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Economic Incentives, Transaction Costs and Carbon Trading: The Economics of Alberta’s Reduced Age to Harvest Protocol. Climate change is a global problem that requires individual countries to take action to reduce their greenhouse gas (GHG) emissions. Canada’s GHG emissions have increased from 613 megatonnes (Mt) in 1990 to 726Mt in 2013; an 18 percent increase (Environment and Climate Change Canada, 2015). The agriculture sector produces approximately 10 percent of the GHG emissions in Canada and methane and nitrous oxide are the two largest sources of emissions (AAFC, 2015). The main sources of methane emissions are from cattle and sheep production and animal manure. The amount of methane produced during the production process can be reduced by changing the animal’s diet, the age at harvest and the addition of various agents and compounds to the feed (AAFC, 2014a). GHG emissions in the province of Alberta increased from 175Mt in 1990 to 267 Mt in 2013 (Environment and Climate Change Canada, 2015). To address this increase in GHG emissions, Alberta introduced a carbon traded system where large emitters of GHG emissions are regulated (Boyle, 2008-09). Regulated firms can satisfied their required reductions by: (1) reducing their GHG emission intensity, (2) purchasing Emission Performance Credits from other regulated firms, (3) purchasing Technical Fund Credits or (4) purchasing Carbon Offset Credits. The province of Alberta has been active in the development of agricultural protocols that can be used to produce Carbon Offset Credits. However, agricultural producers will only undertake these management changes if there are economic incentives to do so. This paper investigates the transaction costs that will be incurred in generating Carbon Offset Credits from the Reduce Age to Harvest protocol and the economic incentives that will be generated for the aggregator and the feedlot operator. The Reduce Age to Harvest (RAH) Protocol was designed to quantify the GHG emissions that result from reducing the age of cattle when harvested. The protocol is designed to measure the GHG emissions per kilogram of carcass weight of beef. The RAH protocol includes the GHG emissions from the pasture, backgrounding, and feedlot operation as well as manure storage and handling. When the age to harvest is decreased the amount of GHG emissions also decreases (AESRD, 2011). A greenhouse gas calculator that was specifically designed for the feedlot industry was used to estimate the impact of decreasing the age of harvest from 19 months to 15 months. The change in management required bringing steer or heifer calves into the feedlot instead of yearling animals. This change in management resulted in a reduction of 2.3 tCO2e per head for steers and 2.49 tCO2e for heifers. The transaction costs of developing Carbon Offset Credits plays an important role in estimating the economic incentives of the RAH protocol. The RAH protocol will require the services of an aggregator who will manage the transaction costs of generating the Carbon Offset Credits from the feedlot operator to selling the Offset Credits on the market. In order to estimate the costs of the aggregation function, a series of semi structured and structured surveys and interviews were undertaken with aggregators who worked with feedlot operators as project developers. The semi-structure survey was an open discussion with one aggregator to define the types of costs that would be associated with developing a project using the RAH protocol. These costs were broken down into three categories. The first category was fixed costs that would be required no-matter the number of credits that would be generated and included: legal costs, accounting costs, office space, project planning, website development, computer software development, computer storage, etc. The second category of costs varied with the number of carbon offset credits that are generated. These included data collecting costs, de-listing costs, registration costs, and insurance costs. The third set of costs was based on the number of projects in the aggregator’s portfolio. These included the project listing costs and the verification costs. Once these detailed costs were identified a group of aggregators were surveyed to provide estimates of the various costs. Once these estimates were received, a consensus group of estimates were developed. These were then reviewed by the aggregators to provide an indication of the accuracy of the estimates. Once these costs were deemed acceptable a net present value calculation was undertaken to determine the economic feasibility of providing project development services for a RAH project. This analysis includes a sensitivity analyses on the variables that had an impact on the economic feasibility of being an aggregator. The economic incentive for the feedlot operator was also investigated. This included variations in the carbon price, the share of carbon revenue between the aggregator and the feedlot operator and the change in the cost of production from the change in management. This study estimated the benefits and costs for the aggregator and the feedlot operator of generating Carbon Offset Credits using the RAH protocol in the Alberta Carbon Market. Three carbon price scenarios were investigated and a sensitivity analysis was undertaken on some of the key variables that would impact the results. The analysis indicated that there are economic incentives for aggregators to get involved in the Carbon Offset Market with the RAH protocol. The economic incentives change with the carbon price, quantity of offset credits generated and the share of carbon revenue going to the aggregator. There are also favourable economic incentives for the feedlot operator. These results are sensitive to the carbon offset price, the share of offset revenue received and the change in the cost of production. The analysis indicated that the economics from carbon offset generation is positive, however, the revenue generated is substantially less significant than the revenue from the cattle production.

