Modifying Farming Practices to Reduce N2O Emissions
Reducing nitrous oxide (N2O) emissions by better fertilizer farming practices can lead to a meaningful reduction of the United States’ greenhouse gas (GHG) footprint. One of the most effective ways to reduce N2O emissions is to reduce the rate at which the fertilizer is applied. This scenario may be profitable on its own to the farmer as it reduces cost. However, it can reduce yields and have transaction costs in the switch over to new farming techniques. These factors have led to resistance to mass adoption of N2O reduction techniques by farmers. A possible solution to this problem that this paper explores is the benefits and costs of awarding offset credits that would allow farmers to sell their N20 emission reductions as offsets in cap and trade programs.
One ton of N2O has 310 times the warming potential of a ton of CO2.[i] Given this, N2O emissions represent the fourth strongest GHG forcing at approximately 6% of the global anthropogenic GHG source.[ii] Fertilized agriculture is the single most important anthropogenic source of N2O, accounting for over 70% of the total N2O emissions.[iii] Agriculture is such a huge source of N2O because conventional farming practices of over-fertilizing the soil with nitrogen (N) tends to lead to excess N in the soil. Some of this excess N will undergo the processes of nitrification and denitrification, in which N2O is a byproduct that is emitted into the atmosphere. This relationship has been shown to be non-linear, which means that as more N is applied, the rate of N2O emissions increases exponentially. This is shown in the graph below:[iv]
Additionally, crop yields tend to max out once a certain amount of fertilizer has been applied while N2O emissions will continue to grow exponentially, as is shown in the graph below:[v]
We can infer from these graphs that by reducing the fertilizer rate by applying fertilizer only when the plant needs the nutrients and near the exact amount that the plants need for a near optimum yield, a farmer can greatly reduce the emissions of N2O.
Most farms do not currently use good practices on fertilizer rate. For example, Ribaudo et al. (2011) found that 66.8% of the 76 million acres of corn grown in the US that received N fertilizer in 2005 did not meet the criteria of good nitrogen management through fertilizer rate controls.[vi] There are multiple reasons for this, such as the transaction costs in switching farming practices (research, hiring new management or training existing management), the relatively low cost of fertilizer compared to other farming costs, and the risk reduction that comes from applying excess fertilizer to hedge against under fertilization. [vii] Although the costs to reduce the fertilizer rate may be partially offset by reduction in fertilizer use (and thus cost savings on fertilizer), especially as fertilizer prices continue to rise, there may also be a reduction in yield. This reduction can vary, although it is likely to be fairly small for most farms.[viii] Given the resistance to change by the majority of farmers, it would be practical for governments (federal, state, and local) to find other ways to encourage farmers to use good practices to reduce N2O emissions and thus reduce the GHG footprint of the US.
One such proposal is to allow farmers to sell their GHG emission reductions as an offset in a cap and trade market. In such a market, purchasing offsets allows the regulated industries to come in under the GHG emission caps in a cost-effective manner. By allowing farmers to sell their N2O emission reductions to the regulated industries as offsets, they will have an additional financial incentive to reduce their N2O emissions. Ribaudo et al. (2011) ran a model to analyze the potential financial benefit from offsets to farmers adopting recommended fertilizer rates. They found that the revenue from selling offset credits (at a market rate of $15 per ton of CO2) could be between $6.98 and $10.23 per acre. It should be noted that these numbers can vary greatly, depending on many variables such as crop rotation, irrigation methods, main crop type, etc. that are not within the scope of this paper.[ix] It is difficult to analyze these offset sale revenues with the increased costs per acre to adopt good fertilizer rate practices given the many variables involved. However, the paper concludes that the offsets alone would likely not incentivize the farmers to participate.
