Mitigation Opportunities and Challenges

an Economic Perspective

ALEX DE PINTO Environment and Production Technology Division

The Goal and the Challenge

Adaptation

Mitigation

Profitability

A Tall Order

  What are the proper incentives that promote mitigation compatibly with adaptation?

  One can throw lot of money at the problem and farmers will adopt….but there are obvious repercussions with failed projects and policies

  Getting the right incentives IS important

Some Projects Directly Addressing These Issues

  IFAD-IFPRI partnership on CC mitigation activities and small farmers

  Objective: link farmers to markets for carbon sequestration   Four countries: Morocco, Ghana, Mozambique, and

Vietnam. Focus on: •  Technical issues: implementation and reliability of

measurement •  Operational issues: transaction costs

  Adaptation to Climate Change for Smallholder Agriculture •  Kenya, World Bank

IFAD-IFPRI Partnership

  Measurement Issues •  country-wide assessment of agricultural mitigation

potential •  creating an “acceptable” baseline at the project level

(costs?)   Transaction costs

•  the role of institutions: mapping and analysis of institutional structures with potential to connect farmers with carbon markets

Carbon BASELINE

Current Ag. practices

DSSAT

crop model Mitigation potential

Most common/important crops

Geophysical characteristics

Climate projections

Carbon profile ag. practice #1

Mitigation Ag. practices

DSSAT

crop model Most common/important crops

Geophysical characteristics

Climate projections Carbon profile ag.

practice #2

Carbon profile ag. practice #n

#3

#4

.

.

IFAD-IFPRI Partnership

  Transaction costs •  Cost-benefit analysis of most promising mitigating

practices: implicit cost of ton of C •  Vietnam: rice and alternative water management

practices •  Ghana: Cassava new high yield variety

Adaptation to Climate Change for Smallholder Agriculture in Kenya

  Synergies between adaptation and mitigation

•  Land management practices

•  Adaptation strategies

•  Implications for SOC

•  Impact on Productivity

Some Results   Soil and water conservation measures showed limited

impacts in terms of crop yield and SOC sequestration   There are tradeoffs in the short term before long-term

benefits can be reaped   These include:

•  Carbon losses due to construction (terraces, bunds, ridge and furrow)

•  Loss of cropping area before yield benefit (bunds, terraces, ridge and furrow, agroforestry)

•  Short-term production losses due to decrease in cropping intensity (rotation/fallowing)

•  Increased labor costs (e.g. minimum tillage) (analysis ongoing)

  Combinations of inorganic fertilizer, mulching, and manure have positive impacts for SOC; are important adaptation strategies, and are relatively low-cost management practices as well

  Some farmers already implement such combinations. Specific combinations will vary depending on the crop type, agroecological zone, and planting date

  However, in parts of Kenya where residues are used as a source of feed, there is an economic tradeoff with livestock production

Some Results

The Issue of Incentives Management  prac,ces   Produc,vity   Variability   Adapta,on   Mi,ga,on  poten,al  short  term  long  term  

Improved  crop  varie,es  and/or  types    

↑   ↑   ↓   +++   Depends  on  variety/type  

Changing  plan,ng  dates   ↓   +++  

Improved  crop/fallow   ↓   ↑   ++   High,  par,cularly  for  rota,on  with  legumes  rota,on/rota,on  with  

legumes  Use  of  cover  crops   ↑   ↑   ++   High  Appropriate  fer,lizer/manure  use  

↑   ↑   ↓   +++   High,  par,cularly  when  underu,lized  as  in  SSA  

Incorpora,on  of  crop  residues  

↑   ↑   ↓   +++   High  

Reduced/zero  ,llage   ↓   ↑   ↓   +   High  Agroforestry   ↓   ↑   ↓   +   High  Irriga,on/water  harves,ng   ↑   ↑   ↓   +++  when  well  

designed  and  maintained  

Low  to  high  depending  on  whether  irriga,on  is  energy  

intensive  or  not  Bunds,  terraces,  ridge  and  furrow,  diversion  ditches    

↓   ↑   ↓   +++   Low,  minus  soil  carbon  losses  due  to  construc,on    

Grass  strips   ↓   ↑   ↓   +++   Posi,ve  mi,ga,on  benefits  

Sources:  FAO  2009,  Smith  et  al.  2008  

Role of Uncertainty and Risk

  Uncertainty and risk-aversion is notably absent in the modeling of farmers’ adoption of climate change mitigation practices in developing countries

  A farmer will adopt mitigation practices when the net present value of farming with these practices is greater than with the alternatives or NPVA + S ≥ NPVN

  Antle and Stoorvogel (2008) point out: “it is important to note that risk could impact farmers’ willingness to participate in carbon contracts both positively and negatively.”

Role of Uncertainty and Risk

  We used the DSSAT crop modeling system to simulate maize yields and soil carbon content

  Cropping system cassava for twenty years   Daily weather data simulated using DSSAT’s   Record the yield and soil carbon content repeated 100

times using a different random seed each time: obtain an estimate of yield variability

  The input: organic soil amendment, such as green manure and we simulated 13 levels of use intensity: 0-20 tons/ha

  Through this series of simulations we obtain yields, yield-variability, as well as the soil carbon content at the end of the 20 year period

Input Usage and Variability

Effect of the input usage on yield variability for years two and twenty

Input Usage and Variability

  Note: different input applications can increase or decrease yield variability. Year 2 from about 9000 kg of manure, yield variability is lower than with no input usage. In year 20, the standard deviation is always higher

Payments for Adoption

Total payments necessary to induce adoption under risk-aversion and risk-neutrality for different levels of input usage

Implicit Cost of a Ton of Carbon

  We kept track of difference in SOC between usage and no-usage: C sequestered

  The lowest cost per ton of sequester carbon is about $67.5 under risk-neutrality assumption while for a risk-averse farmer the lowest cost is about $49.0.

Farmers’ risk aversion?

  The differences in payments and implicit cost of carbon depend upon the parameters that characterize the utility function. The implicit cost of carbon varies from $67.5 to $48.9

  Can make the difference between success and failure of a project

Considerations

  Risk-neutrality hides the complexities of implementing payment for environmental service schemes

  These results add one more layer of complexity   Could save money targeting the “right practices” to the

“right” farmers

Back to the Incentive Issue

  Two extremes for compensation plans •  By adoption of mitigation practice: very inefficient but

easy to implement •  CRP style: efficient but data intensive

•  Anything in between? Are there ways to address the “adverse selection” problem?

Back to the Incentive Issue

  If the price of carbon not high enough to make a significant difference for farmers, could be used by institutions?

  What is the role of marginal land? •  Important behavioral difference between farmers on

degraded land and farmers on fertile land: (all other things equal) farmers on fertile land have an incentive to mine the resource while farmers on degraded land have an incentive to restore the resource

Research Needs

  More work on dynamics and measurements of GHG

  Improve modeling tools (DSSAT/Century, CropSyst, etc.)

  Bring risk back in economic analysis   Better understanding of potential role of institutions   Need for a global model of land use change