The economics of alternative crop production systems in the context of farmer participation in carbon trading markets

Abstract

Using scaled up data from an experimental farm platform in Scotland, we examined the relative economics of a conventional and a low-carbon integrated management system for two (otherwise identical) farms. By employing a novel market-based approach, we factored the market costs of greenhouse gas (GHG) emissions on the relative economics of both systems. Specifically, farmers are considered to be awarded emission credits in accordance with Scotland’s agricultural emissions reduction targets. Farmers are then considered to trade their net GHG emissions in an emissions trading scheme, with the integrated system expected to benefit from this arrangement due to its lower emissions. In further sensitivity analyses, we also considered the effect of premium pricing of integrated system crops on the relative economics of both systems. We find that in both the status quo and emissions trading scenarios, the conventional system is significantly more profitable. In the emissions trading scenario, an emissions price roughly three times the reported median prices over the last five years is required for the integrated system’s profitability to break-even with the conventional system. However, even at prevailing emissions prices, a 20% premium pricing of the integrated system crops enables near parity in the profitability of both systems. We conclude that in order to facilitate greater adoption of low-carbon systems, policies may be needed to encourage farmers’ realization of the cost of their externalities, in particular GHG emissions. At the same time, support should be given to a market system that recognizes premium prices for low-carbon system products.