Sensitivity of agricultural
and forest GHG mitigation
potential
Steven Rose
RFF/EPA Workshop
Modeling the Costs and Volumes of GHG Offsets
May 12, 2009
Some issues to consider
• Policy design
– Eligibility
– Discounting
• Various reasons: e.g., missing costs, uncertainty, leakage
• Various forms: e.g., x% discount, 20% quantity cushion
– Constraints on use – creates a secondary market
• Economic/market
– Energy prices – affect agriculture/forestry costs and bioenergy demand and supply
– Commodity demand
– Technological change
– Offset market power – buyers or sellers?
– Competitiveness – relative domestic production costs?
– Adoption sequence – marginal biophysical responses
• Non-climate policies
– Energy policies (e.g, RFS, RPS)
– Federal farm policy
– Policies abroad
© 2009 Electric Power Research Institute, Inc. All rights reserved.
2
Some issues to consider
• Policy design
– Eligibility
– Discounting
• Various reasons: e.g., missing costs, uncertainty, leakage
• Various forms: e.g., x% discount, 20% quantity cushion
– Constraints on use – creates a secondary market
• Economic/market
– Energy prices – affect agriculture/forestry costs and bioenergy demand and supply
– Commodity demand
– Technological change
– Offset market power – buyers or sellers?
– Competitiveness – relative domestic production costs?
– Adoption sequence – do marginal biophysical responses matter?
• Non-climate policies
– Energy policies (e.g, RFS, RPS)
– Federal farm policy
– Policies abroad
© 2009 Electric Power Research Institute, Inc. All rights reserved.
3
Limiting/discounting the set of eligible options
Illustrative scenario
• Limited set of eligible mitigation activities
– Full GHG price for
• Capped activities: bioenergy, fossil fuel combustion
• Offset activities: afforestation, manure management
• Limited set and discounting of other mitigation
– 50% discount of other mitigation activities (e.g., ag soil carbon and
N2O, forest management, enteric fermentation, rice CH4)
• $15/tCO2 (2010) + 5%/year
• Preliminary results – please do not cite!
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Limiting/discounting the set of eligible options
e.g., $15/tCO2e + 5%/yr
600
400
200
MtCO2e/yr
0
2010
2015
2020
2025
2030
-200
-400
-600
Reference
-800
Limited eligible set
Limited eligible & 50% discount of others
Full eligibility
-1000
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
5
2035
2040
2045
2050
Limiting the set of eligible options
e.g., $15/tCO2e + 5%/yr
Full eligibility
1200
1000
MtCO2e/yr
800
600
Crop Management FF
Biofuels
Bioelectricity
Other CH4&N2O
Animal Waste CH4
Net Ag Soil Seq
Afforestation
Forest Management
Offset total
All Strategies
400
200
0
2010
2015
2020
2025
2030
-200
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
6
2035
2040
2045
2050
Limiting the set of eligible options
e.g., $15/tCO2e + 5%/yr
Limited eligible set
1200
1000
MtCO2e/yr
800
600
Crop Management FF
Biofuels
Bioelectricity
Other CH4&N2O
Animal Waste CH4
Net ag soil seq
Afforestation
Forest Management
Offset total
All Strategies
400
200
0
2010
2015
2020
2025
2030
-200
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
7
2035
2040
2045
2050
Limiting the set of eligible options
e.g., $15/tCO2e + 5%/yr
Limited eligible & 50% discount other
1200
1000
MtCO2e/yr
800
600
Crop Management FF
Biofuels
Bioelectricity
Other CH4&N2O
Animal Waste CH4
Net ag soil seq
Afforestation
Forest Management
Offset total
All Strategies
400
200
0
2010
2015
2020
2025
2030
-200
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
8
2035
2040
2045
2050
Large reduction in forest management; little
even negative response for eligible options
Difference in mitigation between limited eligible and full
eligible sets
200
100
MtCO2e/yr
0
2010
2015
2020
2025
2030
2035
-100
-200
-300
Forest Management
Net Ag Soil Seq
Other CH4&N2O
Biofuels
All Strategies
Afforestation
Animal Waste CH4
Bioelectricity
Crop Management FF
Offset total
-400
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
9
2040
2045
2050
Synergies: afforestation increases with crediting for
non-CO2 mitigation
Difference in mitigation between limited eligible & 50%
other and full eligible sets
200
100
MtCO2e/yr
0
2010
2015
2020
2025
2030
2035
-100
-200
-300
Forest Management
Net Ag Soil Seq
Other CH4&N2O
Biofuels
All Strategies
Afforestation
Animal Waste CH4
Bioelectricity
Crop Management FF
Offset total
-400
Preliminary results
© 2009 Electric Power Research Institute, Inc. All rights reserved.
