Our simulations display a wide range of results in terms of economic and environmental variables at the sectorial and regional level. Here, we present the key results to highlight the interactions among mitigation policies, FCS, and climate change induced crop yield shocks, and their implications for food security.
Tax Requirement and GHG Emission Reduction
A tax rate of $150/tCO2e is required to reduce emissions by approximately 13.5 GtCO2e worldwide (50% global emissions reduction from our baseline economy). This is a large value, but is consistent with results from previous studies which utilize entirely different models and analytical structures (e.g., Sarica and Tyner (2013), Girod et al. (2012), Van Vuuren et al. (2007), Kim et al. (2006), among others). This global uniform tax on emission forces many economies to either use cleaner technologies or move away from carbon-intensive sectors. Thus, electricity sector production falls by 53% and accounts for 41% of the global reduction (− 5.5 GtCO2e). Similarly, other industries decreased emissions 20-75% to achieve the target. With no subsidy, FCS contribution to emissions reduction is negligible (Fig. 3). In terms of agricultural activities, the ruminant sector decreases its emissions drastically (by about 60%) to account for 14% of the mitigation. This can dramatically affect the livestock sector, especially in regions with high carbon intensity emissions, a result which is supported by Avetisyan et al. (2011) analysis.
When the subsidy on FCS is included, the tax-subsidy rate required to reduce the same quantity of GHG as our Tax-Only scenario is $80/tCO2e. This value is consistent with the original set-up of the RCP4.5 developed by the Joint Global Climate Change Research Institute, which establishes that carbon prices (expressed in 2005$) should reach a value of $85/tCO2e by 2100 (Thomson et al. 2011). The Tax-Subsidy scenario shows that FCS plays an important role in climate change mitigation. Approximately 3 GtCO2e (i.e. one-fifth of the GHGs reduction) is due to the capture of CO2 by forest. This occurs mainly in regions with vast forest, such as South America (i.e. Amazon Region), Central America, Sub Saharan Africa, United States and India.
Tax + CY
Including climate change impacts on agriculture produces an overall decline in crop productivity for most of the agricultural sectors and regions of the world (Supp. Tables1a and 1b). In 2004, the database shows that crop sectors emitted about 8% of the global net emissions. When implementing the tax on emissions, agricultural crops provided 6% of the share in the mitigation effort whereas non-crop sectors represented the other 94% share. Thus, including the adverse crop yields increases the carbon tax only by $5/tCO2e making the rate equal to $155/tCO2e. In addition, due to the absence of incentives for FCS and the small increase of the tax rate, production in all sectors declined proportionally, which kept their shares in GHG reduction relatively constant.
TS + CY
With the crop yield decreases, a larger tax-subsidy rate ($100/tCO2e) (compared to the Tax-Subsidy case) is required in order to encourage movement of land from agriculture towards forest in order to achieve the 50% net emission reduction. Considering this competition for land, it is expected that the global afforestation would not be as high as before. This means that the mitigation effort must be greater in other industries, especially carbon-intensive sectors. Thus, the FCS share of emissions reductions falls substantially (Fig. 3) (from 21% to 14% share). This result clearly demonstrates that FCS becomes somewhat less attractive once climate induced crop yield changes come into the picture.
At the regional level, many economies (Europe, Japan, Canada and China) are discouraged to afforest due to decline in agricultural productivity, which leads them to use more land for crop production to satisfy their domestic consumption and exports of agricultural commodities. Thus, FCS is lower, forcing other industries (Fig. 3) to have a bigger role. In contrast, for regions with vast forest (Brazil and Sub-Saharan Africa), the share of FCS is still one of the major contributions in GHG reduction due to the benefits of the sequestration subsidy.
