Potential and economic efficiency of using reduced tillage to mitigate climate effects in Danish agriculture

Ecological Economics 123 (2016) 14–22

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Ecological Economics journal homepage: www.elsevier.com/locate/ecolecon

Analysis

Potential and economic efficiency of using reduced tillage to mitigate climate effects in Danish agriculture Marianne Zandersen a,⁎, Sisse Liv Jørgensen c, Doan Nainggolan a, Steen Gyldenkærne a, Anne Winding a, Mogens Humlekrog Greve b, Mette Termansen a a b c

Department of Environmental Science, Aarhus University, Frederiksborgvej 399, DK-4000 Roskilde, Denmark Department of Agroecology, Aarhus University, Blichers Allé 20, DK-8830 Tjele, Denmark Danish Energy Agency, Amaliegade 44, 1256 Copenhagen, Denmark

a r t i c l e

i n f o

Article history: Received 29 April 2015 Received in revised form 14 October 2015 Accepted 11 December 2015 Available online 24 January 2016 Keywords: Payment for Ecosystem Services (PES) Climate regulating services Soil organic carbon (SOC) Reduced tillage Sequestration Choice experiment

a b s t r a c t Soil organic carbon (SOC)1 plays a crucial role in regulating the global carbon cycle and its feedbacks within the Earth system. Compelling evidence exists that soil carbon stocks have reduced in many regions of the world, with these reductions often associated with agriculture. In a Danish context, research also suggests that soil carbon stocks are declining. The scope of Payment for Ecosystem Service (PES) approaches to effectively and efficiently address climate regulation will depend on the spatial distribution of the carbon assimilation capacity, current land use, the value of avoided emissions and land owners' objectives and preferences in terms of participating in initiatives to increase SOC. We map the carbon sequestration potential under different scenarios, value the potential sequestered carbon in terms of marginal costs of using voluntary agreements with agricultural land managers and compare these to the marginal abatement costs curve used in Danish climate policy. The cost effectiveness of reduced tillage as a climate mitigation PES scheme critically depends on the current debate on the net effects of carbon sequestration in reduced tillage practices. Based on existing IPCC guidelines, we find that reduced tillage has considerable potential for contributing to a cost effective climate mitigation policy. © 2015 Elsevier B.V. All rights reserved.

1. Introduction Soil organic carbon (SOC) plays a crucial role in the regulation of the global carbon cycle and its feedbacks within the Earth system. As one of five global C pools, soils represent some 1550 Pg of SOC and 950 Pg of Soil Inorganic Carbon down to 1 m depth. This is the third largest C pool and contains more than three times the C in the atmosphere (Lal, 2010). Given the sheer size of the C pool of world soils, even small changes in global SOC would represent a significant feedback on the climate system; Kirschbaum (2000), for instance, estimates that a change of just 10% in global SOC would be equivalent to the total anthropogenic emissions over 30 years. Likewise, the Danish commitment to reduce 40% of greenhouse gasses by 2020 compared to 1990 levels would be equivalent to a yearly relative

⁎ Corresponding author. E-mail addresses: [email protected] (M. Zandersen), [email protected] (S.L. Jørgensen), [email protected] (D. Nainggolan), [email protected] (S. Gyldenkærne), [email protected] (A. Winding), [email protected] (M.H. Greve), [email protected] (M. Termansen). 1 SOC: Soil Organic Carbon.

http://dx.doi.org/10.1016/j.ecolecon.2015.12.002 0921-8009/© 2015 Elsevier B.V. All rights reserved.

increase in the C pool of Danish agricultural soils of 2.0% (8.1 million tC).2 However, compelling evidence exists that soil carbon stocks have significantly reduced in most regions of the world with an estimated total depletion of more than 320 Pg C (Ruddiman, 2003; Lal, 2010), caused by deforestation, biomass burning, soil cultivation and drainage of peatlands since the start of settled agriculture some 10,000 years ago. Since 1945, at least 17% of vegetated land has undergone soil degradation and loss of productivity as a direct effect of human land use practices, causing soil organic matter levels to decline, often to half or less of original levels (Tilman et al., 2002). In a Danish context, research also strongly suggests that carbon stocks are declining. Mineral agricultural soils, which represent 98% of all agricultural

2 Agricultural soil contains on average 142 tC/ha (Taghizadeh-Toosi et al., 2014); Danish agricultural soil covers 2.7 million ha (Nielsen et al., 2013a). Total carbon stock in agricultural soil = 383.4 MtC (142 tC/ha ∗ 2.7 Mha). Emission reduction target by 2020 compared to 1990: 8.09 MtC. Emission reduction share of total SOC in agricultural soil = 2% (8.09/ 383.4 MtC).

