Where in the world is it cheapest to cut carbon emissions?*

Countries with low marginal costs of abating carbon emissions may have high total costs, and vice versa, for a given climate mitigation policy. This may help to explain different countries’ policy stances on climate mitigation. We hypothesize that, under a common percentage cut in emissions intensity relative to business as usual (BAU), countries with higher BAU emission intensities have lower marginal abatement costs, but total costs relative to output will be similar across countries, and under a common carbon price, relative total costs are higher in emission‐intensive countries. Using the results of the 22nd Energy Modeling Forum (EMF‐22), we estimate marginal abatement cost curves for the US, EU, China and India, which we use to estimate marginal and total costs of abatement under a number of policy options currently under international debate. This analysis provides support for our hypotheses, although its reliability is limited by the shortcomings of the EMF‐22 models and the degree to which our econometric model can adequately account for the substantial differences among them.     

Weak Disposability in Nonparametric Production Analysis with Undesirable Outputs

Weak disposability of outputs means that firms can abate harmful emissions by decreasing the activity level. Modeling weak disposability in nonparametric production analysis has caused some confusion. This article identifies a dilemma in these approaches: conventional formulations implicitly and unintentionally assume all firms apply uniform abatement factors. However, it is usually cost-effective to abate emissions in those firms where the marginal abatement costs are lowest. This article presents a simple formulation of weak disposability that allows for non-uniform abatement factors and preserves the linear structure of the model.     

Marginal abatement costs of greenhouse gas emissions: broadacre farming in the Great Southern Region of Western Australia

Broadacre agriculture is a major emitter of greenhouse gases (GHG). To improve efficiency of climate change policies, we need to know the marginal abatement costs of agricultural GHG. This article combines calculations of on‐farm GHG emissions with an input‐based distance function approach to estimate the marginal abatement costs for a broadacre farming system in the Great Southern Region of Western Australia. The results show that, in the study region, the average marginal abatement cost for the 1998–2005 periods was $29.3 per tonne CO₂‐e. Farms with higher crop output shares were found to have higher marginal abatement costs. Overall, our results indicate that broadacre agriculture is among the lowest cost sources of GHG mitigation.     

ALTERNATIVE PRODUCTION FRONTIER METHODOLOGIES AND DAIRY FARM EFFICIENCY

This paper estimates technical efficiency (TE) measures using four alternative production frontier models, and evaluates the sensitivity of the results to the choice of methodology. The Cobb-Douglas functional form along with data for 1982 and 1983 from 404 dairy farms located throughout six northeastern states in the US are used in the estimation. A general conclusion is that, broadly speaking, frontier function models are neutrally upwardly scaled versions of the OLS or average model. A second conclusion is that different models yield markedly different efficiency levels across firms. However, the correlation between the indexes from the various methods is high, which implies that the ordinal ranking of firms according to their measured level of technical efficiency appears to be independent of the method used for a given year. By comparison, the correlation between efficiency indexes for the same method across time, although positive, is much lower than the previous set of correlations. Correlation analysis of efficiency versus farm size and of efficiency versus returns over variable costs, based on the alternative models, yielded consistent results.     

Cost-effective Targeting of Riparian Buffers

This paper develops an integrated economic, hydrologic and GIS modeling framework to examine the cost-effective targeting of land retirement for establishing riparian buffers in agricultural watersheds. Previous studies have examined the efficiency of targeting large land parcels for retirement or targeting management practices such as conservation tillage but have not considered narrow variable buffer strips. An empirical application of the framework in the Canagagigue Creek watershed in Ontario shows that average and marginal costs of sediment abatement increase at an increasing rate as the environmental goal becomes more stringent. The locations of the buffer strips vary across the watershed and are not necessarily located on those sites with greatest slope or those adjacent to visible streams. Cost effectiveness is further increased if the targeting is extended to allow for the width of the buffer strip to vary by location rather than assume a uniform width. The modeling results have important policy implications for the design of conservation stewardship programs such as setting appropriate environmental health goals based on marginal abatement costs relative to marginal benefits, and setting physical characteristics of the riparian buffers for selection along the drainage network in targeted sub-catchments.     