Land Use Change
Tax Only and Tax + CY
The imposition of the tax regime encourages emission reductions for all the sectors in the economy, especially in regions-sectors with high carbon-intensity and/or large production. Electricity, ruminant and transport sectors account for most of the mitigation effort (about 55%). Afforestation’s contribution is negligible because there is no incentive for FCS, whereas agricultural crops’ share in the emission reduction is small (about 6%). Hence, there is no significant land use change among cover types (Supp. Figure 2) when imposing only a tax regime because the penalty is mostly reflected in price increases for carbon emitter industries (e.g., oil, gas, energy-intensive industries, coal, ruminant livestock, among others). The only region with significant land use change is Sub-Saharan Africa which has a reduction of pasture land due to decreases in livestock production. This land is moved towards forest cover (+ 35 Mha).
Nevertheless, the area variation across crop sectors in many regions is heterogeneous. This is to a great extent due to two factors. First, land is moved away from crops that are heavily penalized by the carbon tax. Thus, paddy rice area declines, especially in Asia (i.e. China, India, and South East Asia), because land growing rice emits methane to the atmosphere. This leads to expansion in the other crop sectors, especially for coarse grain and oilseeds as well as vegetables, fruits and other products (i.e. considered in the “other crops” category). Second, the tax encourages increased biofuels use, which requires increases in the production of corn and soybeans (mainly in US), rapeseed (especially in the European Union), palm (in Malaysia & Indonesia), and sugar crops (in Brazil).
Hussein et al. (2013) stated that implementing a FCS subsidy increases return to forest land, and that provokes land movement in favor of forest. Our results align with their conclusions. With the tax/subsidy regime, about 700 Mha are reforested globally whereas cropland decreases by 378 Mha. The main increase in forest cover occurs in the tropical and temperate climates with long growth periods (e.g. AEZs 4–6, 10–12). Figure 4 shows how the incentive in FCS attracts afforestation in most of the regions of the world. As expected, expansion of forest land cover occurs at the expense of cropland and pastureland in each scenario. This is mainly due to the high subsidy level which benefits places with vast forests depending on their carbon sequestration intensity. On average, a hectare of forest sequesters about 4.28 MtCO2 per year. With a subsidy of $80/MtCO2, the revenue per hectare for FCS is $342. The costs of FCS are relatively low, so it is easy to see why the FCS subsidy is so powerful in moving land from agriculture to forestry.
The cropland reduction (Fig. 5) is distributed to regions where crops are grown. The main affected sectors are “other crops” globally (− 112 Mha); coarse grains in Latin America (− 15 Mha), US (− 13 Mha) and Sub-Saharan Africa (− 27 Mha); oilseeds in US and South America, and paddy rice globally (− 60 Mha).
The reduction of cropland in the Tax-Subsidy scenario drives up land rent for almost all crop sectors, AEZs, and regions of the world affecting especially economies that are more land intensive in production. In addition, our modeling framework allows for technological adaptation in agriculture (e.g., breeding for heat resistance, new machinery, etc.) that permits substitution among land, labor and capital. Thus, as an indirect result, there is also substitution of land by labor (both skilled and unskilled) and capital (i.e. except for carbon-intensive industries such as dairy farms and ruminant sectors). If agricultural industries cannot substitute land with capital and labor, the negative impacts on crop production could significantly increase. Then higher tax-subsidy rates would be needed to reduce emissions by 50%. This means that with no substitution, the FCS policy becomes more expensive.
On the other hand, while area of cropland falls in many regions, crop outputs drop at lower rates. This is in part attributed to a boost in productivity (through technological adaptation improvements) to partially offset the land reduction. Hence, forest expansion due to FCS incentives has two effects on agriculture, in our Tax-Subsidy experiment: (1) Forest expansion bids land away from agriculture and (2) It encourages improvements in land productivity by using more labor and capital to avoid sharp reductions in crop outputs. In fact, in this case, there is a significant increase in capital and labor in agriculture such that crop yields increase significantly. This substitution of other factors, capital and labor for land occurs in any CGE model. To test the sensitivity of the implied high degree of productivity increase, we repeated the Tax-Subsidy experiment with restricting crop yields to be fixed. There are still some substitutions among primary inputs in this restricted case, but much less than the case without restriction. The result is that welfare decrease is much higher in the restricted case. One cannot be sure what degree of agricultural productivity increase would occur, but even with yield fixed, welfare falls less with the tax-subsidy case than with the tax-only case (this is discussed overall in Sect. 3.7).
