Impact of ‘Greenhouse Effect’ on

Agriculture
 Outline

• Economic Incentives for Environmental Protection

1. Price rationing – tax, subsidy and charge on product price
2. Quantity Rationing – marketable/tradable permits
3. Liability rules

• ‘Greenhouse effect’ –
― meaning and general impacts

• Global consensus
― Global warming chronology
― UNFCCC
― special reference to Kyoto Protocol (1997)

• Global Warming: Impact and Adaptations in Agriculture

― General impact
― Specific features of agriculture in developing countries – vulnerability to GHW
― Impacts – first, second and third order
― Potential adaptation options and social responses
― Assessing the options
Economic Incentives for Environmental Protection

1.Price rationing – tax, subsidy and direct

charge on product

2.Quantity Rationing – marketable/tradable

permits

3.Liability rules
 Economic Instruments
Social Cost vs. Private Cost
•

Regulation required to protect environment

•
Economic Incentives
•

Increase cost of shirking on pollution control

–

Changing producer’s behaviour or pollution control strategy

–

Cost-effective than other inflexible environmental regulations (eg., command and control, co-operative institutions
– and mandated abatement tools )
Product rationing : Increases cost of shirking by setting

1. Emission charge /tax

− Charges levied on discharge of pollutants
− Tax = MC of abatement
− Eg., Municipal and Industrial Waste Treatment Charges
− Lack of Information on polluter’s costs (problem of asymmetric
information, moral hazard, adverse selection)

2. Charge on product
− Charge directly on product/input that causes pollution
− Eg., plastic bags, fertilisers, pesticides

3. Subsidy
− Financial assistance/incentive to encourage pollution control to producer
− Helps firms to meet compliance costs
− Grants, loans, tax exemption
− Eg., loans to industry to control water pollution (France), Solid Waste
Recycling (Italy)
 Quantity rationing
• Allocation of marketable/tradable permits
– Specify a predefined total level of emission concentration within a specified
region
– Equal to permissible total emissions distributed among producers in the
region
– Can be traded among plants of a single producer and among producers

• Producers who keep emission level below their allotted permit level can sell or
lease their surplus permits to other producers

• Limited emission level – permits are limited and hence valuable – scarcity value –
incentive to trade – incentive to limit level of emission

• Air pollution – carbon trading / carbon credit

 Liability rules
• Set up socially acceptable benchmark such that if a
producer violates he suffers from financial consequences

• Provide incentive to producer to follow some prescribed

mandate

• Reduce shirking by raising cost of misbehaviour

• Producer pays a bond in advance

– Reimbursed & deposit-refunds if no harm
– Non-compliance fee-if pollution exceeds set standard

• Problem: Lack of information, monitoring cost and moral

hazard