evaluating land management practices under fertilizer subsidy or carbon sequestration compensation...
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Carbon sequestration compensationTRANSCRIPT
Evaluating land management practices under fertilizer subsidy or carbon
sequestration compensation in Kenya
By Paswel MarenyaInternational Food Policy Research Institute
Seminar Presentation at World Agro forestry Center-NairobiMay 14, 2010
With others at IFPRI:Yanyan LiuEphraim NkonyaJose Deustua Rossel Paul Thangata
Research Questions• What is the best way to organize input support systems for
smallholder agriculture?
• Are Subsidies the ‘New Normal’ as a final hope for improved input use in Africa?– Are subsidies not rather expensive?
• What role is there for integrated soil fertility management (ISFM)?
• Can the production of a global public good (carbon sequestration) offer extra revenue streams thereby relieving pressure on subsidy budgets?
Outline
• Introductory Background• Key features and requisites for
agricultural carbon markets • Some tentative economic indicators for
further analysis• Implications and future directions• Your Inputs
Introduction• Carbon sequestration in the agriculture sector refers to the capacity of
agricultural lands and forests to remove carbon dioxide from the atmosphere.
• Carbon dioxide is absorbed by trees, plants and crops through photosynthesis and stored as carbon in biomass in tree trunks, branches, foliage and roots
– Eventually forming soil organic matter (SOM)
• SOM is an important variable in soil health
– It improves soil structure, the soil is capable of absorbing water faster, retaining more moisture, and resisting erosion by wind and rain.
– soil organic matter also acts as receptacles and reservoirs of nutrients.
– provides carbon needed by soil microbial communities for metabolism.
Introduction• The amount of carbon stored in soil organic
matter is influenced by – the addition of carbon from dead plant material
among other things
• By employing farming practices that involve biomass retention: – farmers may be able to slow or even reverse the
loss of carbon from their fields.
Examples• Establishing crops in the residue of previous
crops, which are purposely left on the soil surface.
• Cover crops and manures• Land restoration and land use changes that
encourage the conservation and improvement of soil, water and air quality
• Converting marginal cropland to trees or grass maximizes
The value of soil carbon: Potential benefits foragriculture
• ‘Creating farm and forestry systems with strong incentives for growing soil carbon could well be at the center of climate stabilization’ Mazza (2007)
• As with any farm produce, farmers need a market for the sequestered carbon – as well as a price that will make it profitable to grow.
• From a broader social context, the questions of who will purchase this new output and what is a fair price – are also of private and public importance.
Putting a Value on Sequestered Carbon
1. Carbon Tax– entities that emit greenhouse gases or use carbon-based fuels will
have an incentive to switch to alternatives adopt practices that
would lower their level of GHG emissions.
2. Cap and Trade– by creating a new property right — the right to emit with limitations
and ability to trade these rights. – groups that exceed caps must purchase offsets from other entities
that emit less than their allowance or from entities that sequester carbon.
3. Subsidizing Positive behavior– Farmers can receive incentives to adopt new practices or receive
support to maintain such practices.
Requisites for Agricultural Carbon Markets
• Verifiability• The Chicago Climate Exchange (CCX) divided
the United States into zones and allocated specific levels of carbon sequestration to each acre farmed in a particular zone under continuous no-till practices
• The CCX does not verify the actual carbon storage as a result of the practice change, but only monitors that the practice is maintained during the life of the contract.
Requisites for Agricultural Carbon Markets
• Additionality– Additionality refers to the issue that a farmer
can only offer and be paid for an offset for a new sequestration of carbon, not for a practice or a system of production already in place.
• Permanence– For farmers to provide carbon offsets they must
be willing to make long term, or even permanent, changes in not only practices but perhaps whole systems of production• What happens after a farmer decides to change
practices and potentially reverse sequestration?
Comparing Agricultural and Forest Carbon Markets
• Both have considerable uncertainties surrounding verifiability and monitoring
• Agricultural carbon has superior appropriat-ability (more secure private claims to sequestered carbon)– Pilot projects in agriculture can offer insights into private incentives
and carbon sequestration
• The potential spatial scale covered by agricultural carbon is much larger
• Admittedly transaction costs for agricultural carbon markets may be steeper
Methodology
• Simulations using a DSSAT crop modeling
– To generate yield streams under various treatments over a 30-year horizon
– Generate soil carbon under these treatments
• Valuation of yield streams from DSSAT
• Calculating net present values (NPVs)– Differences in revenues and costs (labor and fertilizer)
• Econometric tests
Some Indicative Findings: Impacts of Sustainable Land Management
Some Indicative Results on the Impacts of Sustainable Land Management
No Inputs
Compost 1.67 to
ns/ha,
100% crop re
sidues
40kgN/h
a, man
ure 1.67to
ns/ha &
50% crop re
sidue
80kgN/h
a, 5 to
ns/ha m
anure
, 100% cr
op resid
ue
-7000
-6000
-5000
-4000
-3000
-2000
-1000
0
1000
2000
3000
Thirty Year Difference in Soil Carbon: Last 10 years minus First 10 years
RiceMaizeMillet
NoCC CSIRO NoCC CSIRO NoCC CSIROMAIZE MILLET RICE
-30,000
-20,000
-10,000
0
10,000
20,000
30,000
40,000
50,000A Nigerian Example: Thirty Year NPVs: 80kgN/ha, 5t Manure, 100%
Residue
Yield revenue Only Yield+Carbon Revenues at $4/tCO2e Yield+Carbon Revenues at $13/tCO2e Yield Revenue only with 25% fertlizer SubsidyYield Revenue only with 50% fertlizer Subsidy
No Inputs
Compost 1.67 to
ns/ha,
100% crop re
sidues
40kgN/h
a, man
ure 1.67to
ns/ha &
50% crop re
sidue
80kgN/h
a, 5 to
ns/ha m
anure
, 100% cr
op resid
ue0
5001000150020002500300035004000
Total Labor and Fertilizer Costs
Total Labor and Fertilizer Costs
Cost
s in
US
$
No Inputs
Compost 1.67 to
ns/ha, 1
00% crop re
sidues
40kgN/ha, m
anure 1.67tons/ha &
50% crop re
sidue
80kgN/ha, 5
tons/h
a manure, 1
00% crop re
sidue
010002000300040005000600070008000
Average Annual Yields over a 30-Year Simulation
Rice Maize Millet
Treatment Average 30 year NPVCrop
Revenue Only
Crop Revenue Plus Carbon Seq. Credit @ $4/CO2e
Crop Revenue
Plus Carbon Seq.
