Integrating biophysical and whole-farm economic modelling of agricultural climate change mitigation

Abstract

Agriculture is the source of 16 percent of Australia's greenhouse gas (GHG) emissions. Research has shown that changes in agricultural practices can increase carbon sequestration in soils and/or vegetation and reduce GHG emissions. Given worldwide commitments to reduce GHG emissions, there is a need to better understand the potential for Australian agriculture to contribute to GHG mitigation. GHG abatement practices will only be adopted if profitable to farmers. Without strong evidence for increased profitability, there is no incentive for farmers to move away from their current practices. Therefore, it is necessary to incorporate economics in any assessment of the potential for Australian farms to contribute to GHG mitigation. We performed an integrated modelling exercise to predict the GHG mitigation potential and whole-farm economic implications of different mitigation practices that can be implemented on Australian grain farms. This exercise was undertaken in two stages. In the first stage, a range of potential management practices that could provide GHG abatement were identified; these involved adding extra organic matter to the soil or altering nitrogen fertiliser use. The Agricultural Production Systems sIMulator (APSIM) was used to estimate the effects of abatement practices on productivity, soil carbon sequestration, nitrous oxide emissions and net GHG emissions over time. In the second stage, we develop an economic model that predicts annual revenues at a paddock scale, as well as whole-farm costs and benefits. Taking a whole-farm approach ensures that the full costs of different practices, such as investment in new capital equipment, is included. We present results for a 6,000 hectare dryland cropping farm in the north-central wheatbelt of Western Australia. This area is representative of the typical Mediterranean climate found in some of Australia's major grain growing regions. We predict that stubble retention and other organic matter additions increase soil carbon, which is important for greenhouse gas emissions reductions. Productivity gains are possible under some of the GHG abatement practices, i.e. GHG abatement and productivity gains can be achieved simultaneously. Increasing nitrogen fertiliser application or replacing volunteer, weedy pastures with improved, legume pastures are predicted to increase earnings and operating profits. However, when accounting for interest and tax, there was no economic advantage or disadvantage of adopting any of the GHG abatement practices. While gross margins per hectare are positive in almost every season, the whole-farm annual profits were negative for 30-40 percent of years. This study demonstrates the benefits of comprehensive economic analyses to accompany any biophysical analyses of the GHG mitigation potential of the Australian agricultural industry, and outlines a framework in which economic and biophysical analyses can be combined.