Addressing climate change cause and effects on agriculture, land use, and energy: case studies on South Asian economies

Abstract

This thesis examines the use of a variety of policy interventions in addressing climate change cause and effects on agriculture, land use, and energy sectors. The study consists of three empirical papers using the computable general equilibrium modelling to focus on a comparative analysis of different countries in South Asia using policy scenarios aimed at tackling some important aspects of climate change issues. The first paper investigates the role of trade liberalization in mitigating the impacts of climate change on agriculture. The second paper addresses climate change cause and effects on land cover and land use, whilst the third paper analyzes the efficiency of market-based instruments to mitigate climate change.Using the standard Global Trade Analysis Project (GTAP) model, the first paper investigates the associated welfare, macroeconomic, and sectoral effects under low and medium crop productivity climate change scenarios using Sri Lanka and Bangladesh as case studies. The study uses various trade liberalization options (i.e. unilateral, regional, global trade liberalization strategies with partial or full and agricultural Vs. all trade options) as a mitigation policy for climate-induced impacts on agriculture in these countries. The study finds that climate change causes massive technical efficiency losses that result in significant welfare losses in the region. Trade liberalization as a policy, particularly unilateral and regional liberalization options could not generate adequate welfare gains to mitigate climate change impacts on agriculture in these countries. However, considering the least welfare deterioration effects associated with the liberalization options and the other macroeconomic and sectoral impacts, the study concludes that global full trade liberalization is the optimum policy for Sri Lanka, while it is the regional partial agricultural trade liberalization option for Bangladesh. Therefore countries within the same region also respond in a different way to climate-induced crop productivity changes and hence there is no one optimum trade policy fits all.The second paper uses the GTAP Agro Ecological Zones (AEZ) model to evaluate two policy options, trade liberalization and agricultural intensification, in mitigating climate change induced land cover and land use change emissions in South Asia. The results indicate that climate-induced crop productivity changes cause cropland expansion and deforestation both at regional and global levels and hence increased land cover and land use change emissions. Among the various trade liberalization policy options analyzed, the study finds global full trade liberalization on all goods as the optimum policy for South Asia. For the world, unilateral partial trade liberalization on all goods is the optimum policy, and it also results in a significant emissions reduction for South Asia. However, the results indicate that agricultural intensification by improving crop productivity is the best climate induced land cover and land-use change emissions mitigation strategy both at regional and global levels.The third paper studies the effectiveness, efficiency, and economy-wide impacts of market-based instruments in mitigating energy sector emissions for Sri Lanka and Pakistan. The study uses the GTAP energy and environmental model (GTAP-E) for the analysis, which is an extension of the standard GTAP model that introduces an energy-environmental dimension. The model has been proven the suitability for analyzing climate change, GHG issues, and related policy scenarios. The policy instruments considered are a carbon tax, fuel tax and policy mix options of the carbon and fuel tax, which are analyzed to determine the optimum policy for each country. The study finds a carbon tax of US$27/tCO2 to be the optimum policy for Sri Lanka to achieve its intended nationally determined contributions (INDCs), that is to reduce emissions by 7% from 2010 levels. This policy is also associated with the least welfare deterioration and increases in real GDP by 0.2%. For Pakistan, which has a distorted energy market of subsidies and taxes, a carbon tax of US$13/tCO2 is found to be the best policy to reduce carbon emissions by 5% from 2011 levels. Overall, the study concludes that the carbon tax performs better for both economies and allows their INDCs to be achieved more cost effectively. Also, the carbon tax enables any welfare losses associated with the policy to be compensated through the tax revenues generated.n