Modeling Interactions of a Carbon Offset Policy and Biomass Markets on Crop Allocations

Abstract

Arkansas cropping pattern changes at the county level were estimated under various scenarios involving a likely decline in water availability, the development of a biomass market for renewable energy production, and the potential of a widely used carbon offset market. These scenarios are analyzed separately and jointly to determine which of the three scenarios is expected to have the largest impact on net (emissions - sequestration) greenhouse gas (GHG) emissions, renewable fuels feedstock supply, and producer net returns. Land use choices included conventional crops of rice, cotton, soybean, corn, grain sorghum, pasture, and hay. Specialty crops of loblolly pine and switchgrass were modeled for their respective potential to sequester carbon and provide feedstock for renewable fuels. GHG emissions were measured across an array of production methods for each crop. Soil and lumber carbon sequestration was based on yield, soil texture, and tillage. Using the concept of additionality in which net GHG emissions reductions compared with a baseline level were rewarded at a carbon price of $15 per ton along with $40 per dry ton of switchgrass, baled at field side, revealed that irrigation restrictions had the largest negative impact on producer net returns while also lowering net GHG emissions. Introducing the higher carbon price led to minor positive income ramifications and greatly reduced net GHG emissions. Biomass production returns were higher than the returns from the carbon offset market, however, at the cost of greater net GHG emissions. The combination of all factors led to a significant increase in switchgrass and pine production. In this scenario, approximately 16% of the total income losses with lower nonirrigated yields were offset with returns from biomass and carbon markets. Lowest statewide net GHG emissions were achieved given least irrigation fuel use and a greater than 15% increase in carbon sequestration with pine and switchgrass.