M. Zandersen et al. / Ecological Economics 123 (2016) 14–22

land, are estimated to loose annually approximately 367,000 tC per year3 (0.15 tC/ha) (Nielsen et al., 2013a) compared to estimated 564,000 tC/year (8.7 tC/ha) from organic soils, which represent the remaining 2% (Nielsen et al., 2013b; Greve et al., 2014). Although Denmark has lost some estimated 7.6 MtC from agricultural mineral soils between 1990 and 2013 (Nielsen et al., 2015), changes in cropland and grassland management have led to a reduced loss of SOC representing approximately 169,000 tC per year through the ban of straw burning and the requirement of more catch crops.4 This reduced level of emissions of SOC contributes to Denmark's emission reduction commitments. Despite the reductions in SOC emissions from agricultural soils in Denmark, current intensive agricultural land use practices are responsible for significant emissions leading to a reduced flow of climate regulating services. An important factor in regulating soil quality and soil organic carbon is crop rotation. If crop rotation includes grassland, for instance, SOC will increase (Taghizadeh-Toosi et al., 2014). Another cause of degrading soil quality, due to declining soil carbon stocks, is conventional soil tillage, which speeds up decomposition of soil organic matter and the release of mineral nutrients (Tilman et al., 2002). Changing the soil tillage system can have significant effects on the vertical distribution and quantity of organic matter (Schjønning et al., 2009a). Out of 11 national field trials across Denmark, which compared mouldboard ploughing to shallow tillage, six sites showed a statistically significant increase in SOC in the upper 0–20 cm, independent of the age of the field trials, which were between 3 and 36 years old (Schjønning and Thomsen, 2006). IPCC guidelines exist for the calculation of organic soil carbon changes with changing tillage systems across management systems and climate zones (IPCC, 2006). The guidance is used by countries in their reporting of greenhouse gas inventories to the UNFCCC and is based on a careful review process of scientific studies. Some studies indicate that changing tillage practices may affect the distribution of C at different depths, but may be limited or have no effects on net greenhouse gas sequestration (Hermle et al., 2008; Schjønning and Thomsen, 2013; Powlson et al., 2014). However, in this study, we follow the IPCC guidelines as these represent the existing rules that apply for national greenhouse gas reporting to the UNFCCC. Other potential benefits to society from reduced tillage arise in crop production and soil quality maintenance. For instance, reduced tillage may contribute to maintaining sustainable levels of SOC compared to clay in the soil. Dexter et al. (2008) find that a ratio between SOC to clay (called the Dexter ratio) above 10 is critical. Soils with a high Dexter ratio are characterised by free clay particles that are not bound to organic matter, have poorer soil structure (preventing farmers to access the fields in the early spring months and necessitating additional harrowing treatments to prepare a proper seed bed which subsequently contributes to additional soil compaction), increased risks of nutrient leakage and soil erosion, decreased ability to retain water, decreased exchange rate of oxygen, and poorer germination and plant growth (Schjønning et al., 2009b; René Gislum, Aarhus University, personal communication). Payments for ecosystem services (PES) schemes are increasingly promoted as potentially effective tools for providing increased levels of ecosystem services through compensation to farmers for changing land management practices (Engel et al., 2008; Pagiola, 2008; Wunder et al., 2008). Policies can be made more effective by taking preferences of farmers into consideration. Successful implementation of schemes can be determined by the rate of participation, compensation requirement and characteristics of participating farms in terms of the effect achieved (Crabtree et al., 1998). Hence, much of the research evaluating the effectiveness of potential payment schemes have

15

Table 1 IPCC guidelines on carbon stock effects of tillage practices. Default reference

Stock change factors

T C ha−1

FI Medium input

HAC soils LAC soils Sandy soils

95 85 71

1

FLU N20 years

0.69 (+/−12%)

FMG Full tillage

1

Reduced tillage 1.08 (+/−5%)

Source: IPCC (2006); parentheses indicate errors.

explored the influence of farm/farmer characteristics and scheme attributes on willingness to participate (Brotherton, 1989; Espinosa-Goded et al., 2010; Pagiola et al., 2005; Ruto and Garrod, 2009). Furthermore, researchers have emphasized the spatial characteristics and variations (Broch et al., 2013; Campbell et al., 2009) of participation behaviour. Several methods have been used to evaluate farmer responses to new policy implementation. Choice experiments (CE) are particularly suited for situations where the policy scenarios are hypothetical and no real market data exists to evaluate farmer responses. CE was originally developed for application in marketing and transport studies (Louviere and Hensher, 1982) but is increasingly being used in environmental valuation studies. Various studies have used CE for estimating the economic value of environmental goods e.g. recreation (Adamowicz et al., 1994; Bateman, 1996; Scarpa and Thiene, 2005), evaluation of water management (Birol and Cox, 2007; Birol et al., 2006), and alternative land management (Colombo et al., 2005; Espinosa-Goded et al., 2009). Various studies have also used CE specifically in agro-ecosystem management and the associated provision of ecosystem services (such as Beharry-Borg et al., 2013; Broch and Vedel, 2012; Espinosa-Goded et al., 2010; Ruto and Garrod, 2009; Tesfaye and Brouwer, 2012). In this context, CE is typically used to elicit respondents' preferences for specific scheme attributes. The respondents have to choose one scheme out of a given number of alternative schemes. The inclusion of a payment attribute makes it possible to obtain, indirectly, respondents' willingness to accept compensation in return for changing their land management activities. In this paper we investigate the scope for applying reduced soil tillage as one among several measures for countering declining SOC levels. We conducted a CE among farmers across Denmark, which was designed to elicit the willingness among Danish farmers to accept a voluntary performance contract to change land management practices towards reduced tillage. The paper evaluates the potential to sequester SOC in Danish mineral agricultural soils in terms of farmers' willingness to accept a voluntary change of tillage practices from mouldboard ploughing to reduced tillage. We estimate the cost of convincing farmers to change practices voluntarily and investigate the underlying explanatory factors for farmers' preferences. We subsequently calculate and map SOC sequestration potential across soil types using IPCC guidelines for estimating C stock changes resulting from reduced tillage (IPCC, 2006). Integrating the information on the SOC sequestration and the compensation requirements leads to estimates of the cost of climate regulation, which we compare to alternative carbon abatement measures. Section 2 describes the methods applied; Sections 3 and 4 data and survey details; Section 5 the results while Section 6 concludes and discusses. 2. Methods 2.1. Choice Modelling

3

Between 1990 and 1994, average loss of SOC from mineral soils was 405,000 tC per year. This loss has been reduced to 236,000 tC per year over the period 2009-2013. The reduced loss is the difference 4 Average emissions 2006–2010.

