With the Waxman-Markey Bill passing the House and the administration's push to reduce carbon emissions, the likelihood of the implementation of some form of a carbon emissions policy is increasing. This study estimates the greenhouse gas (GHG) emissions of the six largest row crops produced in Arkansas using 57 different production practices predominantly used and documented by the University of Arkansas Cooperative Extension Service. From these GHG emission estimates, a baseline state “carbon footprint” was estimated and a hypothetical GHG emissions reduction of 5, 10, and 20 percent was levied on Arkansas agriculture using a cap-and-trade method. Using current production technology and traditional land use choices, results show that the trading of carbon-emitting permits to reduce statewide GHG emissions by 5 percent from the baseline would enhance GHG emissions efficiency measured as net crop farm income generated per unit of carbon emissions created. The 5 percent reduction in GHG emissions does cause marginal reductions in acres farmed and has marginal income ramifications. Beyond the 5 percent reduction target, gains in GHG emissions efficiency decline but remain positive in most counties through the 10 percent GHG reduction target. However, with a 10 percent GHG reduction, acreage and income reductions more than double compared to the 5 percent level. When GHG emissions are reduced by 20 percent from the baseline, the result is a major cropping pattern shift coupled with significant reductions in traditional row crop acreage, income, and GHG emissions efficiency.

The direct sale of emission allowances by auction is an emerging characteristic of cap-and-trade programs. This study is motivated by the observation that all of the major implementations of cap-and-trade regulations for the control of air pollution have started with a generous allocation of allowances relative to recent emissions history, a situation we refer to as a “loose cap.” Typically more stringent reductions are achieved in subsequent years of a program. We use an experimental setting to investigate the effects of a loose cap environment on a variety of auction types. We find that all auction formats studied are efficient in allocating emission allowances, but auction revenues tend to be lower relative to competitive benchmarks when the cap is loose. Regardless of whether the cap is tight or loose, the different auction formats tend to yield comparable revenues toward the end of a series of auctions. However, aggressive bidding behavior in initial discriminatory auctions yields higher revenues than in the other auction formats, a difference that disappears as bidders learn to adjust their bids closer to the cut-off that separates winning and losing bids.

Nitrous oxide is a powerful greenhouse gas that is emitted from cropland treated with nitrogen fertilizer. Reducing such emissions through nutrient management might be able to produce offsets for sale in a cap and trade program aimed at reducing greenhouse gases. We use the Nitrate Leaching and Economic Analysis Program (NLEAP) model and data from the Agricultural and Resource Management Survey to examine what changes in rate, timing, or method of application a farmer would take to produce offsets. We find that reducing the application rate is the most favored approach for producing offsets. We also find that some management choices may increase nitrate losses to water.

This study estimates how potential carbon policies targeted at reduction of greenhouse gas (GHG) emissions could affect selection of rice cultivars by conducting a life cycle assessment of GHG emissions and estimating the carbon sequestered for fourteen commonly sown rice cultivars across Arkansas. Market-oriented carbon-offset credits based on additionality likely would be insufficient to convince producers to change cultivars; nonetheless, there may be upstream pressure as food retailers strive to lower their overall carbon footprints. Given their higher yield per unit of GHG emission, hybrid rice cultivars appear to be positioned to respond to industry demand.