10
2040
2045
2050
Secondary market
EPA Lieberman-Warner GHG Prices
EPA Waxman-Markey ADAGE GHG Prices
120
100
Allowance price
Domestic offset
Intl offset/credit
$/tCO2e
80
60
40
20
0
2015
© 2009 Electric Power Research Institute, Inc. All rights reserved.
11
2020
2030
2040
2050
Secondary market GHG price?
Who will have the market power?
Offset
price
Annual constraint
Supply
Also, an issue of constraint design –
cumulative offset constraints
P1
(vs. annual) will increase fungibility
Bottom-line: offset price could be
P2
higher than shown in current analyses
P2 assumes
buyers have
market power
© 2009 Electric Power Research Institute, Inc. All rights reserved.
Demand
Offset quantity/yr
12
International considerations
• Competitiveness
• Leakage
© 2009 Electric Power Research Institute, Inc. All rights reserved.
13
USA sectoral mitigation w/ US only carbon tax (on ag & forest GHGs)
GE MAC of USA: USA-only carbon tax, sectoral and region total
100
90
ag
80
intensification
2001USD per tonne of C.
70
60
50
40
forest total
30
Regional AG+FRS abatement
20
Regional agriculture abatement
10
Regional forest total sequestration
USA forest intensification abatement
0
0
50
100
abatement - mmtce
Golub et al. (2009)
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150
200
250
ROW sectoral mitigation w/ various US only carbon taxes
intensification
~8% forest
~10% leakage total at
$27/tCO2e ($100/tCe)
~7% ag
100
90
ag
80
70
60
50
forest total
40
30
Regional AG+FRS abatement
2001USD per tonne of C.
GE MAC of ROW: USA-only carbon tax, sectoral and region total
20
Regional agriculture abatement
10
Regional forest total sequestration
ROW forest intensification abatement
0
-30
-25
-20
-15
abatement - mmtce
-10
-5
0
100
ROW AGR sectoral GE-MAC: USA-onl y taxed
90
80
2001USD per tonne of C.
70
60
50
40
30
1 PaddyRi ce
2 OtherGrai n
20
3 OtherCrops
4 Rumi nants
10
5 NonRumi nLi vs
Tot_AGR
-8
-7.5
-7
-6.5
-6
-5.5
-5
-4.5
-4
-3.5
Abmatement - MMTCE
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15
-3
-2.5
-2
-1.5
-1
-0.5
0
0
USA sectoral mitigation w/ US only carbon tax
GE MAC of USA: USA-only carbon tax, sectoral and region total
100
90
ag
80
intensification
2001USD per tonne of C.
70
60
50
40
forest total
30
Regional AG+FRS abatement
20
Regional agriculture abatement
10
Regional forest total sequestration
USA forest intensification abatement
0
0
50
100
abatement - mmtce
150
USA sectoral mitigation w/ global carbon tax
~30% reduction in ag
mitigation potential
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200
250
~10% reduction in
total mitigation potential
Net export changes (million $/year) with global tax of
$100/tCe ($27/tCO2e)
Other Manufacturing
and Services
Fertilizer & Energy
Intensive Manufacturing
Forest Products
Other Foods
Non-Ruminants
Ruminants
Ag
Other Crops
USA
Other Grains
CHN
ROW
Rice
-8000
-6000
-4000
-2000
0
2000
4000
6000
• US increasing livestock and food net exports, decreasing forest product net exports
• Interesting increase in fertilizer and energy intensive manufacturing from China and increase
in manufacturing and services from ROW
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17
Evaluating incremental adoption of
technologies on ag mitigation supply
Least-cost ordering of the abatement technologies
Price
Supply
Tech. C
However, typically ignore
interaction and compare
MC(Tech A|base), MC(Tech
B|base), MC(Tech C|base)
Tech. A
Incremental adoption implies:
MCTech A = MC(Tech A|Tech B)
MCTech C = MC(Tech C|Tech A,Tech B)
Tech. B
Quantity abated
Rose et al. (work in progress)
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18
Preliminary results suggest it matters
(e.g., abatement for Xinyang county rice paddies)
$6
Straight stacking
USEPA (2006)
$4
$2
Incremental
$0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
$/tCO2eq
$(2)
$(4)
$(6)
$(8)
Incremental
Optimistic
Conservative
$(10)
$(12)
$(14)
Cumulative net GHG reduction from baseline
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100%
Thank you!
Steven Rose
Global Climate Research Group
srose@epri.com
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20