Does carbon farming provide a cost‐effective option to mitigate GHG emissions? Evidence from China

In this study, we apply a whole farm bioeconomic analysis to explore the changes in land use, farm practices and on‐farm greenhouse gas (GHG) emission under varying levels of agricultural greenhouse gas abatement incentives in the form of a carbon tax for a semi‐arid crop‐livestock farming system in China's Loess Plateau. Our results show that the optimised agricultural enterprises move towards being cropping‐dominated reducing on‐farm emission since livestock perform is the major source of emission. Farmers employ less oats‐based and rapeseed‐based rotations but more dry pea‐based rotations in the optimal enterprise mix. A substantial reduction in on‐farm greenhouse gas emission can be achieved at low cost with a small increase in carbon incentives. Our estimates indicate that crop‐livestock farmers in China's Loess Plateau may reduce their on‐farm GHG emission between 16.6 and 33 per cent with marginal abatement costs <￥100/t CO₂e and ￥150/t CO₂e in 2015 Chinese Yuan. The analysis implies that reducing greenhouse gas emission in China's semi‐arid crop‐livestock agriculture is potentially a low‐cost option.     

Empirical evaluation of nonpoint pollution policies under agent heterogeneity: regulating intensive dairy production in the Waikato region of New Zealand*

Models used for policy evaluation rarely consider firm heterogeneity, despite its importance for instrument design. This study considers agent heterogeneity explicitly in the evaluation of policies for nonpoint pollution control through the integration of decomposition and calibration procedures for programming models. The application concerns the regulation of nitrate leaching from intensive dairy production in the Waikato region of New Zealand. Failing to represent firm heterogeneity leads to widely different estimates of mitigation costs, relative to where heterogeneity is considered. Variation in baseline emissions and the slopes of abatement cost curves between firms renders a differentiated policy less costly than a uniform standard. However, the relative values of these policies are not broadly different, as firms required to do the most abatement – intensive farms with large baseline pollutant loads – can do so more cheaply, on average.     

Damage Control Productivity: An Input Damage Abatement Approach

This paper compares the value of the marginal product of three different pesticides from different specifications of the production function. The specifications are the output damage abatement specification proposed by Lichtenberg and Zilberman, a general input damage abatement specification and a traditional production function. These specifications are estimated on panel data of specialised Dutch arable farms over the period 1989–1992, using Generalised Maximum Entropy estimation. Results of the input damage abatement specification show that pesticides have different impacts on individual productive inputs, although statistical evidence is weak. The output damage abatement specification produces statistically more significant relations, but imposes restrictions that are only partly supported by the data. It is also found that estimation of a quadratic traditional production function, that treats damage abatement inputs in the same way as productive inputs, does not lead to over estimation of the value of the marginal product as previous authors have hypothesised.     

Pollution abatement and productivity performance of regional Canadian pulp and paper industries

The performance of pulp and paper industries in four Canadian regions is compared based on the estimation of an input distance function, with and without pollutant outputs. Distance functions are techniques for the representation and estimation of multiple-output and multiple-input production technologies. They are quantity-based techniques. Non-marketed outputs such as pollutants can be easily incorporated into productivity analysis with the help of distance functions. This environmentally sensitive approach provides higher productivity growth estimates for all regions, indicating the need for adjusting conventional measures that ignore the non-marketed benefits of pollution abatement activities. The results also consistently indicate the presence of substantial differences in the regional levels of technical efficiency. Regional industries have not enjoyed similar rates of technological progress due to differences in their underlying structures. Productivity growth estimates for most regional industries remain weak or negative even after the recognition of pollution abatement efforts. Estimates of regional level costs of abatement for biological oxygen demand (BOD) and suspended solids (TSS) are provided.     

