Indirect Effects of a US Cap and Trade Scheme

McCarl et al. (2002) forecast that biofuel and cap and trade policies divert land away from food crops to forestry and biofuel feedstocks. US agricultural producers will gain but US consumers lose as agricultural commodity prices increase, particularly as CO2e prices rise above $50 per tonne. The catch-22 is that increasing access to forestry and agricultural offsets allows cuts to be made in emissions at a lower cost, but with higher food prices.

As with all such heavy policy interventions, the global indirect effects of cap and trade schemes need to be carefully examined. It was seen in Chapter 6 that the increase in US and EU subsidies for biofuels had negative social and climate change consequences. The poor were affected by rising food prices and, moreover, GHG emissions increased rather than decreased because biofuels policy led to an accelerated rate of conversion of tropical forests to agriculture.

To fully appreciate the impacts of US policy it is necessary to undertake modeling of a change in land use in other countries in response to higher global prices resulting from diversion of land to forestry and biomass in the US. Given that other countries that export food grains such as Australia will also undergo land-use change as a result of the adoption of climate change policy, it is imperative that global models should be constructed that examine the indirect effects of concerted actions. If food production is threatened by land-use change then the ultimate objective of the UNFCCC (1992; Article 2) to: '[A]chieve stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system . . . achieved within a time-frame sufficient to . . . ensure that food production is not threatened . . .', is compromised.

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