 327-336.
    14. David J. Lewis & Andrew J. Plantinga, 2007. "Policies for Habitat Fragmentation: Combining Econometrics with GIS-Based Landscape Simulations," Land Economics, University of Wisconsin Press, vol. 83(2), pages 109-127.
    15. Xin Zhao & Katherine V. Calvin & Marshall A. Wise, 2020. "The Critical Role Of Conversion Cost And Comparative Advantage In Modeling Agricultural Land Use Change," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 1-44, February.
    16. Choi, Andy S., 2013. "Nonmarket values of major resources in the Korean DMZ areas: A test of distance decay," Ecological Economics, Elsevier, vol. 88(C), pages 97-107.
    17. Robert N. Stavins, 1998. "A Methodological Investigation of the Costs of Carbon Sequestration," Journal of Applied Economics, Taylor & Francis Journals, vol. 1(2), pages 231-277, November.
    18. Kesternich, Iris & Heiss, Florian & McFadden, Daniel & Winter, Joachim, 2013. "Suit the action to the word, the word to the action: Hypothetical choices and real decisions in Medicare Part D," Journal of Health Economics, Elsevier, vol. 32(6), pages 1313-1324.
    19. Monge, Juan J. & Bryant, Henry L. & Gan, Jianbang & Richardson, James W., 2016. "Land use and general equilibrium implications of a forest-based carbon sequestration policy in the United States," Ecological Economics, Elsevier, vol. 127(C), pages 102-120.
    20. Chorus, Caspar & van Cranenburgh, Sander & Daniel, Aemiro Melkamu & Sandorf, Erlend Dancke & Sobhani, Anae & Szép, Teodóra, 2021. "Obfuscation maximization-based decision-making: Theory, methodology and first empirical evidence," Mathematical Social Sciences, Elsevier, vol. 109(C), pages 28-44.

    More about this item

    Keywords

    Greenhouse gas; Cap and trade; Climate change; Agriculture; Economics; Carbon markets; Q54; Q52; Q58;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:58:y:2014:i:4:p:511-537. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.