We compare a standard conditional logit model (CL) with a latent class model (LCM). CL assumes homogenous preferences across the population, with the possibility of introducing preference variation

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through the interaction between choice attributes and observable sociodemographic characteristics. In contrast, LCM allows for heterogeneity of preferences by dividing the preference space into classes with each class holding the same preferences (Greene and Hensher, 2003; Train, 2009). Also, the constraint on independence of irrelevant alternatives is relaxed in the latent class model (Shonkwiler and Shaw, 1997, cited by Boxall and Adamowicz, 2002). The standard conditional logit specification follows McFadden (1974) where the utility function of farmer n regarding reduced tillage contract, i, can be expressed as: Uni = Vni + εni, where Vni = f(Xni) is the deterministic component and εni a random component of the utility function which is independently, identically distributed extreme value. In the LCM, we assume the existence of discrete preference segments (s = 1,…,S) (Boxall and Adamowicz, 2002). The segmented utility function is now: Uni|s = βsxni + εni|s. Following this, the segment specific choice probability of farmer n choosing option i among the C available options becomes (Greene and Hensher, 2003): P njsðiÞ ¼

exp ðβs X i Þ ∑kϵC expðβs X k Þ

ð1Þ

The association of farmers to segments is unknown. We specify the segment membership probability, Pns, as constant probabilities summing to one across the classes, S. The resulting likelihood for the sample is the expectation (over segments) of the segment-specific contributions: S

P n ðiÞ ¼ ∑s¼1 P ns P njs ðiÞ

ð2Þ

Following the choice model estimation, we analyse the relationship between socio-demographic and farm characteristics and the segment membership using a probit model specification. This allows us to predict whether and to what extent acceptance of reduced tillage contracts relates to particular farm and farmer characteristics. 2.2. Carbon Assimilation Capacity Cropland management modifies SOC stocks to varying degrees. Tillage is among the main management practices that affect soil C in croplands along with the type of residue management, fertiliser management, choice of crops, intensity of cropping and irrigation (Armentano and Menges, 1986). In this study we apply the IPCC Guidelines for National Greenhouse Gas Inventory in relation to soil carbon (IPCC, 2006). We apply Tier 1 for simplicity.5 Net SOC stock change per ha on mineral soils is estimated by first establishing the aggregate baseline under current tillage management (SOC0) and then the SOC stock under reduced tillage (SOC(T)), keeping all other parameters constant. The baseline under current tillage management is given by:
SOC0 ¼ HA  SOCREF  F LU ð0Þ  F MGð0Þ  F Ið0Þ ;

ð3Þ

where HA is the aggregate area of cropland; SOCREF the national reference carbon stock per ha; FLU(0) the baseline land use factor; FMG(0) the baseline management factor; and FI(0) the baseline C input levels per ha. The SOC stock level under a reduced tillage policy is estimated holding all factors other than management (FMG) constant: SOCðT Þ ¼ HA SOCREF  F LU ð0Þ  F MGðT Þ  F Ið0Þ




ð4Þ

5 Tier 1 includes simple methods with regional specific default values. This compares to Tier 2 which are similar but contain country specific emission factors and other data and Tier 3 which are more complex approaches, possibly models. Tier 3 would need to be compatible with lower tiers (Revised 1996 IPCC Guidelines for National Greenhouse Gas Inventories).

The difference between the baseline and the SOC stock under reduced tillage gives the total change in SOC stocks over 20 years per ha (SOCΔ). Dividing by 20 yields the average annual change in SOC stocks: SOCΔ year1 ¼

