The economics of alternative crop production systems in the context of farmer participation in carbon trading markets

ABSTRACT

Using scaled up data from an experimental farm platform in Scotland, we examined the relative economics of a conventional and a low-carbon integrated management system for two (otherwise identical) farms. By employing a novel market-based approach, we factored the market costs of greenhouse gas (GHG) emissions on the relative economics of both systems. Specifically, farmers are considered to be awarded emission credits in accordance with Scotland’s agricultural emissions reduction targets. Farmers are then considered to trade their net GHG emissions in an emissions trading scheme, with the integrated system expected to benefit from this arrangement due to its lower emissions. In further sensitivity analyses, we also considered the effect of premium pricing of integrated system crops on the relative economics of both systems. We find that in both the status quo and emissions trading scenarios, the conventional system is significantly more profitable. In the emissions trading scenario, an emissions price roughly three times the reported median prices over the last five years is required for the integrated system’s profitability to break-even with the conventional system. However, even at prevailing emissions prices, a 20% premium pricing of the integrated system crops enables near parity in the profitability of both systems. We conclude that in order to facilitate greater adoption of low-carbon systems, policies may be needed to encourage farmers’ realization of the cost of their externalities, in particular GHG emissions. At the same time, support should be given to a market system that recognizes premium prices for low-carbon system products.

KEYWORDS:

• Conventional agriculture
• integrated agriculture
• economics
• carbon emissions trade
• premium prices

Acknowledgments

This work is funded through the Scottish Government Underpinning Capacity and Strategic Research Programme under the Rural and Environment Science and Analytical Services (RESAS) division (RESAS 2.3.9). For running the Centre for Sustainable Cropping platform, thanks go to Euan Caldwell, David Young and Andrew Christie (field/crop management), Andy Steven (agronomy), Gillian Banks, Paul Neave, and Linda Nell (field surveys). All usual caveats apply.

Notes

1. This includes agricultural soils, fuel and agrochemical use, cropland conversion, livestock manure storage, enteric fermentation, stationary on-farm combustion sources, etc.

2. The proportion of total emissions due to agriculture and related land use in Scotland is about 42% for soils, 8% for fuels and agrochemicals, 19% for cropland conversion, 6% for manure storage and 25% for livestock enteric fermentation.

3. For 2011 for example, this is calculated as [(1–0.035)*5.23 = 5.05].

4. For 2011 for example, dividing total emissions by the total size of agricultural land gives [(5.05 million tCO₂eq) / (0.56 million) ha] = 9.02 tCO₂eq/ha.

Additional information

Funding

This work was supported by the Rural and Environment Science and Analytical Services Division [2.3.9].