This paper examines the economic impact of alternative climate change scenarios on representative cash crop farms in Quebec and Ontario. Mixed Integer Dynamic Linear Programming models are used to determine the annual optimal land and labor allocations over a 30 year time horizon. In the modeling process, five climate scenarios are modeled, along with different combinations of CO2 enhancement and water limitation. Parameters, such as crop prices, costs of production, and crop yields, are simulated and projected into the future using various methods, such as Monte Carlo simulation, Crystal Ball Predictor and DSSAT cropping system model. Rotation and diversification constraints, as well as participation in public risk management programs are also incorporated into the optimization procedures. The results show that the economic impact of climate change varies by scenario, with the CO2 effect and water limitation having a more significant effect than the specific climate scenarios. Technology development, as well as the public insurance programs can contribute to the reduction of economic vulnerability.

The objectives of this research were to design and estimate an agricultural wealth account for the province of Quebec and to demonstrate how this information can be used in the decision making process. A hedonic pricing model was used to calculate the value of the agricultural wealth account based on the implicit prices of the attributes of the physical account. The estimated account includes both an estimate of the physical characteristics of the agricultural land inventory and the valuation of that inventory. The information generated from the wealth account will be used to illustrate its use to estimate “green GDP” for the agriculture sector and to account for land use and land use changes. Implicitly pricing the attributes of agricultural land provides a more flexible means of estimating the potential impact of agricultural land policy on the value of the wealth account. This method can fulfill an important informational gap about the behaviour of the asset facing various exogenous shocks.

This paper presents a multinational meta-analysis estimated to identify systematic components of willingness to pay for surface water quality improvements, developed to support benefit transfer for Canadian policy development. Metadata are drawn from stated preference studies that estimate WTP for water quality changes affecting aquatic life habitats—a type of study with few Canadian examples. The goals of this paper are to assess the properties of a multinational (United States/Canada) meta-analysis compared to a single-country (U.S.) analog; illustrate the potential information that may be derived as well as the analytical challenges; and assess the performance of resulting meta-functions for benefit transfer.

The institutional development of a domestic carbon trading institution in Canada that includes carbon off-sets must address the problems of providing the appropriate incentives to generate carbon reductions and removals and the problem of non-permanency of sequestered carbon. The paper analyzes two rule sets to address these problems and estimates the economic impact of these sets.

Consumer concerns in food purchasing contain a number of elements, including food safety, environment, animal welfare, and other social issues. The purpose of this study was to examine consumer perceptions of the potential benefits of products that are produced using an environmental management system (EMS) in agriculture, and to identify those factors that influence choice. The choice modeling technique uses consumer responses (preferences) to estimate Montrealers= willingness to pay (WTP) for production practices that decrease the impacts on the environment, as well as for other potential benefits of EMS production. Results indicate that consumers are willing to pay a price premium for these environmental benefits. This could provide a justification for government to provide incentives for environmental farm management practices and support to certification and labelling programs.

When Canada ratified the Kyoto Protocol in December 2002, the country committed to decrease its Greenhouse Gas (GHG) emissions by 6% below its 1990 level. It is estimated that this commitment will require Canada to decrease emissions by 270 megatonnes (Mt) per year during the first commitment period 2008 to 2012. Carbon emission trading institutions have been identified, both internationally and domestically, as being a cost effective mechanism for supplying carbon emission reductions. The paper investigates two alternative mechanisms that can be used to allocate carbon and the potential development of the carbon offset credit market. The offset market could be important for the agriculture and forestry sectors, since these sectors have the potential to sequester carbon or reduce greenhouse gas emissions through various mitigation actions. Government is currently considering various types of offset credit vehicles in order to address the concern of permanence associated with carbon sequestration. These include temporary credits and "permanent offset credits." Temporary credits would provide a one year deferment for the purchaser. The "permanent offset credit" would give the buyer a permanent reduction but would require the producer of the credit to conduct the practice for a particular period plus some liability period during which the carbon would have to be stored. The choice of credit type, liability replacement rule, liability clock has an impact on the value of the "permanent offset credit." The paper estimates the economic incentives that can be expected from the alternative institutional arrangements.