SOCðT Þ  SOC0 20

ð5Þ

IPCC guidelines provide default reference stocks of SOC in the upper 30 cm soil layer by different soil types: HAC (high activity clay), LOC (low activity clay) and sandy soils, all belonging to the group of mineral soils. Table 1 shows the default reference and stock change emission factors following IPCC Guidelines (IPCC, 2006). In addition to the increased carbon assimilation capacity when applying reduced tillage, the changes in tillage practices also entail less use of tractors on the fields. The reduction in fossil fuel emissions from refraining from mouldboard ploughing and applying reduced tillage is estimated at 40 kg CO2eq/year/ha in Denmark (Olesen et al., 2013). 3. Agricultural Data Agricultural area in Denmark represents some 2.6 million ha of which the dominant soil category is mineral soils (representing 98%) and the remainder is organic soils (Greve et al., 2014). We limit the estimation of SOC sequestration potential from reduced tillage practices to arable land on mineral soils that are not under permanent or rotational grassland management. These areas are subsequently referred to as arable land ‘eligible’ for reduced tillage performance contracts. We exclude areas with permanent and rotational grass as these areas sequester SOC compared to cropland under annual rotation. We identify the crop types on arable land using the Basemap database described in Levin et al. (2012) and overlay this spatial information on a national map of soil types (Department of Agro-Ecology, Aarhus University). In order to estimate carbon effects of reduced tillage using the IPCC guidelines, we converted the Danish soil classification to the IPCC soil classes.6 This results in 2,013,751 ha of ‘eligible’ arable land, representing about 77% of the total arable land in Denmark (Table 2) and 47% of total land area. 4. Survey A choice experiment among farmers was carried out during spring 2013 through the Aspecto national farmer panel. The full sample consisted of 527 completed surveys representing a response rate of 51%. Of the 527 respondents, 22 were excluded because they have only permanent grass and another 42 were excluded because their farm land consist of hummus soil, both not applicable for our chosen sequestration potential analysis. In addition, another 22 respondents were excluded on the grounds of protest answers, indicating they found the scenarios unrealistic. In the end, a total of 421 respondent answers were retained for analysis. In the experimental design, we utilised an efficient design (Ferrini and Scarpa, 2007; Sándor and Wedel, 2001). We applied priors obtained from a simple CL model (with effect coding) estimated on the results of a pilot survey conducted on 26 farmers. See Jørgensen and Termansen (2015) for more details regarding the choice experiment survey and design. The choice experiment looked at farmers' preferences towards enhancing soil quality by applying reduced tillage and clean sludge to fields being ploughed. Reduced tillage referred to either 0%, 25%, 50% or 75% reduced tillage on their land. Application of sludge referred to whether the contract involves applying clean sludge from waste water treatment plants or not. The present paper does not analyse results regarding clean sludge as the methodology applied to estimate SOC changes does not account for the climate effects of applying sludge. 6 Conversion from Danish soil classes to IPCC classes: soil class 1, 2, 3 = sandy; soil class 4, 5, 6: low activity clay; and soil class 7, 8 = high activity clay.

M. Zandersen et al. / Ecological Economics 123 (2016) 14–22 Table 2 Area by soil category in Denmark.

17

Table 4 Example of a choice card.

Agricultural soil categories

Total area (ha)

Eligible area (ha)

High activity clay (HAC) Low activity clay (LAC) Sandy Organic Total

156,002 1,322,619 1,067,098 44,236 2,589,954

133,653 1,107,013 773,085 n/a 2,013,751

Note: n/a: not applicable in our analysis. Sources: Levin et al., 2012; Department of Agroecology, Aarhus University; own calculation.

Reduction of tilled area Requirements of using clean sludge Compensation Length of contract Possible to terminate the contract My choice (Tick only once)

Contract A

Contract B

25%

50%

Yes

Yes

200 DKK/ha/year 10 years

200 DKK/ha/year 5 years

Yes

No

No contract

I want none of the proposed contracts

Table 3 Attributes of the CE and their levels. Attribute

Levels

Reduced tillage (% of tilled area) Application of clean sludge Contract length Possible to end the contract without penalty Monetary compensation (DKK/ha/year)

0 Yes 5 years Yes 50

25 No 10 years No 100

50

75

200

500

Results regarding clean sludge are analysed in Jørgensen and Termansen (2015). In addition to reduced tillage and the application of clean sludge, alternatives were described by contractual length, which was effects coded (10 years or 5 years); possibility to end the contract without penalty, also effects coded (possibility or no possibility); and a monetary compensation for the area where reduced tillage was applied to (DKK/ha/year) ranging from DKK 50 to 500 (EUR 6.7 to 67.1). The attributes and their levels are given in Table 3. The attributes regarding flexibility in contract terms are inspired by earlier studies among Danish farmers (Broch and Vedel, 2012; Christensen et al., 2011) and European farmers (Ruto and Garrod, 2009; Espinosa-Goded et al., 2010; Beharry-Borg et al., 2013). These studies have shown, based on the Marginal Rates of Substitution, that farmers value flexibility in the contract. In order to attain improved SOC levels in agricultural soil, good management is a requisite and contracts ideally need to be binding over several years. In order to investigate farmers' preferences towards contract inflexibility, we included the attribute on the possibility to end the contract without penalty and contract length. An example of a choice card can be seen in Table 4. 5. Results

segment LCM is chosen as the best fit for the latent class model with 73.6% of the sample belonging to class 1 and 26.6% to class 2. The attribute levels, with the exception of the compensation variable, are all effects-coded. Results are presented in Table 5. The reduced tillage variables are effect coded to evaluate a 25%, 50% and 75% reduction in tilled area, where 0% reduced tillage is the reference level. Both the CL and the LCM models indicate significant effects of the reduced tillage variables on willingness to accept and show the same direction of preferences. The average contribution of the different levels of reduced tillage to the overall utility of entering a PES contract clearly shows a top preference for no reduced tillage (+ 0.714 utility points in CL model), followed by reduced tillage at 25% (+ 0.218 utility points in CL model). Reduced tillage at 50% and 75% contribute to the overall utility function by − 0.369 and − 0.563

Table 5 Choice model estimates for CL and LCM models (standard errors in parentheses). Model

Log likelihood AIC BIC Attributes Application of reduced tillage 0% 25% 50%

5.1. Description of the Survey Sample The mean age of the farmers in the sample is 55 years. The age group between 45 and 70 are slightly overrepresented in the sample, which is in line with many previous surveys. Small farms are strongly underrepresented, while large farms are overrepresented. This could be due to the fact that small farms are mostly hobby or part-time farms and they are not interested in being part of the farmer panel. The location of farms could also be a source of biased results. Farms in southern Denmark are somewhat overrepresented, while farms in the rest of Jutland are slightly underrepresented. A chi squared test for equality of the distribution of farms across the different regions in Denmark confirms there is a significant difference between the expected distribution of farms and the observed distribution across all regions at 5% level of significance (Q = 10.77 compared with Chi2(5-1)0.05 = 9.49). 5.2. Choice Modelling Results Table 5 summarises the results of the regressions of a standard conditional logit model (CL) and a latent class model (LCM).7 The two 7

Estimations were conducted in NLOGIT Version 5.

