Climate Change and Agricultural Policy Effects on Water Use in Agricultural Production: A Positive Mathematical Programming Approach

Abstract

Agricultural production is affected by a range of policy and climatic variables. This research explored the impacts of cap and trade, climate change and agricultural policy scenarios on water resource use and allocation in agricultural production. The research is organized into three separate studies, one for each set of scenarios.The first study focused on cap and trade policy for controlling greenhouse gas emissions, combining cost of production estimates with output price projections to determine the overall economic impact of cap and trade legislation, as well as its impact on agricultural water consumption. Price projections that included carbon offsets were higher than projections that did not, due to land being taken out of production and prices being bid up. HR2454 will increase production costs, particularly energy intensive inputs. Output prices increase as producers reduce production in response to cost increases. If agricultural offsets are allowed, output prices will be bid up further. Offsets allow producers to receive payments for cutting emissions. Producers benefit due to indirect price effects. Since water is quantity limited, total water use is unchanged.The next study looked at the physical impacts of climate change on production, particularly rising temperatures and carbon dioxide concentrations. By analyzing the anticipated yield effects, it was found that overall net incomes would decrease and the water constraint would remain binding - meaning total water use is unchanged.The third paper analyzed the effects of agricultural policy on land and water resource allocation. Cotton is directly subsidized. Corn and grain sorghum are subsidized indirectly through ethanol subsidies. Sugar cane prices are artificially high due to tariff rate quotas on sugar imports. Removal of any of these interventions decreased net profits to producers, but water use remains unchanged. Removing all farm programs significantly decreases acres under cultivation, and reduces water use below the water constraint. It comes at a great cost to producers however, given the small amount of water saved.