Date: 20 May 2006

Leakage and Comparative Advantage Implications of Agricultural Participation in Greenhouse Gas Emission Mitigation

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Abstract

The world is moving toward efforts to reduce net greenhouse gas emissions. Reduction efforts may involve the agricultural sector through options such as planting of trees, altering crop and livestock management, and increasing production of biofuels. However, such options can be competitive with domestic food production. In a free trade arena, reduced domestic food production could stimulate increased production and exports in other countries, which are not pursuing net emission reductions. As a consequence, emission reduction efforts in implementing countries may be offset by production increases stimulated in other countries.

We examine the competitive effects of agriculturally related emission reduction actions on agricultural production and international trade. In doing this, we employ the assumption that U.S. emission reduction caused cost increases will also occur in other reducing countries. We consider emission reduction: 1) unilaterally by the U.S., 2) by all Kyoto Protocol Annex B countries, and 3) globally. The results, which are only suggestive of the types of effects that would be observed due to the simplifying cost assumptions, indicate compliance causes supply cutbacks in regulated countries and increases in non-regulated countries. The study results show that producers in regulating countries are likely to benefit and consumers lose due to commodity price increases.

Seniority of Authorship is shared among the first three authors.