Emission Taxes as a GHG Mitigation Mechanism in Agriculture: Effects on Rice Production of India

Abstract

The effect of emission tax has been examined as a mitigation policy to reduce greenhouse gas (GHG) emissions from rice production in India. The cost of methane emissions has been internalized in the production process by taxing these emissions with carbon prices. Further, an iso-elastic supply function has been used to estimate the shift in supply of rice due to price internalization. A negative shift in the production has been observed both with market and shadow prices of carbon, which were considered as the tax levels. Although with the introduction of emission tax, the demand price increases, the higher costs and low efficiency of current mitigation measures make carbon taxation an unattractive proposition from economic and social welfare perspective. Small landholders, because of emission tax led increase in cost of production might shift from rice to other crops. This induced change in land-use would have consequence that could overpower the direct effects of emission tax. Successful implementation of emission taxation as a GHG mitigation strategy would depend on the development of cost-effective mitigation at farm level, and the instruments that can offset welfare losses for smallholders.