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Lyubov Kurkalova, Catherine Kling, and Jinhua Zhao CARD, Department of Economics

This study analyzes the costs and environmental consequences of adopting carbon-friendly agricultural practices, specifically focusing on conservation tillage. The research examines the economic behavior of farmers, the environmental consequences of these practices, and explores the potential gains from better carbon targeting technology. The integration of economics and environmental measures is simulated to provide insights into the adoption and effectiveness of these practices.

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Lyubov Kurkalova, Catherine Kling, and Jinhua Zhao CARD, Department of Economics

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  1. The Adoption of Carbon-Friendly Agricultural Practices: Costs and Additional Environmental Benefits Lyubov Kurkalova, Catherine Kling, and Jinhua Zhao CARD, Department of Economics Iowa State University

  2. Costs and Environmental Consequences of Conservation Tillage Payments • What are the costs of sequestering carbon under alternative policies? • Practice based= target conservation tillage • Performance based= target carbon • What other environmental benefits do these policies generate? Nitrogen runoff and soil erosion • What are the gains of better carbon targeting technology?

  3. Major Model Components • Economic Behavior: Adoption Model • Environmental Consequences: Physical Process Models • Simulation of Policy: Integration of Economics and Environment Measures

  4. Major Model Components: Economics • What does it take for farmers to adopt conservation tillage practices? • Profit loss from switching • Reluctance (or premium) due to uncertainty Risk aversion Value of information (Real Options) • Estimate adoption based on observed behavior

  5. Model of conservation tillage adoption Traditional approach Our approach

  6. Model (continued)

  7. Data • Random sub-sample (1,339 observations) of Iowa 1992 NRI data (soil and tillage) supplemented with Census of Ag. (farmer characteristics) and climate data of NCDC • 63% of farmers already use conservation till without any subsidy

  8. Results (standard errors in parenthesis) • Net returns to conservation tillage • Premium (corn producers)

  9. Model Components: Environmental Measures • Environmental process models: EPIC CENTURY (coming soon!) • Carbon sequestration • Nitrogen runoff • Soil erosion • Integration with economic model:13000 NRI points located in Iowa

  10. Conservation Tillage versus Carbon targeting • Target conservation tillage: rank producers by adoption subsidy ($/acre) from low to high, offer payments to those at the top of the list until the budget is exhausted • Target carbon: rank producers by the cost to benefit ratio ($/tons) from low to high, offer payments to those at the top of the list until the budget is exhausted

  11. Carbon supply curve under alternative targeting

  12. Alternative targeting with alternative budgets target cons. tillage target carbon

  13. Gains from better carbon targeting technology

  14. Directions • Economic Model • Better understand source of premium • More refined treatment of conservation tillage, no-till, low-till, etc. • Adoption of other conservation practices • Uncertainty • Environmental Measures • Other GHG’s (full accounting) • Other co-benefits (co-costs, N leaching, pesticides?) • Century • Integration of the Two • Combined uncertainty (confidence intervals via Monte Carlo methods)

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