Monday, December 28, 2009

Lit in Review: 2.5 on environmental policies tangentially related to the food system

One of the most insightful presentations I went to last year was recently published:
de Gorter and Just, The Economics of a Blend Mandate For Biofuels, AJAE, August 2009, 738-50; ungated.
The US supports biofuels using two primary policy instruments, a blend mandate that requires a certain level of biofuels to be mixed into gasoline and a biofuels tax credit. They demonstrate with a simple theoretical model that the combination of policies is perverse, effectively subsidizing gasoline instead of biofuels, increasing pollution, traffic congestion, and foreign energy dependence. We're subsidizing foreign oil instead of domestic corn producers. The figures get a little hairy, but it's highly recommended.

Parkhurst and Shogren, Smart Subsidies for Conservation, AJAE, Vol 90, No 5, Proceedings 2008, 1192-1200; ungated.
They demonstrate experimentally the usefulness of internalizing environmental externalities into subsidy payments. If landholders are forced to retire a certain acreage of land, they pick the lowest value land. The same thing happens if a simple subsidy is used that simply reimburses them enough to encourage them to retire the desired amount of land. A smart subsidy that pays a bonus based on the number of common borders on a landholder's own land and neighboring landholders' results in a stable equilbrium where the largest contiguous zone of land is preserved for biodiversity. This occurs without enforced public or private cooperation mechanisms.

Barry Goodwin's discussion in the same journal brings up an excellent point in evaluating the effects of climate change on agriculture. Researchers need to include models of how crops will evolve and be adapted (naturally and via genetic modification) to the requirements of new climate realities. "Yield data from yesterday (1960-2007 in the case of this article) may not tell us a great deal about yields in 2050."

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