TS + CY
With decreased crop yields in many areas (Annex 2), the only possible responses to satisfy a given crop demand are either through extensification of agricultural land or importing products from other regions. Only a third as much cropland is converted compared to the Tax-Subsidy scenario and 20% less land is moved to forest (about 141 Mha less). Thus, with the reduced crop yields, less land is available for FCS (Fig. 2), so there is less afforestation and more pasture land is converted to avoid decreases in cropland. Hence, there is an expansion in global harvested area (Fig. 5) for all the crop sectors compared to the Tax-Subsidy scenario including paddy rice. In addition, land becomes more valuable driving up its rent in many places of the world (Annex 3).
Changes in Regional Output
Here, we discuss both policies of tax and tax-subsidy under the effects of climate change on crop yield. We present the results for selected commodities including outputs and prices of aggregated three food items (Table 1): paddy rice, crops (all the other agricultural sectors), and livestock (ruminant, dairy farm cattle and non-ruminants).
Tax + CY
There is output redistribution for agriculture under the Tax + CY regime. Overall, the burden of the carbon tax on outputs (including goods and services) together with the adverse effects on yields drives down crop production for many regions. Paddy rice, ruminant and dairy farm outputs suffer the most due to their emissions (Table 1).
TS + CY
Golub et al. (2013) have shown that a global 27$/tCO2e tax-subsidy policy negatively affects agricultural sectors of the developing countries, even if agricultural producers of these countries receive a refund for their tax expenses. Our results in the Tax-Subsidy case (in which we propose a higher rate to decrease net emissions by 50%) follow similar behavior, although with more dramatic reductions in output.
We expand the context of the results by incorporating the crop yield shocks. This addition shows that under the presence of climate change, the repercussion on agricultural output is worse when forest subsidy plays a role in the mitigation effort (TS + CY scenario) (Table 1). This is caused by the overall reduction in harvested areas due to forest expansion together with losses in agricultural productivity. This drives down output for almost all the crops across the world, with few exceptions (Central European countries and Canada), which increase their output to satisfy their self-consumption and export food commodities.
Changes in Regional Domestic Food Price
Tax + CY
Because of the inelastic food demand, the changes in prices are higher than changes in output. In the Tax + CY scenario, prices go up for all crop products, and as expected, it is significantly higher for ‘dirty’ agricultural sectors due to the addition of the carbon tax regime of $155t/CO2e. Thus, for paddy rice and the livestock sectors, we have price increases higher than 50% for almost all the regions (Table 1).
Declines in GDP and private consumption vary among regions. In countries such as India and other developing regions, some production declines can be made up by foreign trade, but not all.
TS + CY
The implementation of the $100/tCO2e tax and subsidy changes the situation. Prices for (both non-carbon and carbon intensive emitter) agricultural commodities increase overall in the TS + CY compared to the Tax + CY scenario. This is a result of the land competition between forest and agriculture and low crop yields. Thus, the prices for most agricultural products are often more than triple (+ 200%) their original value. Hence, the loss in productivity is expressed in higher commodity prices. As a result, this further reduction in food supply and dramatic rise in food prices then acts as a major threat for food security. People, particularly low income groups, would have to spend a larger share of their income on food products, especially in emerging economies where agriculture is an important subsistence activity (Sub-Saharan Africa, South East Asia, India, South and Central America).
Livestock prices also increase dramatically under both scenarios. Nevertheless, in some regions, the situation is worse under the Tax + CY regime (with a high tax of $155/tCO2e) because this sector is heavily penalized due to its emissions from ruminant animal enteric fermentation.
Changes in Trade Balance for Food
Trade balance is the difference between regional exports and imports. Many places (India, Sub-Saharan Africa) increase their trade deficit in agricultural commodities under the TS + CY scenario due to the adverse crop yield shocks. This drives up import prices, which motivates some regions (United States, Central Europe and Oceania) to increase their net food exports. The results are similar under the other CY scenarios.
