estimates of negative and positive externalities …...canadian agricultural externalities...

Estimates of Negative and Positive Externalities from Agriculture

Tristan Skolrud, Ken Belcher, Patrick Lloyd-Smith, Sarah Prescott, Peter Slade, & Alfons Weersink

Optimizing Land Use for Sustainable Growth:

A CAPI Dialogue

April 24, 2019

Guelph, Ontario PRELIMINARY RESULTS – DO NOT CITE

Canadian Agricultural Externalities Introduction

Estimates of Negative and Positive Externalities from Agriculture

2019-04-24

2

Tristan Skolrud, Ken Belcher, Patrick Lloyd-Smith, Sarah Prescott, Peter Slade, & Alfons Weersink

Optimizing Land Use for Sustainable Growth: A CAPI Dialogue

April 24, 2019 Guelph, Ontario

PRELIMINARY RESULTS – DO NOT CITE


Outline

1. What constitutes an externality?

2. Approach to measuring value of externality

3. Illustration for negative externalities associated with air

4. Summary of other negative externalities

5. Summary of positive externalities

6. Policy implications

2019-04-24


Defining externalities

OECD Definition:

Environmental externalities refer to the economic concept of uncompensated environmental effects of production and consumption that affect consumer utility and enterprise cost outside the market mechanism. As a consequence of negative externalities, private costs of production tend to be lower than its “social” cost. It is the aim of the “polluter/user-pays” principle to prompt households and enterprises to internalize externalities in their plans and budgets.

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Canadian Agricultural Externalities Negative Externalities

Negative externalities

Air Pollution

• Greenhouse gases

• Ammonia

• Particulate matter

Water Pollution

• Nitrogen

• Phosphorous

• Coliforms and pathogen contamination

Other

• Soil erosion

• Biodiversity and wildlife

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Canadian Agricultural Externalities Positive Externalities

Positive externalities

• Erosion control

• Biodiversity and wildlife habitation

• Landscape aesthetic

• Nutrient recycling

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Measuring externalities

Steps 1. Measure Physical Levels (Emissions) - mainly from AAFC’s Environmental Indicator report

2. Valuation - adapted from previous studies 3. Total Measurement ($) = Physical Measure * $ /unit

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Fertilizer Intensity – A Driver of Externalities

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Fertilizer Intensity – A Driver of Externalities

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GHG Emissions

Approximately 10% of Canada’s GHG emissions are from agriculture (60% livestock and 40% crop production)

The main gases emitted by agricultural activities are:

• Carbon dioxide (CO2) released through decomposition of crop residue and soil organic matter;

• Methane (CH4) is associated with livestock production through enteric fermentation and anaerobic digetion; and

• Nitrous oxide (N2O)which comes from using fertilizer and manure

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Net agricultural GHG emissions – Western Canada

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Net agricultural GHG emissions – Eastern Canada

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Canadian On-Farm Net Emissions from Primary Agriculture

-10

0

10

20

30

40

50

60

19

90

19

91

19

92

19

93

19

94

19

95

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96

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97

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98

19

99

20

00

20

01

20

02

20

03

20

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09

Meg

a-to

nn

es o

f C

O2

Eq

uiv

alen

t

CO2 Mt N20 Mt CH4 Mt

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GHG valuation

Social Cost of Carbon

• What is the cost to society from emitting one more unit of CO2-eq?

• Estimate used by Environment and Climate Change Canada:

C$41/tonne

• For example, in SK, total agricultural GHG emissions in 2011 were 1.8 MT, resulting in an externality of C$73.8 million.

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Cost of GHG Emissions, 1981-2011

10% decline in total value of damages ($1.5 b in 2011)

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0

100

200

300

400

500

600

1981 1986 1991 1996 2001 2006 2011

Exte

rna

l co

st o

f G

HG

em

issi

on

s in

$1

,00

0,0

00

Census years

AL SK MB ON QC


Particulate Matter

Source: AAFC 2019-04-24 16


Particulate Matter (PM2.5) – Kilo-tonnes per year

0

50

100

150

200

250

300

350

400

450

1981 1986 1991 1996 2001 2006 2011

AB SK MB ON QC2019-04-24 17

Agriculture contributed 5% of all PM emissions in Canada in 2006 Most of this is from land preparation and wind erosion


Particulate Matter - Valuation

Muller and Mendelsohn (2007) estimate the marginal damage of particulate matter emissions from the U.S.

In 2011 Canadian dollars:

• $2,083/tonne (rural areas)

• $6,247/tonne (urban areas)

Why are these figures so large?

