Managing Agricultural Greenhouse Gas Emissions in Latin America: Assessing the national, regional, and global effects of halting deforestation in the tropics

• Environmental and Resource Economics Workshop

Date and Location

Tuesday, April 26, 2011, 4:10 PM - 5:30 PM

Abstract

One challenge for Latin American countries (LAC) is to increase aggregate agricultural production to meet growing demand for food, fiber, and energy without proportionally increasing greenhouse gas emissions (GHG). We enhance an existing model, the IFPRI IMPACT model, to examine agriculture-GHG links in LAC. Results suggest that a complete ban on land clearing for agriculture would significantly reduce GHG emissions associated with the clearing of forests and other forms of natural vegetation vis-à-vis what would have occurred in the absence of the ban. Economic losses from a ban (e.g., US$ 12.7 billion in 2030, compared to the baseline) are not distributed uniformly across the LAC. These losses could potentially be offset by compensating the appropriate stakeholders for the tons CO2 equivalent retained in the native vegetation. However, the very wide range of relatively recent market prices for CO2 emissions suggests that there is great uncertainty regarding the value of avoided GHG emissions. That said, at the average price of CO2 equivalent OTC transactions in LAC in 2009 (roughly US$ 4.30/t CO2 eq.), our estimates suggest such compensation schemes could cover over 1/2 of the value of the losses in agricultural output in the tropics associated with the ban. The ban also induces some increases in area expansion and some product mix adjustments that increase agricultural production and GHG emissions in non-tropical areas within LAC; the agricultural gains (e.g., approximately US$ 3.6 billion in 2030, compared to the baseline) of the non-tropical ‘winners’ in LAC represent 14% of the economic losses experienced in the tropical areas, with area expansion outside the tropical zone representing about 3% of area saved in the tropical zone. The ban also promotes agricultural expansion and change outside of the LAC region as farmers in other producing areas compensate for reductions in supply from LAC; such ‘leakages’ will likely play fundamental roles in the design and implementation of policies for managing agricultural GHG emissions. While the local effects on production and agricultural income are substantial, as one moves away from tropical areas in LAC to assess the broader impacts of the land clearing ban, the effects are quickly muted. Area expansion outside tropical LAC, increased productivity within and outside tropical LAC, and decreases in global demand for some agricultural products (all in response to small increases in product prices) are sufficient to ‘cover the gap’ in food production that saving the natural vegetation in tropical areas in LAC would create. Therefore, at global level, the overall effects on commodity prices (including prices of beef products) of the simulated ban on area expansion on LAC are not large and (hence) the effects on childhood malnutrition are small.