Carbon markets, transaction costs and bioenergy

Payment for carbon sequestration by agriculture and forestry can provide incentives for adoption of sustainable agricultural practices. However, a project involving contracts with farmers may face high transaction costs in showing that net emission reductions are real and attributable to the project. This paper presents a model of project participation that includes transaction and abatement costs. A project feasibility frontier (PFF) is derived, which shows the minimum project size that is feasible for any given market price of carbon. The PFF is used to analyse how the design of a climate mitigation program may affect the feasibility of actual projects.Climate Policy, Greenhouse Effect, Carbon Sequestration, Agroforestry, Transaction Costs, Environmental Economics and Policy,

DYNAMIC MODELS, EXTERNALITIES AND SUSTAINABILITY IN AGRICULTURE

The goal of sustainability in the management of natural resources and agricultural systems has received increasing attention during the 1990's. The many dimensions of the problem have been extensively discussed in the literature and a recognition of the interaction between economic, biological and social objectives have led to an acceptance of its multidisciplinary nature. When studying sustainability in agriculture, two aspects which cannot be ignored are (i) any measure must include economic as well as biological criteria and (ii) the dynamic nature of the production system and the environment (both physical and economic) must be accounted for. The goal of sustainable agricultural practices at the microeconomic level is explored in this paper, in an attempt to link the individual producer behaviour to the regulatory environment. Particular attention is paid to the dynamic aspect in the context of a grazing system, where plant and animal populations interact with each other and are influenced by the environment. An optimal control formulation is used to discuss the alternative ways in which externalities (such as salinity, soil loss and fertiliser and chemical run-off) can be incorporated into a model. The problem of valuing externalities and the role of the discount rate on optimal management strategies are briefly discussed.sustainability, dynamic modelling, bioeconomics, Environmental Economics and Policy, Livestock Production/Industries, Resource /Energy Economics and Policy,

VALUING AGROFORESTRY IN THE PRESENCE OF LAND DEGRADATION

Agroforestry can help prevent land degradation while allowing continuing use of land to produce crops and livestock. A problem with the evaluation of agroforestry using long-run static models and traditional discounting techniques is that the present value of the forestry enterprise is generally much lower than that of other production activities. This problem is common with Australian native species which tend to have a high environmental value but a low market value. This paper presents an economic analysis of an agroforestry operation in land prone to degradation and in the presence of positive externalities provided by trees. The value of the land is estimated based on the present value of expected returns in perpetuity under optimal management. Simulation analysis is used to evaluate the loss in land value caused by dryland salinity. A nonlinear programming model is developed and used to study the effects of timber prices and forest planting costs on optimal forest area and the level of salinity. Elasticities of relevant variables with respect to prices and costs are derived and policy implications of results are discussed.agroforestry, land degradation, externalities, dryland salinity, Land Economics/Use,

Management Options for the Inland Fisheries Resource in South Sumatra, Indonesia: I Bioeconomic Model

The inland fishery in South Sumatra, Indonesia, is an important source of income, employment and protein to small-scale fishers. Some overall indicators, such as virtual disappearance of certain important species and continuous reduction in the size of harvested fish, indicate that the fishery is not being exploited on a sustainable basis. In this study, an evaluation of the status of the existing fish stock is undertaken, and an analytical model for identifying efficient levels of exploitation of the fishery is developed. Primary data are used to describe the current costs of fishing effort. Secondary data, combined with results of analysis of primary data, are then used to derive a supply function for the fishery. Different types of fishing gear are standardised into a single type of fishing unit, and mixed species of harvested fish are treated as an aggregated fish stock. Empirical results reveal that both riverine and swamp fisheries in South Sumatra were biologically and economically over-fished during the period of study. This implies that regulation is required to reduce the level of fishing effort.smallholder fisheries, bioeconomic analysis, Inland fisheries, Indonesia, Sumatra, Resource /Energy Economics and Policy,

A genetic algorithm approach to farm investment

Agricultural Finance, Farm Management,

A Positivist Approach to Pigouvian Taxes based on an Evolutionary Algorithm

Pigouvian tax, pollution tax, genetic algorithm, political preferences, Environmental Economics and Policy, Political Economy,