75% Application of clean sludge 1 = Yes; −1 = No Contract length 1 = 10 years; −1 = 5 years

CL

−2205.38 4426.8 2237.654 Estimates

Latent class probability Significant class probability traits

Class 2

−1847.96 3729.9 1912.513 Estimates

Estimates

0.714 0.218⁎⁎⁎ (0.071) −0.369⁎⁎⁎

1.321 0.375⁎⁎ (0.185) −0.674⁎⁎⁎ (0.082) (0.182) −0.563⁎⁎⁎ −1.022⁎⁎⁎ (0.085) (0.234) −0.071 (0.050)

−0.409⁎⁎⁎ (0.145)

−0.171⁎⁎⁎ −0.481⁎⁎⁎ (0.052) (0.136)

Possibility for contract termination 1 = Yes; −1 = No 0.149⁎⁎⁎ (0.044) Compensation (DKK/ha/year 0.003⁎⁎⁎ ASC-SQ

Latent class Class 1

(0.0003) 1.831⁎⁎⁎ (0.098)

0.467⁎⁎⁎ (0.129) 0.007⁎⁎⁎

0.719 0.236⁎⁎ (0.094) −0.368⁎⁎⁎ (0.115) −0.587⁎⁎⁎ (0.115) −0.041 (0.073) −0.162⁎⁎ (0.081) 0.148⁎⁎ (0.063) 0.002⁎⁎⁎

(0.001) (0.001) 3.638⁎⁎⁎ −0.226 (0.297) (0.183) 0.736⁎⁎⁎ 0.264⁎⁎⁎ Younger farmers; sandy soils; location in Jutland; Fulltime employed

Notes: A population of 421 farmers. All variables are effects coded except for ASC, which is dummy coded, and compensation, which is a continuous variable. The coefficient ‘0% application of reduced tillage’, which is the reference level, is calculated afterwards as the negative of the sum of the other coefficients. ⁎ z significant at 5% level or lower. ⁎⁎ z significant at 1% level or lower. ⁎⁎⁎ z significant at 0.1% level or lower.

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M. Zandersen et al. / Ecological Economics 123 (2016) 14–22

Table 6 Sequestration potential by scheme. [a]

[b]

[c]

[d]

Area eligible

Total sequestration potential

Total energy savings potential

Total sequestration & energy savings potential

ha

tCO2 over 20 years

503,438 1,006,875 1,510,313

8,181,118 16,362,235 24,543,353

402,750 805,500 1,208,250

8,583,867 17,167,736 25,751,604

Reduced tillage scheme

25% 50% 75%

utility points respectively in the CL model. In relative terms, results are as expected: farmers prefer on average conventional mouldboard ploughing and they express a decreasing utility for increasing coverage of reduced tillage. The sludge variable takes the value 1 if farmers are willing to apply sludge on arable land and − 1 otherwise. The LCM model, class one, and the CL model indicate a significant and negative preference towards applying sludge on their land while the 2nd segment of the LCM model shows insignificant effects on overall utility. The sludge variable is omitted from the further analysis as the IPCC guidelines do not take the sequestration effect of sewage sludge into account. The variable length of contract, taking the value 1 for 10 year contracts and − 1 for 5 year contracts, indicates as we would expect that the average farmer prefers the more flexible 5-year contract in both the CL model and the LCM model. Contract termination takes the value 1 if it is possible for the farmer to terminate the contract before it ends without costs, and −1 if this is not an option. As expected, the farmers prefer the possibility of terminating the contract without costs across both models. Compensation, which is coded as a linear variable, is the contribution to overall utility of accepting compensation under a voluntary PES contract. The payment is made annually, based on the area under reduced tillage practice. This coefficient is positive and significant across both models, indicating that farmers are more willing to accept a contract with higher payment than with a lower payment, which is as we would expect. The alternative specific constant (ASC), which captures the effects on utility of any attribute not included in the choice specific PES attributes, is positive and significant at the 0.1% level or lower in the CL model and in the class 1 of the LCM model. The levels of the ASCs are relatively high, indicating that a fair amount of determinants of choice are not captured by the models and the sign of the coefficients clearly suggests that respondents prefer their current situation to changing land use practices, as can be expected. In class 2 of the LCM model we do not find statistical evidence of a positive or negative preference towards reduced tillage as the ASC was not found significantly different from zero. A post-hoc analysis of the underlying determinants of membership shows a clear probability of belonging to segment 1 when the farmer is younger, is owner of the land, is employed full time, and is located in the region of Jutland on sandy soils (See Appendix). 5.3. Carbon Assimilation Capacity, Costs and Cost Effectiveness 5.3.1. Carbon Assimilation Capacity Total GHG emission reductions from reduced-tillage per year vary between 0.72 tCO2/ha on sandy soils, 0.86 tCO2/ha on LAC soils and 0.96 tCO2/ha on HAC soils. This is based on the IPCC guidelines assuming medium nutrient input to cropland (See Table 1). Depending on the scale of reduced tillage practice on mineral cropland and given the distribution of soil types, the potential sequestration range from close to 8.2 M tCO2 to approximately 25 M tCO2 over 20 years (See Table 6 column [b]). Energy savings from less tractor use on the fields entail greenhouse gas emission reductions (See Section 2.2). These range from between 20,000 tCO2eq to 60,000 tCO2eq depending on the scale of reduced tillage over a 20-year period (See Table 6 column [c]). Assuming that a new equilibrium state will be reached after 20 years,

