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We study whether to auction or to freely distribute emissions allowances when some firms participating in emissions trading are subject to price regulation. We show that free allowances allocated to price-regulated firms effectively act as a subsidy to output, distort consumer choices, and generally induce higher output and emissions by price-regulated firms. This provides a cost-effectiveness argument for an auction-based allocation of allowances (or equivalently an emissions tax). For real-world economies such as the Unites States, in which about 20 percent of total carbon dioxide emissions are generated by price-regulated electricity producers, our quantitative analysis suggests that free allowances increase economy-wide welfare costs of the policy by 40-80 percent relative to an auction. Given large disparities in regional welfare impacts, we show that the inefficiencies are mainly driven by the emissions intensity of electricity producers in regions with a high degree of price regulation.

We structurally estimate a two-sector Schumpeterian growth model with endogenous population and finite land reserves to study the long-run evolution of global population, technological progress, and the demand for food. The estimated model closely replicates trajectories for world population, GDP, sectoral productivity growth, and crop land area from 1960 to 2010. Projections from 2010 onward show a slowdown of technological progress, and, because it is a key determinant of fertility costs, significant population growth. By 2100, global population reaches 12.4 billion and agricultural production doubles, but the land constraint does not bind because of capital investment and technological progress.

Today different regions must balance competing demands for land—most notably for food and bioenergy—amid changes in the local availability of fresh water. One approach is to boost crop yields through improvements in irrigation technology, but its implementation would require actionable estimates on the current scope of irrigated land and how much additional land can be irrigated, in what regions, and at what cost. To that end, this study develops a framework to more accurately represent the value of irrigated crop production and the potential of irrigated land areas to expand within economy-wide, applied general equilibrium (AGE) models.

To represent the value of irrigated crop production, the researchers compute the value of production on irrigated and rainfed cropland at an approximately 10-square kilometer grid-cell level as well as for the 140 regions and eight crop sectors in Version 9 of the Global Trade Analysis Project (GTAP) Data Base. For each crop category, they estimate the shares of production on irrigated and rainfed land using estimates of production quantities and prices. To represent the potential of irrigated land areas to expand, the researchers use irrigable land supply curves for 126 water regions globally, based on water availability and the costs of irrigation infrastructure. These curves enable regions to adapt to changes in water resources and agriculture demand through irrigation technology and crop production intensification.

The researchers’ new framework allows for more rigorous integrated assessments of regional and global impacts of water availability on land use, energy production and economic activity. They make this user-customizable framework available to enable other researchers to make integrated assessments of the current production value and expansion potential of irrigated land.

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Abstract

We develop a framework to represent the value of irrigated crop production and the expansion potential of irrigated land within economy-wide models, providing integrated assessment capabilities for energy, land, and water interactions. Specifically, we compute the value of production on irrigated and rainfed cropland at both a 5 arcminute by 5 arcminute level (about 10 square kilometers) and for the 140 regions and eight crop sectors in Version 9 of the Global Trade Analysis Project (GTAP) Data Base. For each crop category, we estimate the shares of production on irrigated and rainfed land using estimates of production quantities and prices, compared to approximations based on output volumes used in the GTAP-Water Data Base. We construct a global dataset of evaluation metrics to identify region-crop combinations where there are large differences in irrigated production value shares based on direct calculation and approximated by output volumes. The scope to expand the amount of irrigated land and the cost of doing so is quantified through irrigable land supply curves for 126 water regions globally, based on water availability and the costs of irrigation infrastructure. We also make available our adaptable work stream to calculate crop production values and to estimate irrigable land supply elasticities for use in economy-wide models. Altogether, this work can enhance integrated assessment and economy-wide modeling by more accurately capturing the value of crop production and facilitating the representation of endogenous investment in irrigation infrastructure in response to changing water availability. These data and modeling contributions allow for a more rigorous exploration of the regional and global impacts of water availability on land use, energy production, and economic activity.

More than 300 companies have committed to implementing science-based targets as a measurable, verifiable way to reduce greenhouse gas emissions at levels consistent with the aims of the Paris Agreement. This Global Change Forum explored the foundations of science-based targets and the challenges of implementing them.  

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