Effects of Agricultural Greenhouse Gas Emission Mitigation Policies: The Role of International Trade

The Kyoto Protocol represents the first international agreement to reduce greenhouse gas emissions. Proposed mitigation efforts may involve the agricultural sector through such options as tree planting, crop and livestock management changes, and biofuels production. The combined use of these strategies could substantially reduce net emissions of carbon dioxide, methane, and nitrous oxide. However, countries where the Protocol imposes emissions caps have expressed concern about their competitiveness with countries that are not part of the Kyoto Protocol. In a free-trade arena, food production and exports in unregulated countries could increase and reduce market share for the producers in complying countries. The authors examine the effects of differential Protocol treatments on agricultural food production and on international trade of agricultural commodities modeling under the assumption that the average U.S. compliance-caused cost increase would also occur in other complying countries. The three cases considered are (1) unilateral U.S. implementation, (2) unilateral Annex I country implementation, and (3) global implementation. The results, which are only suggestive of the types of effects that would be observed due to the simplifying cost assumptions, indicate compliance causes supply cutbacks in regulated countries and supply increases in nonregulated countries. In addition, the study results show that U.S. agricultural producers are likely to benefit from a Kyoto Protocol-like environment, but consumers are likely to be hurt in terms of their agricultural welfare.