the sequestered amounts will be maintained if reduced tillage is continued. If however, the farmer returns to conventional tillage after the 20 years, sequestered SOC will be emitted again. Spatially, there are significant differences in the sequestration potential following the distribution of different soil characteristics as shown in Table 2 across the country. Fig. 1 illustrates a higher potential for sequestration on especially Zealand, but also the Island of Funen and the East Coast of Jutland. Mid Jutland and the West Coast of Jutland show a lower potential (See Fig. 1). This is mainly a reflection of the difference in soil types across the country. 5.3.2. Marginal Costs of Reducing Tillage Through Voluntary Contracts with Farmers Based on the results of the choice experiment, we calculate the farmer willingness to accept payment for undertaking a particular change in tillage practice by taking the utility change between no reduced tillage and a particular level of reduced tillage (e.g. 50%) and divide it by the compensation coefficient.  WTAi ¼

β i  β0 α

 ð6Þ

Where WTAi represents the willingness to accept a compensation for a particular level of reduced tillage i relative to a specified baseline (which in this case is 0% reduced tillage), βi is the utility coefficient value associated with attribute i, β0 the utility coefficient value of the specified baseline, and α represents the utility coefficient value for a unit of subsidy. The coefficient α is positive as people normally gain utility as the price of an attribute decreases. WTAi is converted to Euros using the exchange rate 1EUR = 7.45DKK. Marginal utilities of reduced tillage are shown in Table 7 (column [a]) below. These marginal utilities represent the payments needed under a PES scheme to opt for a certain level of reduced tillage compared to conventional tillage and are directly comparable to marginal costs of alternative climate mitigation measures. The level of payment per hectare would need to increase as the coverage of reduced tillage increases. Assuming no differences in preference across farmers, results indicate that farmers would on average per year and per hectare require 22 EUR for 25% reduced tillage, 48 EUR for 50% reduced tillage and up to 57 EUR if the contract requires 75% of cropland to be under reduced tillage (CL-model results). The Latent Class Model 1 (which represents close to 74% of surveyed farmers) shows marginal PES costs slightly below the results of the CL model whereas the LCM class 2 (representing the remainder 26% of surveyed farmers) would demand significantly more than results from the CL model indicate. Marginal abatement costs of implementing reduced tillage on a voluntary basis (listed in columns [b] and [c] in Table 7) are based on dividing total PES costs by annual emission reductions from Table 6. Total PES costs are calculated as the marginal PES costs (column [a] of Table 7) times the share of eligible land area under reduced tillage contract (column [a] of Table 6). Specifically, total sequestration and energy savings originate from column [d] in Table 6 and are converted to annual emission reductions. Similarly for energy savings which are shown in column [c] in Table 6. Marginal abatement costs of accounting for both sequestration and energy savings range from 21 to 38 EUR/

M. Zandersen et al. / Ecological Economics 123 (2016) 14–22

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Fig. 1. Soil types and total sequestration potential of reduced tillage over 20 years. Source: Department of Agro-Ecology, Aarhus University, own analysis.

tCO2eq per year under contracts that involve reduced tillage on 25% of eligible arable land. This increases up to between 53 and 103 EUR/tCO2eq per year if contracts were to cover 75% of eligible farmland. As expected, PES costs and hence marginal abatement costs based on the CL model are within the range of values of the two segments in the latent class model, where segment 1, representing the majority of the surveyed farmers, indicates a lower marginal WTA than segment 2. If reduced tillage as a carbon mitigation measure only accounts for the energy savings due to less frequent use of tractors, marginal abatement costs would increase by a factor of 21.

5.4. Cost Efficiency Changing tillage practices have a number of ecosystem services benefits. By exclusively looking at carbon sequestration benefits, we can investigate the extent to which a voluntary PES scheme on reduced

Table 7 Marginal carbon costs using conditional and latent class logit models.