Assessing policy and carbon price settings for incentivising reforestation activities in a carbon market: An Australian perspective

Policy makers often seek to incentivise reforestation to achieve either carbon abatement and/or the provision of other co-benefits such as landscape remediation, biodiversity, and social outcomes. But where incentives are for carbon abatement alone, uptake is often slower than expected, with previous estimates of economic viability for reforestation often overlooking some economic and technical barriers. Management of revegetation projects (e.g. species mix, configuration in belts or blocks and density of stocking) influences not only rates of sequestration of carbon (and therefore expected revenue from carbon markets), but also establishment and maintenance costs. These management factors were considered via a sensitivity analysis of a financial cash flow model of different scenarios of revegetation projects with respect to scale of operation of projects, quantification methodology applied, and type of payment contract.Results reinforced that policy makers seeking to incentivise revegetation for carbon abatement in addition to co-benefits such as landscape remediation may require additional crediting for these co-benefits as projects are often unviable with carbon payments alone. For example, simple linear tree plantings are likely to be most competitive in a market based solely on carbon abatement, while blocks of mixed-species biodiversity plantings would be uncompetitive given their relatively low rates of carbon sequestration and high establishment costs. Economic viability of revegetation projects may also be enhanced through: aggregation of projects to increase economies of scale; carbon markets allowing flexibility in approaches for quantification (e.g. application of calibrated models, or undertaking of direct field sampling), and; facilitating payment contracts that provide upfront capital through forward contracts.     

What Drives Marginal Abatement Costs of Greenhouse Gases on Dairy Farms? A Meta‐modelling Approach

This paper examines the relationships between the marginal abatement costs (MAC) of greenhouse gas (GHG) emissions on dairy farms and factors such as herd size, milk yield and available farm labour, on the one hand, and prices, GHG indicators and GHG reduction levels, on the other. A two‐stage Heckman procedure is used to estimate these relationships from a systematically designed set of simulations with a highly detailed mixed integer bio‐economic farm‐level model. The resulting meta‐models are then used to analyse how MAC vary across farm‐level conditions and GHG measures. We find that simpler GHG indicators lead to significantly higher MAC, and that MAC strongly increase beyond a 1–5% emission reduction, depending on farm attributes and the chosen indicator. MAC decrease rapidly with increasing farm size, but the effect levels off beyond a herd size of 40 cows. As expected, the main factors driving gross margins per dairy cow also significantly influence mitigation costs. Our results indicate high variability of MAC on real life farms. In contrast to time consuming simulations with the complex mixed integer bio‐economic programming model, the meta‐models allow the distribution of MAC in a farm population to be efficiently derived and thus could be used to upscale to regional or sector level.     

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach*

In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long‐run efficiency of firms: the dynamic stochastic frontier model and the generalised true random‐effects model. We extend the former in order to allow for heterogeneity in the long‐run technical efficiency of firms. This model is based on potential differences in firm‐specific characteristics and in firms’ inefficiency persistence. The model is applied to an unbalanced micro‐panel of German dairy farms over the period 1999 to 2009. Estimation of long‐run technical efficiency and inefficiency persistence is based on an output distance function representation of the production technology and estimated in a Bayesian framework. The results suggest that heterogeneity in long‐run technical efficiency of farms is mostly attributed to discrepancies in farm‐specific factors rather than differences in farms’ inefficiency persistence. Farm size is positively related to long‐run technical efficiency while subsidies exert a negative effect on the long‐run technical efficiency of farms. Inefficiency persistence is found to be very high, but heterogeneity in this persistence is low.     

Developing farm-specific marginal abatement cost curves: Cost-effective greenhouse gas mitigation opportunities in sheep farming systems