• Estimates reflect the reduction in lifespan using the value of a statistical life ($6.2 million USD)

• Statistically significant relationship between particulate matter emissions and adverse human health effects

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Particulate Matter – Damage Costs

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0 500 1000 1500 2000 2500 3000 3500 4000 4500

1981

1986

1991

1996

2001

2006

2011

Externality cost of PM emissions ($1,000,000)

Cen

sus

yea

rs

AL SK MB ON QC


Ammonia Emissions

Ammonia gas (NH3) is released through:

1. the breakdown of excreted urea from cattle and

pigs or uric acid from poultry (65%) and

2. N fertilizer containing ammonium or urea (35%)

85% of NH3 emissions in Canada from agriculture

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Livestock share of Ammonia Emmisions

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9.20%

47.70% 18.50%

24.60%

Poultry Beef Dairy Swine


Ammonia Emissions- Damage Costs

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0100200300400500600700800900

1,0001,1001,2001,3001,4001,5001,6001,700

1981 2006 2011

Exte

rnal

Cost

in $

1,0

00,0

00

Census years

AL SK MB ON QC


Kilograms of nitrogen lost per hectare

0

5

10

15

20

25

30

35

1981 1986 1991 1996 2001 2006 2011

AB SK MB ON QC

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Water quality

Nitrogen

• Estimates of average N loss per hectare by province

• Estimate of N leaching into ground and surface water

• How much does it cost to treat N at a water treatment plant?

• Between C$3.6/kg and C$8.50/kg

Phosphorous

• WTP study from Larue et al. (2017) suggesting a 10% reduction in phosphorous in Quebec would be worth C$1.20/ha

Pesticides

• WTP from Brethoura and Weersink (2001): C$79.4/household/year

Coliforms

• WTP from Larue et al. (2017) suggesting a 10% reduction in coliform contamination is worth C$0.68/person/year

2019-04-24 24


Soil Erosion

• Externality associated with off-site damages (not to farmer)

Erosion levels

• = Proportion of cropland in each erosion risk level * erosion rate with that risk level * cropland area

• Decline over time due to use of conservation tillage and less summer fallow

Valuation

• $7.68/tonne of eroded soil (Pimmental et al. 1995)

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Wildlife and Biodiversity

• Wildlife habitat degraded through intensification of agriculture

Physical Measure

• Wildlife Habitat Capacity on Farmland Indicator from AAFC

Valuation

• WTP from Belcher et al (2015) • $52 ($17 consumptive and $35 non-consumptive)- Central

• $15 ($11 consumptive and $4 non-consumptive)- Prairies

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Negative Externalities – Summary

Environmental impact in $ million (% change 1981 to 2011)

Air Prairies Central Total

Ammonia (NH3) 962 (44%) 537 (-17%) 1,499 (14%)

Greenhouse Gas (GHGs) 732 (-16%) 771 (-5%) 1,503 (-10%)

Particulate matter (PM) 1,462 (-61%) 139 (-32%) 1,601 (-60%)

Water

Nitrogen 188 (337%) 796 (20%) 985 (40%)

Phosphorus 46 (17%) 9 (2%) 55 (14%)

Pesticide 189 (59%) 681 (62%) 869 (61%)

Coliform 40 (5%) 2 (-58%) 42 (-3%)

Other

Soil Erosion 1,514 (-32%) 535 (-13%) 2,049 (-28%)

Wildlife and biodiversity 47 (1%) 205 (-14%) 253 (-12%)

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Positive Externalities – Summary

Environmental impact in $ million (% change 1981 to 2011)

Prairies Central Total

Soil Erosion Control 1,762 (5%) 256 (-30%) 2,017 (-1%)

Wildlife Habitation 4 (-3%) 29 (-15%) 33 (-14%)

Landscape Aesthetics 3,882 (-0%) 624 (-14%) 4,506 (-2%)

Nutrient Recycling 2,518 (5%) 133 (-58%) 2,651 (-3%)

Total 8,166 1,042 9,207

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Externalities – Summary

Environmental impact in $ million

Prairies Central Total

Positive Externalities 8,166 1,042 9,207

Negative Externalities 5,180 3,675 8,856

Net Benefits 2,986 -2,633 351

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Canadian Agricultural Externalities Policy

Policy Considerations

• The heterogeneity in the results suggest the need for spatially-specific agri-environmental policy to mitigate negative externalities.

• Because efficient input use results in low emissions, policies that enhance efficiency, both in crop production and livestock, will be crucial in reducing GHG emissions.

• The estimated values could also help to identify policy priorities – which policy is more effective in mitigating negative externalities and increasing positive externalities?

• The role of farm financial conditions (next slide)

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Canadian Agricultural Externalities Policy

Net Market Income by Quintile: Canadian Crop Production

$100,000

$50,000

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,000

2001 2003 2005 2007 2009 2011 2013

Firstquintile, 0%to 20%

Secondquintile,21% to 40%

Thirdquintile,41% to 60%

Fourthquintile,61% to 80%

Fifthquintile,81% to100%

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estimates of negative and positive externalities …...canadian agricultural externalities...

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