Examining the Tradeoffs and Synergies of Interdependent Environmental Policies PDF Download

Author: Boon-Ling Yeo
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ISBN: 9781303792830
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Languages : en
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Book Description
Curbing reactive nitrogen (N) emissions has been identified as one of the major environmental challenges of the 21st century. Reactive N emissions have many adverse environmental impacts---including air pollution and water pollution---and N can take many different forms and compounds (e.g. NH3, NO[subscript x], N2O) in terrestrial and aquatic ecosystems. These features of N pollution imply that the same atom of reactive N can have multiple effects in different ecosystems and on human health. The agricultural sector is the largest source of N pollution, largely from intensification of meat production and increased use of synthetic N fertilizer, which affects both water quality and climate change. Regulation of N emissions is complicated by the fact that policy designed to reduce one type of pollution may interact in positive or negative ways with efforts to reduce other types of pollution. Chapter 1 develops a biophysical-economic model that compares and contrasts environmental outcomes (i.e. nutrient runoff and GHG emissions), as a set of profit-maximizing farmers respond to three different policy scenarios: the inclusion of agriculture in (1) a local nutrient trading market only; (2) an international carbon market only; and (3) both a nutrient trading market and a carbon market concurrently. Through comparative static analysis, this chapter shows that under certain policy settings there can be an inverse relationship between the price of one pollutant and the other. Further, it illustrates that while the own-price effect for a particular pollutant (e.g. carbon price on GHG emissions) has the expected effect on pollution levels, the cross-price effect on the other pollutant (e.g. carbon price on nutrient runoff) is less predictable. Chapter 1 examines the potential for surprising cross-price effects by allowing for adjustments first solely on polluting input use, then second, on land-use change. Throughout the analysis, this chapter shows how environmental outcomes are dependent on what market-based policy instruments are in place and on the interactions of these policies. Chapter 2 demonstrates the key results from Chapter 1 through numerical simulations. It explores complementarity of abatement practices in the Lake Rotorua catchment in New Zealand (NZ) using an agro-environmental economic model, NManager. The application presents an ideal case study since the local government is considering the implementation of a nutrient trading scheme (NTS) to reduce nutrient discharges to the lake from non-point sources such as farmland. At the same time the national government is reviewing whether to include greenhouse gas (GHG) emissions from the agricultural sector at a farm scale in a GHG emissions trading scheme (ETS). The, abatement costs, the environmental impacts, and the distribution of costs and benefits under three different types of initial N permit allocation in the agricultural sector are evaluated under three policy scenarios: the inclusion of the agricultural sector in (1) the nutrient trading market only; (2) the NZ GHG emissions trading scheme (ETS) only; and (3) both the regional NTS and the NZ ETS concurrently. Results illustrate that (i) the total level of GHG mitigation is higher when there exist both the NTS and NZ ETS compared to when there is only a NZ ETS; (ii) the permit price of nutrient discharges decreases as the permit price of GHG emissions increases; and (iii) there are stark differences in land-use change under each policy scenario--the GHG ETS alone resulted in no land-use change, the NTS alone resulted in no remaining dairy, while the dual policy setting (GHG ETS and NTS) made dairy, a highly profitable but also N intensive farm activity, to be economically viable once again. This suggests that there could be gains from an additional environmental regulation. Chapter 3 extends the theoretical partial equilibrium model developed in Chapter 1, by exploring the effect of different environmental policies (e.g. taxes and tradable permit schemes) when producers have multiple abatement options that affect multiple types of pollution. The key results are derived for the case where there are multiple types of land use, two farm management inputs or options for each type of land use, and two types of pollution, i.e. nutrient runoffs and GHG emissions. When farm management options are complements, increases in pollution charges reduce both types of the pollution. However, if farm management options are substitutes, an increase in the tax on one pollutant can lead to an increase in the production of the other pollutant. Thus, even in an agricultural monoculture, it is possible for the levels of one pollutant to increase in response to a rise in the tax on a different pollutant. When there is a nutrient trading scheme (NTS) that endogenously determines the price of nitrogen pollution, an increase in the permit price of GHG emissions decreases the permit price of nutrient leaching if farm inputs are complements, but can raise it if the farm inputs are substitutes. Even though the aggregate level of N leaching is unaffected by the price of GHG emissions, the response of GHG emissions to the price of GHG emissions is affected by the presence of the NTS. When inputs are complements, GHG emissions are less responsive to a change in the price of GHG than they are in the absence of an NTS, while if farm inputs are substitutes the responsiveness of GHG emissions to a change in the price of GHG increases. As a consequence, the optimal type of environmental policy depends on the degree to which pollution generating farm inputs are substitutes or complements. Chapter 4 develops a tradable pollution permit system that allows the trade of N permits between air and water emissions. Such a combined permit system has the potential to lower both abatement costs and the damages from pollution. The analysis focuses on welfare gains from a combined permit system over both separate pollution permit systems and no permit system for various degrees of spillover effects in the pollutants and for various degrees of synergies in abating water and air pollution. The model developed in Chapter 4 sets the conceptual groundwork for future numerical application, for example to proposed policies in New Zealand and California.