Growing demand for agricultural produce, coupled with ambitious targets for greenhouse gas emissions reduction present the scientific, policy and agricultural sectors with a substantial mitigation challenge. Identification and implementation of suitable mitigation measures is driven by both the measures’ effectiveness and cost of implementation. Marginal abatement cost curves (MACCs) provide a simple graphical representation of the abatement potential and cost-effectiveness of mitigation measures to aid policy decision-making. Accounting for heterogeneity in farm conditions and subsequent abatement potentials in mitigation policy is problematic, and may be aided by the development of tailored MACCs. Robust MACC development is currently lacking for mitigation measures appropriate to sheep systems. This study constructed farm-specific MACCs for a lowland, upland and hill sheep farm in the UK. The stand-alone mitigation potential of six measures was modelled, against real farm baselines, according to assumed impacts on emissions and productivity. The MACCs revealed the potential for negative cost emissions’ abatement in the sheep industry. Improving ewe nutrition to increase lamb survival offered considerable abatement potential at a negative cost to the farmers across all farms while, lambing as yearlings offered negative cost abatement potential on lowland and upland farms. The results broadly advocate maximising lamb output from existing inputs on all farm categories, and highlight the importance of productivity and efficiency as influential drivers of emissions abatement in the sector. The abatement potentials and marginal costs of other measures (e.g. reducing mineral fertiliser use and selecting pasture plants bred to minimise dietary nitrogen losses) varied between farms, and this heterogeneity was more frequently attributable to differences in individual farm management than land classification. This has important implications for the high level policy sector as no two farms are likely to benefit from a generic one size fits all approach to mitigation. The construction of further case-study farm MACCs under varying farm conditions is required to define the biophysical and management conditions that each measure is most suited to, generating a more tailored set of sector-specific mitigation parameters.     

Quantifying the impact of farmers' social networks on the effectiveness of climate change mitigation policies in agriculture

To reduce agricultural greenhouse gas (GHG) emissions, farmers need to change current farming practices. However, farmers' climate change mitigation behaviour and particularly the role of social and individual characteristics remains poorly understood. Using an agent-based modelling approach, we investigate how knowledge exchange within farmers' social networks affects the adoption of mitigation measures and the effectiveness of a payment per ton of GHG emissions abated. Our simulations are based on census, survey and interview data for 49 Swiss dairy and cattle farms to simulate the effect of social networks on overall GHG reduction and marginal abatement costs. We find that considering social networks increases overall reduction of GHG emissions by 45% at a given payment of 120 Swiss Francs (CHF) per ton of reduced GHG emissions. The per ton payment would have to increase by 380 CHF (i.e., 500 CHF/tCO₂eq) to reach the same overall GHG reduction level without any social network effects. Moreover, marginal abatement costs for emissions are lower when farmers exchange relevant knowledge through social networks. The effectiveness of policy incentives aiming at agricultural climate change mitigation can hence be improved by simultaneously supporting knowledge exchange and opportunities of social learning in farming communities.     

STANDARDS VERSUS PRICES REVISITED: THE CASE OF AGRICULTURAL NON-POINT SOURCE POLLUTION

This paper demonstrates that the conventional neoclassical arguments for recommending a uniform discharge tax in preference to a uniform discharge standard are founded on highly restrictive and unrealistic abstractions of the pollution process. Relaxation of the assumptions reveals that the uniform standard outperforms the uniform tax in controlling ambient pollution levels over a potentially wide range of parameter values. The results of a study on agricultural sediment control are reported. It is argued that this pollution process is predisposed to the conditions that favour the ‘cross-over’ in efficiency ranking between the two policies. These conditions are a high correlation between discharge abatement costs and pollution transport coefficients, and high variability in pollution transport coefficients relative to the interfirm abatement costs.     

Spatial Targeting of Conservation Tillage to Improve Water Quality and Carbon Retention Benefits

This paper develops a GIS-based modeling framework that integrates a farm model, a hydrologic model, and a soil organic matter model to examine spatial targeting of conservation tillage to jointly improve water quality and carbon retention benefits in agricultural watersheds. Previous studies have examined the targeting of conservation tillage, land retirement, and riparian buffers at watershed scale to achieve water quality benefits but not considered carbon retention benefits. An empirical application of the framework in the Fairchild Creek watershed in Ontario shows that targeting conservation tillage based on sediment abatement goal can also achieve comparable carbon retention benefits in terms of percentage reduction of its base carbon losses. The targeted subcatchments for conservation tillage vary across the watershed based on benefit to cost ratios. The pattern of conservation tillage targeted based on carbon retention goal is similar to that with a sediment abatement goal but slight differences are found because of different carbon content in the soils. The modeling results have important policy implications for the design of conservation stewardship programs such as setting sediment abatement goal as an indicator to achieve joint environmental benefits and direct public fund to locations that can achieve environmental goals at least costs.     