The obvious advantage to such a carbon offset system is that by finding a market mechanism to pay farmers to reduce their N2O emissions, it could potentially incentivize greater participation by farmers. If a large proportion of farmers adopted these practices, the GHG footprint of the agriculture sector could be reduced significantly. As climate change is possibly the greatest challenge for mankind in the coming future, finding solutions to GHG emissions is of upmost importance. For example, a paper by the Electrical Power Research Institute estimated that the potential GHG reduction from adopting these techniques in the United States could be 3.10 million metric tons (Mt) of CO2 equivalent (CO2e) over a five-year.[x] To put this into context, the total emissions of CO2 equivalent in the United States for 2010 was 6811 Mt CO2e.[xi] Although 3.1 Mt CO2e is a relatively small amount on a national level, it is still an important piece of the puzzle that has a readily available solution. There are also additional benefits outside of N2O emission reductions such as GHG reduction in fertilizer production due to decreased demand and better water quality due to less nitrate runoff into ground and surface water.
There are multiple disadvantages to agricultural offsets for N2O emissions that must be taken into account. First, the offsets may not be worth enough to actually incentivize mass adoption. This can be seen in the price to offset a ton of CO2 in California’s new cap and trade market, which is even lower than $15 rate used in the case study.[xii] Second, there is a serious moral issue in the treatment of “good stewards” – that is, if prior adopters of lower fertilizer rates will not be included in the program as they have already reduced their N2O emissions prior to the creation of offsets. Solving this problem may be difficult for policy makers. Third, offset programs may be limited in scope due to the rules of the cap and trade program, as it is generally a goal of such a program to have the regulated industries reduce their own emissions as much as possible and only partially rely on offsets. Fourth, in a cap and trade market there are administration costs to regulating offsets to ensure that they legitimate and are coming from sources that are actually permanently reducing their GHG input. It may be difficult to justify an offset program if the costs are great enough.
Given the advantages and disadvantages, if a cap and trade program is to have offsets, it is recommended that reduced N2O emissions from the agricultural sector also be allowed as offsets, although budgetary concerns should be taken into account. Real world data may be coming soon as The California Air Resources Board (ARB) is currently looking into N2O emission reduction as a potential offset for their current cap and trade program.[xiii] If these types of programs fail to gain much traction, farmers may not find the incentive to reduce their N2O emissions, at least until fertilizer costs become more expensive.
[i] Matson, Naylor, Ortiz-Manosterio. (April 1998). Integration of Environmental, Agronomic, and Economic Aspects of Fertilizer Management. Science, Vol. 280.
[iv] Ribaudo, M., & Delgado, J., & Livingston, M. (2011, August). Preliminary Assessment of Nitrous Oxide Offsets in a Cap and Trade Program. Northeastern Agricultural and Resource Economics Association, 266-281.
[v] Diamant, Robertson, Millar. (2011). Creating Nitrous Oxide (N2O) Emissions Offsets in Agricultural Crop Production in the United States. Electric Power Research Institute. Retrieved February 6, 2013 from http://globalclimate.epri.com/doc/Background_Paper_EPRI_Offsets_W11_N2O_Emissions_Offsets_Final_Locked.pdf
[vi] Ribaudo, M., & Delgado, J., & Livingston, M. (2011, August). Preliminary Assessment of Nitrous Oxide Offsets in a Cap and Trade Program. Northeastern Agricultural and Resource Economics Association, 266-281.
[x] Diamant, Robertson, Millar. (2011). Creating Nitrous Oxide (N2O) Emissions Offsets in Agricultural Crop Production in the United States. Electric Power Research Institute. Retrieved February 6, 2013 from http://globalclimate.epri.com/doc/Background_Paper_EPRI_Offsets_W11_N2O_Emissions_Offsets_Final_Locked.pdf
[xi] U.S. EPA. (2012, April 15). Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2010. Retrieved February 6, 2013 from http://www.epa.gov/climatechange/Downloads/ghgemissions/US-GHG-Inventory-2012-Main-Text.pdf
[xii] Hull, D. (2012, November 11). California’s first cap-and-trade auction sells out, declared ‘a success’. San Jose Mercury News.
[xiii] Diamant, Robertson, Millar. (2011). Creating Nitrous Oxide (N2O) Emissions Offsets in Agricultural Crop Production in the United States. Electric Power Research Institute. Retrieved February 6, 2013 from http://globalclimate.epri.com/doc/Background_Paper_EPRI_Offsets_W11_N2O_Emissions_Offsets_Final_Locked.pdf