The consumer price and GDP impacts vary by case. Interestingly, in many (developed) regions the Tax + CY regime causes CPI to increase more than imposing a TS + CY policy. This is because the high carbon tax affects all sectors in the economy, thus driving up overall prices more than in the TS + CY case which affects mainly commodity and food prices. Also, food is a smaller share of total income in richer countries. In contrast, for several developing regions, especially the ones that were more affected by land use change and loss in productivity (e.g., South Asia, India, China, South America, Sub-Saharan Africa), the overall prices are higher under the tax-subsidy regime (Fig. 6).
Both policies decrease real GDP (which is endogenous in our model) across the world. Nevertheless, the tax-subsidy regime (TS + CY) scenario drives more abrupt declines in private consumption and energy production, and changes in imports, which ultimately decreases GDP by 0.1%–9.9% for most regions in the world. The situation is more severe for developing economies (Sub-Saharan Africa, Central and Eastern Europe, Latin America, China, India) because of their higher dependence on agriculture and decrease in net exports (which is a component of GDP) (Fig. 6).
Tax Only Versus Tax-Subsidy
Table 2 shows an overall decline in welfare (a measure of economic well-being in US$ termed equivalent variation [EV]) under the imposition of both policy regimes. We compare first the situation with no climate change effects, which has been the common practice in previous studies. Here, our results suggest that implementing the Tax-subsidy regime drives a global welfare loss of about $457 billion, which is lower than the EV loss from applying the Tax-only regime (− $760 billion).
Our results also show that is unlikely, considering the adverse impacts on agriculture, that most developing regions would implement a carbon tax, which is also supported by Hussein et al. (2013). Likewise, our conclusions are consistent with the literature which considers FCS as a cost-effective method compared to other mitigation alternatives (Adams et al. 1999; Golub et al. 2010; Richards and Stokes 2004; Sheeran 2006; Sohngen and Mendelsohn 2003; Stavins 1999).
Tax + CY Versus TS + CY
Climate change provokes adverse impacts mainly in (i) technical efficiency (i.e. effects of lower productivity) due to crop yield losses in all regions and (ii) allocation efficiency (i.e., changes in inputs and intermediate products from one sector to another), due to the reallocation of resources (e.g., more labor for agriculture, substitution of energy by capital, among others) (Supp. Table 2). As a consequence, the simulations suggest a significant underestimation of social welfare losses if the agricultural productivity change is not included in the analysis of both policies. This is especially true for the FCS case, in which these climate change impacts represented an additional $650 billion loss in welfare.
In addition, incorporating the overall adverse effects on agriculture provides an important insight. Under the presence of climate change, FCS becomes a less attractive alternative due to: (1) land use competition, (2) increased commodity prices and land rent, (3) larger reductions in private consumption and output production, and (4) lower real income in many regions. Thus, the welfare losses are $200 billion larger when implementing FCS subsidies compared to the Tax + CY scenario. In other words, including crop yield shocks reverses the conventional wisdom and suggests that a carbon tax only is preferred to the tax combined with FCS in terms of overall economic well-being.
Comparison of Mitigation Scenarios Versus BAU
In order to compare the welfare losses between RCP 4.5 and RCP 8.5, we first take the difference between the policy regime scenario and its respective policy including the climate change impacts on agricultural productivity. Specifically, we take the difference between Tax + CY and Tax-Only scenarios. We do this calculation in order to isolate the effects of the additional losses from the adverse crop yields under the RCP4.5 which permits comparison with the consequences under the RCP 8.5. The procedure is similar for the tax-subsidy regime.
The global welfare loss due to lower crop productivity under both mitigation methods (− $154 and − $650 billion, respectively) is lower than the total EV loss due to crop yield shocks under business as usual (CYBAU scenario), which is $726 billion (Table 2). This result suggests that there is an economic benefit of mitigating crop yield losses of about $76 billion under the tax-subsidy regime and approximately $570 billion gain worldwide under the tax-only policy. This net benefit is before considering all the other benefits of mitigation and adaptation in other sectors, so it is, even in isolation, a strong case for mitigation.