Alessandro De Pinto (IFPRI) Mitigation opportunities and challenges: An economic perspective (presentation from Mitigation session at CCAFS Science Workshop, December 2010)

1. Mitigation Opportunities
and Challenges
an Economic Perspective
ALEX DE PINTO
Environment and Production Technology Division

2. The Goal and the Challenge
Profitability Adaptation
Mitigation

3. A Tall Order
 What are the proper incentives that promote
mitigation compatibly with adaptation?
 One can throw lot of money at the problem and
farmers will adopt….but there are obvious
repercussions with failed projects and policies
 Getting the right incentives IS important

4. Some Projects Directly Addressing These
Issues
 IFAD-IFPRI partnership on CC mitigation activities and
small farmers
 Objective: link farmers to markets for carbon sequestration
 Four countries: Morocco, Ghana, Mozambique, and
Vietnam. Focus on:
• Technical issues: implementation and reliability of
measurement
• Operational issues: transaction costs
 Adaptation to Climate Change for Smallholder Agriculture
• Kenya, World Bank

5. IFAD-IFPRI Partnership
Geophysical Climate
projections
 Measurement Issues
characteristics
• country-wide assessment of Carbon
Most common/ DSSAT agricultural mitigation
important crops
potential crop model BASELINE
Mitigation
• creating an “acceptable” baseline at the project level
Current Ag. potential
practices (costs?) Carbon profile ag.
 Transaction costs
Climate
practice #1
Geophysical
• the role of institutions: mapping and analysis of
characteristics projections Carbon profile ag.
practice #2
institutional structures with potential to connect farmers
DSSAT
Most common/
importantwith carbon markets
#3
crops #4
crop model .
.
Mitigation Ag.
practices
Carbon profile
ag. practice #n

6. IFAD-IFPRI Partnership
 Transaction costs
• Cost-benefit analysis of most promising mitigating
practices: implicit cost of ton of C
• Vietnam: rice and alternative water management
practices
• Ghana: Cassava new high yield variety

7. Adaptation to Climate Change for
Smallholder Agriculture in Kenya
 Synergies between adaptation and mitigation
• Land management practices
• Adaptation strategies
• Implications for SOC
• Impact on Productivity

8. Some Results
 Soil and water conservation measures showed limited
impacts in terms of crop yield and SOC sequestration
 There are tradeoffs in the short term before long-term
benefits can be reaped
 These include:
• Carbon losses due to construction (terraces, bunds, ridge
and furrow)
• Loss of cropping area before yield benefit (bunds, terraces,
ridge and furrow, agroforestry)
• Short-term production losses due to decrease in cropping
intensity (rotation/fallowing)
• Increased labor costs (e.g. minimum tillage) (analysis
ongoing)

9. Some Results
 Combinations of inorganic fertilizer, mulching, and
manure have positive impacts for SOC; are important
adaptation strategies, and are relatively low-cost
management practices as well
 Some farmers already implement such combinations.
Specific combinations will vary depending on the crop
type, agroecological zone, and planting date
 However, in parts of Kenya where residues are used
as a source of feed, there is an economic tradeoff with
livestock production

10. Management
prac,ces
The Issue of Incentives
Produc,vity
Variability
Adapta,on
Mi,ga,on
poten,al
short
term
long
term
Improved
crop
varie,es
and/ ↑
↑
↓
+++
Depends
on
variety/type
or
types
Changing
plan,ng
dates
↓
+++
Improved
crop/fallow
↓
↑
++
High,
par,cularly
for
rota,on/rota,on
with
rota,on
with
legumes
legumes
Use
of
cover
crops
↑
↑
++
High
Appropriate
fer,lizer/manure
↑
↑
↓
+++
High,
par,cularly
when
use
underu,lized
as
in
SSA
Incorpora,on
of
crop
↑
↑
↓
+++
High
residues
Reduced/zero
,llage
↓
↑
↓
+
High
Agroforestry
↓
↑
↓
+
High
Irriga,on/water
harves,ng
↑
↑
↓
+++
when
well
Low
to
high
depending
on
designed
and
whether
irriga,on
is
energy
maintained
intensive
or
not
Bunds,
terraces,
ridge
and
↓
↑
↓
+++
Low,
minus
soil
carbon
furrow,
diversion
ditches
losses
due
to
construc,on
Grass
strips
↓
↑
↓
+++
Posi,ve
mi,ga,on
benefits
Sources:
FAO
2009,
Smith
et
al.
2008

11. Role of Uncertainty and Risk
 Uncertainty and risk-aversion is notably absent in the
modeling of farmers’ adoption of climate change mitigation
practices in developing countries
 A farmer will adopt mitigation practices when the net
present value of farming with these practices is greater
than with the alternatives or NPVA + S ≥ NPVN
 Antle and Stoorvogel (2008) point out: “it is important to
note that risk could impact farmers’ willingness to
participate in carbon contracts both positively and
negatively.”

12. Role of Uncertainty and Risk
 We used the DSSAT crop modeling system to simulate
maize yields and soil carbon content
 Cropping system cassava for twenty years
 Daily weather data simulated using DSSAT’s
 Record the yield and soil carbon content repeated 100
times using a different random seed each time: obtain an
estimate of yield variability
 The input: organic soil amendment, such as green manure
and we simulated 13 levels of use intensity: 0-20 tons/ha
 Through this series of simulations we obtain yields, yield-
variability, as well as the soil carbon content at the end of
the 20 year period

13. Input Usage and Variability
Effect of the input usage on yield
variability for years two and twenty

14. Input Usage and Variability
 Note: different input
applications can increase
or decrease yield
variability. Year 2 from
about 9000 kg of manure,
yield variability is lower
than with no input usage.
In year 20, the standard
deviation is always higher

15. Payments for Adoption
Total payments necessary to induce adoption under risk-aversion
and risk-neutrality for different levels of input usage

16. Implicit Cost of a Ton of Carbon
 We kept track of
difference in SOC
between usage and no-
usage: C sequestered
 The lowest cost per ton of
sequester carbon is about
$67.5 under risk-neutrality
assumption while for a
risk-averse farmer the
lowest cost is about
$49.0.

17. Farmers’ risk aversion?
 The differences in
payments and implicit
cost of carbon depend
upon the parameters that
characterize the utility
function. The implicit cost
of carbon varies from
$67.5 to $48.9
 Can make the difference
between success and
failure of a project

18. Considerations
 Risk-neutrality hides the complexities of implementing
payment for environmental service schemes
 These results add one more layer of complexity
 Could save money targeting the “right practices” to the
“right” farmers

19. Back to the Incentive Issue
 Two extremes for compensation plans
• By adoption of mitigation practice: very inefficient but
easy to implement
• CRP style: efficient but data intensive
• Anything in between? Are there ways to address the
“adverse selection” problem?

20. Back to the Incentive Issue
 If the price of carbon not high enough to make a
significant difference for farmers, could be used by
institutions?
 What is the role of marginal land?
• Important behavioral difference between farmers on
degraded land and farmers on fertile land: (all other things
equal) farmers on fertile land have an incentive to mine
the resource while farmers on degraded land have an
incentive to restore the resource

21. Research Needs
 More work on dynamics and measurements of GHG
 Improve modeling tools (DSSAT/Century, CropSyst,
etc.)
 Bring risk back in economic analysis
 Better understanding of potential role of institutions
 Need for a global model of land use change