Efficiency analysis under uncertainty: a simulation study

We model production technology in a state‐contingent framework assuming that the firms maximise ex ante their preference function subject to stochastic technology constraint; in other words, firms are assumed to act rationally. We show that rational producers who face the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk‐neutral probabilities, efficiency scores and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate noiseless data based on our state‐contingent specification of technology. Our state‐contingent estimator recovers technology parameters and other economic quantities of interest without any error. But, when we apply conventional efficiency estimators to the simulated data, we obtain biased estimates of technical efficiency.     

Modeling differentiated quality standards in the agri-food sector: the case of meat trade in the enlarged EU

Quality standards play an increasingly important role in international agri-food trade, and their functioning as nontariff barriers to trade is widely discussed. We argue that food quality standards imposed by importing countries are more than just border measures and can have profound effects on the market structure of the exporting industry, thereby significantly influencing the supply response. We develop a stylized oligopoly model that accounts for compliance costs (fixed and variable) and investigate alternative policy options to explore different mechanisms an importing county may use to enhance the quality of its imports. The model explicitly recognizes the coexistence of complying and noncomplying firms, which is a situation often found in low-income countries where a small modern export-oriented segment invests in meeting foreign quality standards. We use the adjustment of the Polish meat sector to the tight EU food quality standards as an empirical example. The simulations show that a subsidy scheme can promote compliance with standards and can contribute to an upgrade of the industry in the exporting country, but its marginal effectiveness is diminishing.     

Implementing the Kyoto Accord in Canada: Abatement Costs and Policy Enforcement Mechanisms

The anticipated abatement costs to be incurred by Canada and six of its provinces from the implementation of the Kyoto agreement (reduction of carbon dioxide (CO₂) emissions generated by fossil fuel burning by 6% from 1990 levels) are estimated using an emissions benefit function. Marginal abatement cost functions are estimated and used for the analysis of alternative policy enforcement mechanisms. The efficiency of a policy mechanism depends on the rule used to allocate the burden of the agreement among the provinces and on whether the provinces or the federal government implement the agreement at the provincial level. Under the rule of an equal emission reduction of 6% over 1990 levels in all provinces, Quebec bears no abatement costs while British Columbia and Saskatchewan incur the highest costs. An allocation rule based on the equimarginal principle achieves aggregate efficiency; it is, however, the rule that contains the risk of noncompliance by provinces that have already taken action toward emissions reduction. Les auteurs estiment ce qu‘il en coûtera au Canada et à six de ses provinces pour adopter les mesures antipollution qu'exigera la mise en ?uvre du protocole de Kyoto (réduction de 6 % des rejets de CO₂ attribuables aux combustibles fossiles par rapport aux chiffres de 1990) au moyen d'une fonction faisant intervenir avantages et émissions. Ils estiment les fonctions du coût marginal des mesures antipollution et se servent des résultats pour étudier d'autres mécanismes visant à faire respecter les politiques. L'efficacité du mécanisme d'exécution dépendra, d'une part, de la régle qui servira à répartir le fardeau de la mise en ?uvre entre les provinces et, d‘autre part, de l‘application de l'accord par le gouvernement fédéral ou provincial, au niveau des provinces. En supposant une réduction uniforme des rejets de 6 % par rapport aux relevés de 1990, dans toutes les provinces, l'exécution des mesures antipollution ne coûtera rien au Québec, tandis que la Colombie‐Britannique et la Saskatchewan accuseront les frais les plus élevés. Une régle de répartition reposant sur le principe de l'équimarginalité s'avérera efficace globalement, mais on courra le risque que les provinces qui ont déjà pris des mesures pour combattre la pollution refusent de s‘y plier.