Impact Of Livestock Farming On Greenhouse Gas Emissions And Efficient Market Equilibrium

Greenhouse Gas Emission from Livestock Farming

Discuss About The Greenhouse Gas Emission Impact Of Economic.

It is a surprising fact that livestock produce more greenhouse gases than driving cars. As per a report by the Food and Agriculture Organization of the United Nations (Fao.org, 2017), it has been found that the livestock sector produces more greenhouse gas emissions 18% more than the transport sector. Hence, they have marked the livestock sector as a major threat to the environment. Herrero (2018) also highlighted in his report in The Conversation that livestock farming contributes around 6 billion tonnes of the greenhouse gases in the environment every year. It is a very concerning issue as the greenhouse gases, that is, carbon dioxide, nitrous oxide and management, are hugely responsible for global warming. Apart from energy sector, industries and transport sector, the livestock sector has also entered into the list of sources that emit the harmful greenhouse gases to the atmosphere (Gerber et al., 2013).

In Australia, the direct greenhouse gas emissions from the livestock sector accounts for almost 70% of the total emissions from agricultural sector, and 11% of the total emission of the nation (). Thus, the livestock sector holds the third position among the largest source of greenhouse gases in Australia, following the energy and transport sector. This sector produces 56% methane (CH₄) and 73% nitrous oxide (N₂O) of the total emissions of Australia (Agric.wa.gov.au., 2017). On the other hand, according to FAO (2017), the global emission of greenhouse gases from the livestock was about 6.53 gigatonnes of carbon di-oxide (CO₂) per year for 2005 reference period. This was about 15.5% of all anthropogenic GHG emission, which was around 42 gigatonnes in total for the same period. The transport sector in comparison produced 6.45 gigatonnes of CO₂ equivalent. However, the emission of nitrous oxide is far more than that of CO₂ emission from the livestock. It accounts for almost 30% of the total emissions by the livestock (knoema.com, 2018).

Economic efficiency or efficient market equilibrium refers to a situation in the market, in which it is impossible to make one person better off without making another worse off (Jarrow & Larsson, 2012). In terms of production of goods and services, it can be said that, a market becomes efficient only when the optimal level of goods and services are produced with a given amount of resources, and no extra unit of output can be produced without increasing the units of inputs (Stiglitz & Rosengard, 2015). Thus, in efficient market, optimal allocation of resources happens.

Efficient Market Equilibrium

However, there are few obstacles, which prevent the markets from achieving efficiency and externalities are one of them. Externalities are the benefits and costs, not borne by the person or organization conducting the economic activity, and are granted to or imposed on others in the society (Rezai, Foley & Taylor, 2016). There are positive and negative externalities. The greenhouse gas emission is a negative externality, as it is created from economic activities and contributes largely in global warming, which is not good for the society and the environment. The cost to the society in this case is greater than to the individual customer. As marginal cost is higher than the marginal benefit, deadweight loss of social welfare is generated (Lin, 2014).

PMC

SMC

PMB = SMB

Price, MCs, MBs

Q1

Q*

Quantity

Deadweight loss

P1

P*

Negative externality per unit

E*

E1

A

Table 1: Negative externalities of production: Greenhouse gas emission by livestock

(Source: Author)

In the figure, E* is the market equilibrium and E1 is the efficient market equilibrium. The difference between private and social marginal cost is the negative externality per unit of GHG emitted by livestock. GHG emissions incurs greater cost to the society than to the individuals or the firm breeding livestock, and at the production point, marginal benefit (PMB = SMB) is less than social marginal cost (SMC).  Hence, deadweight loss is shown by the triangle, AE*E1, and it occurred as social marginal cost is greater than the social marginal benefit (SMC > SMB). 

As stated by Herrerro (2016), with the application of technology and management, the GHG emissions from the livestock could be reduced by 2.4 billion tonnes. There are some policies by the government, which were introduced to reduce the livestock emissions, such as, methane tax on producers, non price policy on producers and introducing new psychology, and increased consumption of substitute of livestock meat. All these are designed to shift the economy towards an economically efficient market equilibrium

A livestock methane tax on the producers has both the benefit and cost. The social benefit increases due to the tax as it reduces the GHG emissions from the livestock. On the other hand, the producers face some loss as they earn their livelihood from livestock farming.

Private cost before tax

Social and private cost after tax

Demand

Price

QE

QM

Quantity

Market equilibrium after tax = efficient equilibrium

PE

PM

Market equilibrium before tax

Tax on methane emission by livestock

Table 2: Impact of livestock methane tax on producers

(Source: Author)

It can be seen from the above diagram that, when the government imposed tax on the methane emitted by the livestock, the private cost of the producers increased by the amount of tax imposed and the social and private cost became equal. Before tax, the equilibrium market price was P_M and quantity was Q_M. After the imposition of the tax, the market reached efficient equilibrium and the quantity reduced to Q_E, which is the market efficient quantity and corresponding price increased to P_E.  

Negative Externalities of Production: Greenhouse Gas Emission by Livestock

Thus, it can be said that, the methane tax imposed by the government on the livestock producers, resulted in cost for them but the society benefitted. Since, it is difficult to impose the tax on a per head basis, due to the variation in emissions between the cattle. These variations exist between cattle, between the regions and across different seasonal conditions. Hence, reduction in the number of cattle raised in the farm due to tax, might not affect the total methane emission, but it will hurt the producers economically (Carrington, 2016).