Model

CL

LCM 1

LCM2

Reduced tillage scheme 25% 50% 75% 25% 50% 75% 25% 50% 75%

[a]

[b]

[c]

PES costs (EUR ha−1 year−1)

Marginal abatement costs: sequestration & energy savings (EUR/tCO2eq year−1)

Marginal abatement costs: energy savings (EUR/tCO2eq year−1)

26 57 67 21 45 53 38 86 103

555 1,211 1,428 453 956 1,123 810 1,824 2,191

22 48 57 18 38 45 32 73 88

tillage is cost efficient compared to the costs of other emission reduction measures in the economy (which also omits ancillary benefits). The comparison of unit costs of emission reductions or sequestration across measures can be made using the marginal abatement costs (MAC) curve developed by the Danish Ministry of Climate, Energy and Buildings (Danish Government, 2013; Cross-Ministerial Working Group, 2013). The MAC curve was developed as part of the work to assess the potential and cost efficiency in abating national greenhouse gas emissions in sectors not included in the EU Emission Trading Scheme (ETS) and which can contribute to meeting the national emission reduction targets by 2020. Marginal costs in the MAC curve correspond to the marginal willingness to accept reduced tillage, as the costs of the measures omit the full costs of actually getting people or sectors to implement the measure. Non-compliance sectors would need to abate some 4 M t CO2eq by 2020 out of the 26.8 M t CO2eq that Denmark has signed up for to reduce. Fig. 2 shows the MAC curve and a red line representing the level of emission reductions that would be needed from non-EU ETS sectors. The benchmark of the 4 Mt CO2eq gap is at 119 EUR/tCO2eq, according to the data behind the MAC curve.8 Referring to the results in Table 7, marginal abatement costs of reduced tillage combined with the associated energy savings are well below this level (from 21 EUR/tCO2eq to 103 EUR/tCO2eq) (See Table 7). However, if only associated energy savings are accounted for, marginal abatements costs would by far exceed the benchmark (453 ERU/tCO2eq to 2191 EUR/ tCO2eq).

6. Discussion & Conclusions This paper has exemplified an approach to cost and compare the provision of a climate regulating service in agriculture via a voluntary 8 The data behind the MAC curve can be accessed via: www.ens.dk/sites/ens.dk/files/.../ Klimaplan/talsaetfigureriklimaplanen.xlsx

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Fig. 2. Marginal Abatement Costs, Denmark. Source: Danish Government, 2013; Cross-Ministerial Working Group, 2013.

payment scheme for ecosystem services, in this case soil organic carbon. Results indicate that, based on existing IPCC guidelines, reduced tillage has considerable potential for contributing to a cost effective climate mitigation policy in Denmark. However, there are a number of issues that need to be taken into account when enhancing SOC for climate reasons is considered: carbon sequestration potential; heterogeneity among farmers; cost effectiveness; and permanence. These issues will be discussed in turn. 6.1. Carbon Sequestration Potential In this paper, effects of reduced tillage on SOC levels compared to conventional mouldboard tillage are based on IPCC global average guidelines adapted to Northern European conditions. The default stock change factors represent the effect of management practice at 20 years for the top 30 cm of SOC and are computed using a global dataset of experimental results for tillage, input, set-aside and land use (IPCC, 2006). Danish field trials and modelling results for the top soil layer over a 30-year period find a carbon sequestration effect on loamy sand soils using reduced tillage of 0.56 tCO2/ha/year compared with conventional tillage (Chatskikh et al., 2008). This compares to IPCC values of 0.72 tCO2/ha/year on sandy soils, which is a category containing different types of sandy soils such as loamy sand. Loamy sand soils are almost exclusively found in mainland Jutland. As this soil category only represents some 7% of total agricultural soils included in this analysis, we did not carry out the cost effectiveness analysis based on the Danish research data. Due to the lack of sufficient national research data and models, we opted for the application of the Tier 1 IPCC methodology of stock change and emission factors, which allows for a rigorous and simple application that takes into account the different sequestration potentials of main soil categories using specific

regional default values. Results can therefore only be a gross approximation of actual national stock change effects. We chose IPCC methodology because of its international recognition, system of peer review, transparency and application in national emission reporting. 6.2. Heterogeneity Among Farmers On average, farmers object towards initiatives that seek to increase reduced tillage farming under a PES scheme. Such a scheme is therefore likely to meet at least some opposition in the farming community. Our predictions of the average marginal payments needed to persuade farmers to accept a reduced-tillage contract vary somewhat according to whether we assume farmers act as a homogeneous group or whether there are heterogeneous preferences. When looking only at the partworth utilities, we find a large group (ca. 74%) willing to accept reduced tillage at a price significantly lower than a minority group (ca. 26%), for instance 18 EUR/year/ha for 25% reduced tillage in segment 1 compared to 32 EUR/year/ha in segment 2. Assuming no segmentation, PES costs are at a level in between the levels in the two segments. Results also clearly indicate a non-linear relationship between the different coverages of reduced tillage and the overall contribution to farmer utility. The post-hoc analysis indicates a higher probability of belonging to segment 1 if farmers are younger, own their land, work full time on their farm and have their farms located on sandy soils in Jutland. Systematic heterogeneity among farmers has also been found in other research in relation to agri-environmental schemes, covering different types of descriptors. In Denmark, for instance, Christensen et al. (2011) in their study on willingness to participate in afforestation programmes found significant descriptors of segments to be farms where main income is from agriculture, large properties (N 200 ha) and a presence of forest on their land. Ruto and Garrod (2009) found in their European study on