Credit @ $13/CO2e
Crop Revenue @ 25%
Fertilizer Subsidy
Crop Revenue @ 50%
Fertilizer Subsidy
Normal practices, all zero input, no fallow in dry seasons
5555(93)
16955(283)
42606(710)
NA NA
Compost 1.67 tons/ha, 50% crop residues
8027(133)
19591(326)
45611(760)
NA NA
Manure 1.67 tons/ha, 50% crop residues 9437(157)
21141(352)
47475(791)
NA NA
Compost 1.67 tons/ha, 100% crop residues
8820(147)
20474(341)
46695(778)
NA NA
Manure 1.67 tons/ha, 100% crop residues
10174(170)
22046(367)
48757(813)
NA NA
Some Indicative Findings: NPVs of Some ISLMs (US$)
Treatment Average 30 year NPVCrop
Revenue Only
Crop Revenue Plus Carbon Seq. Credit @ $4/CO2e
Crop Revenue
Plus Carbon
Seq. Credit @
$13/CO2e
Crop Revenue @ 25%
Fertilizer Subsidy
Crop Revenue @ 50%
Fertilizer Subsidy
40kgN/ha 7071(117)
18412(307)
44051(734)
7206(120)
7395(123)
40kgN/ha, manure 1.67tons/ha & 50% crop residue
10037(167)
21935(365)
48706(812)
10226(170)
10414(174)
80kgN/ha, 100% crop residue 9512(159)
21701(362)
49125(819)
9890(165)
10267(171)
80kgN/ha, 5 tons/ha compost, 100% crop residue
8943(150)
21675(361)
50321(839)
9321(155)
9698(162)
80kgN/ha, 5 tons/ha manure, 100% crop residue
9496(158)
23597(393)
52522(875)
10829(180)
11118(185)
Some Indicative Findings: NPVs of Some ISLMs (US$)
Total Nitrogen Costs
Costs with Fertilizer at
Market Price
Costs with Fertilizer at subsidy 25%
Costs with Fertilizer at subsidy 50%
No Inputs 0 13300 NA NA
Compost 1.67 tons/ha, 50% crop residues 0 15300 NA NA
Manure 1.67 tons/ha, 50% crop residues 0 15300 NA NA
Compost 1.67 tons/ha, 100% crop residues 0 15300 NA NA
Manure 1.67 tons/ha, 100% crop residues 0 15300 NA NA
40kgN/ha 6000 19300 17800 16300
80kgN/ha, 100% crop residue 12000 27300 24300 21300
80kgN/ha, 5 tons/ha compost, 100% crop residue 12000 37300 34300 31300
80kgN/ha, 5 tons/ha manure, 100% crop residue 12000 37300 34300 31300
Variable No Inputs
Compost 1.67 tons/ha, 100% crop residues
40kgN/ha, manure 1.67tons/ha & 50% crop residue
80kgN/ha, 5 tons/ha manure, 100% crop residue
Soil Carbon 1.702*** 1.065*** 0.211 0.152*
Yield Time Trend -0.013*** -0.003*** -0.002*** 0.000
Impact of CSIRO Climate Change Scenario -5.515** -0.659 -1.334 1.789
Impact of Climate Change Scenario taking Carbon inputs into account (CSIRO X Soil Carbon)
0.477** 0.004 0.052 0.234
Econometric Indications
Key Messages and Future Directions for Research• A diverse revenue source may help in supporting adoption of intensive
NRM and ISFM
– Or better prices for current outputs can also do that
• The escalation of costs for the high input ISLMs may overtake yield and revenue growth
• Econometric tests begin to suggest there is a discernible negative impact of Climate change on yields
• Intensive organic and inorganic inputs mitigate these effects somewhat
• In this research we want to investigate the role of carbon revenues in supporting ISFM
• This is important to support the needed ISFM investments needed to face an uncertain climate future and sustain reasonable productivity
Thank You
• Questions and Comments Welcome