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Impacts of a carbon tax policy on Illinois grain farms: a dynamic simulation study

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  • Daniel Schunk

    (University of Mannheim)

  • Bruce Hannon

    (University of Illinois)

Abstract

Methods from dynamic modeling and econometrics are used in order to develop a computer model of Illinois grain farmers’ adjustment to a carbon tax policy. All relevant money and material inflows and outflows on Illinois farms and their reaction to a carbon tax policy are explicitly included into the framework. The approach taken here is interdisciplinary in that the agroecological subsystem, the production technology subsystem, and the interrelation of both systems are modeled in detail. This allows for capturing numerous feedback processes and nonlinearities that have been found to stabilize the system. Furthermore, the bottom-up representation of the system is essential for relying on stakeholder participation in the model building and validation phase. The findings from model simulations up to 2020 indicate that farm income will be negatively affected by a carbon tax policy, with smaller farms being subjected to a stronger effect than larger farms. Through the detailed representation of Illinois farms, we are able to track numerous effects of a carbon tax policy on the level of a single farm and to find measures to react to such a policy. The policy implications and the findings are discussed.

Suggested Citation

  • Daniel Schunk & Bruce Hannon, 2004. "Impacts of a carbon tax policy on Illinois grain farms: a dynamic simulation study," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 6(3), pages 221-247, September.
    • Handle: RePEc:spr:envpol:v:6:y:2004:i:3:d:10.1007_bf03353938
    DOI: 10.1007/BF03353938
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