Non-price policy on the producers involve introduction of new technologies in raising the cattle. Technologies could be introduced in feeding of the cattle, health and husbandry and in the manure management (Herrero et al., 2016). The technologies in the feeding practices will involve new types of food, more grains than grasses and better pastureland. Along with that, improved manure and animal management system, improved genetics, should be introduced. Most of these strategies are based on the sustainable intensification, such as, production of more livestock protein by using fewer resources and storing the carbon in the land. Biogas generators, and some energy saving devices could help in reducing the GHG emissions from the livestock by around 30% as those are more efficient and reduce energy waste (Tran, 2013). Thus, the new technologies of production would benefit the society at large.

However, the cost of developing or adopting the new technologies is high for the small and medium scale farmers raising the livestock. Hence, the government should provide large mitigations benefits and abatement subsidies that would help the farmers to balance their cost of production of livestock by adopting new technology.

Herrero (2018) states that, eating less livestock meat around the world could result in reduction of GHG emissions up to 5-6 billion tonnes. This indicates that human behavior should be influenced. This would be a huge challenge to the world as it involves a dietary change. However, it is found that Europe has been developing alternative protein sources as the consumers are turning towards more healthier and environmentally friendly food. The food makers are also working to invent and innovate for producing substitutes of livestock meat. The meat substitute market across the world is expected to grow by almost 84% by 2020 and Europe is the biggest market for meat substitutes, contributing 39% of the global sales (Askew, 2017).

Policies for Reducing Greenhouse Gas Emissions from Livestock Farming

Another report by Oswald (2017) shows that, the scientists are inventing steaks that are grown in the lab, and blood made from plants to make substitutes for the livestock meat. Many companies, such as, Beyond Meat and Tyson, with a 5% stake in it, have put money and effort for making plant based burger patties. They do not grow the fake meat in the lab, but they use specific combination of proteins from the plants for creating surprisingly burger patty that looks like meat.

Hence, it can be said that Australian government should take measures in encouraging the food companies in making alternative meat. This will have a positive impact on the environment, but will have a negative impact of the cattle producers.

References

Agric.wa.gov.au. (2017). How Australia accounts for agricultural greenhouse gas emissions | Agriculture and Food. Agric.wa.gov.au. Retrieved 28 April 2018, from https://www.agric.wa.gov.au/climate-change/how-australia-accounts-agricultural-greenhouse-gas-emissions

Askew, K. (2017). Europe leads in innovation as meat-free demand grows. foodnavigator.com. Retrieved 28 April 2018, from https://www.foodnavigator.com/Article/2017/08/24/Europe-leads-in-innovation-as-meat-free-demand-grows

Carrington, D. (2016). Tax meat and dairy to cut emissions and save lives, study urges. the Guardian. Retrieved 28 April 2018, from https://www.theguardian.com/environment/2016/nov/07/tax-meat-and-dairy-to-cut-emissions-and-save-lives-study-urges

Fao.org. (2017). FAO – News Article: Key facts and findings. Fao.org. Retrieved 28 April 2018, from https://www.fao.org/news/story/en/item/197623/icode/

Gerber, P.J., Steinfeld, H., Henderson, B., Mottet, A., Opio, C., Dijkman, J., Falcucci, A. and Tempio, G. (2013). Tackling climate change through livestock – A global assessment of emissions and mitigation opportunities. Food and Agriculture Organization of the United Nations (FAO), Rome. Retrieved from https://www.fao.org/docrep/018/i3437e/i3437e.pdf

Herrero, M. (2016). To reduce greenhouse gases from cows and sheep, we need to look at the big picture. The Conversation. Retrieved 28 April 2018, from https://theconversation.com/to-reduce-greenhouse-gases-from-cows-and-sheep-we-need-to-look-at-the-big-picture-56509

Herrero, M., Henderson, B., Havli?k, P., Thornton, P. K., Conant, R. T., Smith, P., . . . Stehfest, E. (2016). Greenhouse gas mitigation potentials in the livestock sector. Nature Climate Change, 6, 452. doi: 10.1038/nclimate2925. Retrieved from https://www.nature.com/articles/nclimate2925

Jarrow, R. A., & Larsson, M. (2012). The meaning of marketing efficiency. Mathematical Finance, 22(1), 1-30.

knoema.com. (2018). Global Greenhouse Gas Emissions from Livestock. Knoema. Retrieved 28 April 2018, from https://knoema.com/infographics/maodxhb/global-greenhouse-gas-emissions-from-livestock

Lin, S. A. (Ed.). (2014). Theory and measurement of economic externalities. Academic Press.

Oswald, E. (2017). From lab-grown steaks to plant-based blood, science is taking the animal out of meat. Digital Trends. Retrieved 28 April 2018, from https://www.digitaltrends.com/features/the-future-of-food-meat-alternatives/

Rezai, A., Foley, D. K., & Taylor, L. (2016). Global warming and economic externalities. In The Economics of the Global Environment (pp. 447-470). Springer, Cham.

Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the Public Sector: Fourth International Student Edition. WW Norton & Company.

Tran, M. (2013). Greenhouse gas emissions from livestock can be cut by 30%, says FAO. the Guardian. Retrieved 28 April 2018, from https://www.theguardian.com/global-development/2013/sep/26/greenhouse-gas-emissions-livestoc