Bioeconomic meta-modelling of Indonesian agroforests as carbon sinks

In many areas of developing countries, economic and institutional factors often combine to give farmers incentives to clear forests and repeatedly plant food crops without sufficiently replenishing the soils. These activities lead to large-scale land degradation and contribute to global warming through the release of greenhouse gases into the atmosphere. We investigate whether agroforestry systems might alleviate these trends when carbon-credit payments are available under the Clean Development Mechanism of the Kyoto Protocol. A meta-modelling framework is adopted, comprising an econometric-production model of a smallholding in Sumatra. The model is used within a dynamic-programming algorithm to determine optimal combinations of tree/crop area, tree-rotation length, and firewood harvest. Results show the influence of soil-carbon stocks and discount rates on optimal strategies and reveal interesting implications for joint management of agriculture and carbon.bio-economic meta-modelling, Indonesia, agroforestry, carbon credits, dynamic programming, Environmental Economics and Policy, Resource /Energy Economics and Policy,

Optimal Land-Use Decisions in the Presence of Carbon Payments and Fertilizer Subsidies: An Indonesian Case Study

The Clean Development Mechanism of the Kyoto Protocol provides the opportunity for smallholders to receive financial rewards for adopting tree-based systems that are sustainable. In this paper a meta-model is developed to simulate interactions between trees, crops and soils under a range of management regimes for a smallholding in Sumatra. The model is used within a dynamic-programming algorithm to determine optimal tree/crop areas, tree-rotation lengths, firewood-harvest and fertilizer application rates for a landholder faced with deteriorating land quality and opportunities to receive carbon credits and fertiliser subsidies. It is found th at profit maximising management strategies depend on initial soil quality. For example, incentives to participate in carbon projects only exist when the soil is degraded because the opportunity cost of the forgone crop production is low. Also, when soil-carbon stocks are low only trees should be grown and residues added to the soil to increase carbon stocks until a threshold level is reached, when it becomes optimal to switch to a steady-state system of crops with fertiliser. In this case, tree rotation lengths depend on carbon and fertiliser prices; where increases in these prices decrease the opportunity cost of growing trees and allow for longer rotations. If, however, the initial soil-carbon stock is high, the profit-maximising strategy is to grow only crops and use fertiliser, which initially depletes the soil of carbon until a steady state is reached and maintained.Land Economics/Use,

A Dynamic Optimisation Model of Weed Control

It is argued in this paper that static approaches to weed management, where the benefits and costs are only considered within a single season, are inappropriate for assessing the economic benefits of weed control technologies. There are carryover effects from weed management as weeds that escape control in one season may reproduce and replenish weed populations in following seasons. Consequently, it is appropriate to view weed control in the context of a resource management problem where the goal is to determine the optimal inter-temporal level of weed control that maximises economic benefits over some pre-determined period of time. A dynamic optimisation model for weed control is presented. Using the tools of comparative static analysis and Pontryagin's maximum principle, the conditions for optimal input use (ie weed control) are compared for static and dynamic situations. It is shown that a higher level of input use for a given weed population is optimal using a dynamic framework than would be derived under a static framework. The analysis is further extended by the incorporation of uncertainty and shows that the optimal level of weed control is also affected by uncertainty in herbicide efficacy and the survival of weed seeds produced. A case study of the optimal long-term management under deterministic and stochastic conditions of an annual cropping weed, Avena fatua, is presented.weed control, resource economics, optimal control, dynamic programming, wild oats, Farm Management,

Tree-crop interactions and their environmental and economic implications in the presence of carbon-sequestration payments

Growing trees with crops has environmental and economic implications. Trees can help prevent land degradation and increase biodiversity while at the same time allow for the continued use of the land to produce agricultural crops. In fact, growing trees alongside crops is known to improve both the productivity and sustainability of the land. However, due to high labour-input requirements, high costs of establishment, and delayed revenue returns, trees are often not economically attractive to landholders. Because of the Kyoto Protocol, and the growing emphasis on market-based solutions to environmental problems, the ability of trees to sequester and store CO2 has altered the economic landscape of agroforestry systems. The economic and management implications of carbon-sequestration payments on agroforestry systems are addressed in this study using a bioeconomic modelling approach. An agroforestry system in Indonesia is simulated using a biophysical process model. A general economic analysis of this system, from the standpoint of individual landholders, is then developed and the implications for management and policy are discussed.agroforestry, bioeconomics, tree/crop interactions, carbon credits, baselines, Environmental Economics and Policy, Land Economics/Use,