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farmers' preferences for the design of agri-environmental schemes that age, education, level of environmental concern, large properties (N200 ha), main income from agriculture and share of rented property can explain group membership. Finally, Beharry-Borg et al. (2013) found the type and intensity of animal husbandry to be among the driving factors of probability of membership in their study on preferences for PES schemes related to water quality in the UK. The heterogeneity among farmers appears to have a spatial dimension, with farms in Jutland on sandy soils having a higher probability of belonging to segment 1. This segment also requires significantly lower payments than farmers belonging to segment 2. This indicates that there would be efficiency gains by targeting particular types of farms or farmers based on region and/or soil type. The carbon sequestration potentials based on the IPCC Guidelines show significant differences across the country with a higher sequestration potential on soils with higher clay content. The different levels of willingness to accept payment between the two segments and the different carbon sequestration potential imply that potential payment schemes should be targeted towards soils with the higher potential for sequestration and payment levels would need to be differentiated in order to avoid overpaying one group of farmers and risking not to enrol the other group of farmers with higher willingness to accept. One way to attempt this could be through reverse auction approaches as seen in the Australian Bush Tender Programme (Pirard, 2012).

stability of its stocks, given the management and disturbance environment in which it occurs” (IPCC, 2000). The IPCC Guidelines on sequestration potentials applied in this chapter are based on estimated effects over 20 years. If, however, reduced tillage is replaced by conventional tillage after e.g. ten years, carbon sequestration is reverted and the stored carbon will be emitted again while farmers have been paid to reduce CO2 levels in the atmosphere. In other words, there is no guaranteed permanence and the State would have paid for a service that is later reversed and lost. In order to ensure permanence, a continued application of reduced tillage is needed as even an occasional pass with a full tillage implementation will significantly reduce the SOC storage expected under the reduced tillage regime (Pierce et al., 1994; Smith et al., 1998; Parker et al., 2009). In practice, a PES scheme would need to provide a guarantee of continued sequestration over time and across contracts for it to represent a real alternative to traditional carbon mitigation initiatives. If permanence is difficult to ensure, there may be ways in which to insure permanence to make sure that any carbon lost is not credited or that the carbon lost is replaced by other measures or projects. In the area of LULUCF climate projects, instruments such as risk pooling, credit buffers, a ton-year approach and temporary carbon credits have been proposed (Dutschke and Angelsen, 2008).

6.3. Cost Effectiveness

SLJ, MT and MZ designed the research; SLJ and MT carried out the farmer survey; SLJ performed the modelling work and analysis of the CE models; MZ performed the analysis of carbon sequestration potential and cost effectiveness; DN carried out the GIS analysis; SG, AW and MHG evaluated the evidence of the effects of reduced tillage; MZ, MT and SLJ wrote the first draft of the manuscript and all authors contributed to revisions.

If we follow from the premises of the IPCC guidelines and apply the carbon sequestration potentials from reduced tillage on different types of soils in addition to the savings in fossil fuel emissions, we find marginal abatement costs in the order of 21–38 EUR/tCO2eq per year for reduced tillage applied at 25%; between 45 and 86 EUR/tCO2eq for reduced tillage at 50% and 53–103 EUR/tCO2eq if reduced tillage is applied on 75% of crop land. If we only consider the energy savings, however, marginal abatement costs are two orders of magnitude higher. Compared with the Danish field trials on loamy sand, our analysis for sandy soils overestimates sequestration effects by 29% and thereby underestimates the costs of the scheme on sandy soils. If this picture holds for the remaining types of Danish soils, our cost estimates of a voluntary PES scheme incentivising farmers to apply reduced tillage would be underestimated and subsequently the marginal abatement costs would also be underestimated. Denmark has set a target to reduce GHG by 40% compared to 1990 levels by 2020, with increasing emission reduction rates to 80–95% by 2050 (Danish Government, 2013). Approximately 34% of the emission reductions by 2020 should be found within existing sector agreements and the remainder 6% from additional actions (some 4 million tCO2eq). Although main sector targets exist for the energy and transport sector with a 100% reduction in fossil energy use by 2050, other sectors, including the agricultural sector will also need to contribute substantially towards the reduction target in order to reach the long term ambition of 95% reductions by 2050. For the missing 6% reductions under the national 2020 target, this study indicates that, following the IPCC methodology, reduced tillage may offer a cost efficient alternative as marginal abatement costs appear well within the scope for abating up to 4 MtCO2eq cost efficiently.

Author Contributions

Acknowledgements We would like to thank two anonymous reviewers for their comments and suggestions on an earlier version of this manuscript. We also acknowledge the EU FP7-project EcoFINDERS (Grant Agreement Number 264465) for funding and contributing to the analysis of the farmer survey and the Danish Center for Energy and the Environment for funding the analysis of mitigation of climate effects in Danish agriculture through the ECOSYS project (Grant Agreement Number 929675). Appendix Probit model with respondent-specific membership of class 1 as dependent variable. Coefficients Constant Age Sandy soils HAC soil

6.4. Permanence Ownership of land

Permanence is a critical issue in managing climate regulating ecosystem services which has been debated for a long time in the literature on UNFCCC Land Use, Land-Use Change and Forestry (LULUCF) in relation to climate projects obtaining credits such as CDM Afforestation/ Reforestation and REDD +. Permanence is defined in the UNFCCC Special Report on LULUCF as “the longevity of a carbon pool and the

Fulltime employed Log likelihood AIC

0.564 (−0.183) −0.018 (−0.003) 0.352 (−0.053) 1.075 (−0.219) 1.176 (−0.108) 0.469 (−0.05) −5213.83 10,439.7

*** *** *** *** *** ***

***z significant at 0.1% level or lower; **z significant at 1% level or lower; *z significant at 5% level or lower.

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