Climate Change Economics

Climate models predict more weather extremes in the coming decades. Weather shocks can directly reduce crop production, but their effect on food markets is partly buffered by storage and supply responses that can be complex and nuanced. We explore how inter-hemispheric trade and supply responses can moderate the effects of weather shocks on global food supply by enabling potential intra-annual arbitrage. Our estimates of this effect in the case of wheat and soybeans suggest that it may be considerable: 25–50% of crop production lost to a shock in the Southern Hemisphere is offset six months later by increased production in the North. These results have implications for the potential effects of climate change on global food markets, for how we model these interactions and, possibly, for the design of trade and production-related policies that aim to leverage this inter-hemispheric buffer more effectively.

This study estimates the weather sensitivity of rice yield in India, using disaggregated (district) level information on rice and high resolution daily weather data over the period 1969–2007. Compared to existing India specific studies on rice which consider only the effects of nighttime (minimum) temperature, the present study takes into account the effects of both nighttime and daytime (maximum) temperatures along with other weather variables on rice yield. The results suggest that both nighttime and daytime temperatures adversely affect rice during different growth phases. The effect of higher nighttime temperature on rice yield was much lower than those estimated by previous studies. Further, the negative impact of higher daytime temperature on rice yield was much larger than the impact due to higher nighttime temperature. The study further estimates that average rice yield would have been 8.4% higher had the pre-1960 climatic conditions prevailed during the period of study. This translates into an annual average loss of 4.4 million tons/yr or a cumulative loss of 172 million tons over the 39 year period for India. The paper argues that such significant loss in rice production under climate change conditions in future will have strong implications for the region's food-security and poverty, given that a large number of producers and consumers depend on rice for their livelihood and sustenance.

Biomass burning in South Asia is a significant contributor to global emissions of black carbon, the second most important greenhouse agent after carbon dioxide. Emissions from domestic fires are the largest contributor to biomass burning but may be costly to mitigate. Open-field burning is the second-largest contributor to black carbon in South Asia. This study uses primary field data to identify the determinants of emissions from open-field burning of crop residue with the aim of analyzing possibilities for its regulation. The effectiveness of a new seeding machine that lets farmers plant their crops without having to burn the residue from the previous crop is assessed. A comparison of the new machine with conventional practice shows that the new technology decreases field preparation costs but does not significantly impact crop yield and profits. The use of plot-level data with farmer fixed effects enables reliable identification of the impacts of the technology. Given the considerable adverse effects on mortality and health of pollution from burning, these results imply that this source of black carbon can be mitigated at zero private cost and negative social cost. Since farmers have no strong private incentive to adopt the new technology, extension, and subsidies to accelerate adoption would be a high net-benefit policy.

As growing attention is paid to climate change adaptation as an actual policy issue, the significant meaning of climate variability in adaptation decisions is beginning to be recognized. By using a real option framework for adaptation in agricultural production, we shed light on how climate change and climate variability affect individuals' (farmers') investment decisions with regard to adaptation (switching from rainfed to irrigated farming). The option value delays adaptation easily for several decades with a realistic set of parameter levels, implying a critical role of risk sharing in promoting adaptation. When variability-influenced adaptation involves the use of an open-access resource (groundwater), uncoordinated farmers may adapt too early or too late depending on the level of their risk aversion. Private adaptation should be supported or discouraged accordingly if coordination is infeasible or farmers are not convinced about the possibilities of collective resource management in the long run.