Global Climate Change and Agriculture:
An Economic Perspective
Richard M. Adams
Climate change and related global concerns
dominate the current environmental agenda,
as evidenced by the recent wave of articles,
symposia, workshops, and other scientific and
lay forums dealing with this issue. While most
atmospheric scientists agree that a climate
change "signal" has yet to be detected, con-
cern over potential climate change arising
from increasing concentrations of carbon
dioxide (C02 ) , methane (Ca), chlorofluoro-
carbons (CFCs) and other "greenhouse"
gases is motivating substantial funding in-
creases for such research. Climate change is
thus likely to be a major research and policy
issue well into the next decade.
Scientific interest in climate change is not a
recent phenomenon; research on the relation-
ship between CO2 , climate, and man dates
back at least to 1895 (Kellog). Despite sub-
stantial uncertainties in our understanding of
climate change cause and effects, a scientific
consensus has emerged about some aspects of
this phenomenon: CO2 and other trace gases
are increasing, and these increases will at
some point alter the world's climate (Schnei-
der, Rosenzweig 1989, Smith and Tirpak, Na-
tional Academy of Sciences). As reported by
Rosenzweig (this issue), forecasts of climate
change from general circulation models
(GCMs) indicate that a doubling of atmo-
spheric CO2 will increase global average
temperature from 1.5 to 4.5 degrees celsius
COC), as well as alter precipitation amounts and
frequency.
Richard M. Adams is a professor, Department of Agricultural and
Resource Economics, Oregon State University.
Technical Paper No. 8%6 of the Oregon Agricultural Experi-
ment Station.
The research described in this article has been funded in part by
the U.S. Environmental Protection Agency through a cooperative
agreement (CR-811965-01) with Oregon State University. It has
not been subjected to the agency's peer and administrative review
and no official endorsement should be inferred.
The helpful comments of Emery Castle on an earlier draft of this
manuscript are particularly appreciated.
Copyright 1989 American Agricultural Economics Association
The above numbers take on economic sig-
nificance because such climatic changes are
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expected to lead to changes in systems and
processes that influence human welfare. Ex-
amples include sea level rise caused by partial
melting of polar ice caps, alterations in re-
gional hydrological balances, changes in
natural and managed ecosystems (e.g., ag-
riculture and forestry) and a range of second-
ary effects, such as effects on fish and wildlife
populations (Smith and Tirpak). Implications
for human welfare have been drawn largely
by natural/physical scientists and engineers.
Thus, the role of human adaptations, either to
slow the rate of CO2 buildup or mitigate any
resultant effects, has not been a central feature
of most of these estimates. As the "limits to
growth" controversy of the early 1970s dem-
onstrates, failure to account for the role of
price mechanisms and other social incentives
in altering human behavior can often result in
misleading predictions about paths of resource
use (Meadows et al.).
Prompted by increasing calls for U.S. and
international action to address climate
change, policy makers are focusing on strate-
gies to both abate the buildup of greenhouse
gases and to plan for climatic change (Lashof
and Tirpak). Most strategies include long-term
reductions in fossil-fuel consumption, with at-
tendant costs. Several questions then seem
relevant in current discussions. For example,
among the problems faced by mankind, does
climate change warrant this current attention
(and research expenditures)? Are the costs of
slowing a CO2 buildup justified by the benefits
(of avoided damages)? Is there even a role for
economic analysis in view of the long time
horizons and the associated uncertainties in
critical natural and physical science data?
The objective of this paper is to provide an
economic perspective on these questions, in-
cluding (a) an overview of contemporary eco-
nomic thinking on some central research is-
sues surrounding climate change, and (b) an
assessment of whether economic adjustments
Adams
are likely to soften or offset the negative ef-
fects suggested by current research. The dis-
cussion draws heavily upon a sizable and
growing economic literature on global climate
change. Largely qualitative in nature, these
inquiries ably present key economic dimen-
sions of climate change.
The empirical focus is on agriculture and
related resource use. Climate change effects
are given numerical weight with updated evi-
dence from a recent economic analysis of U. S.
agriculture. In addition, associated resource
linkages, such as water supply and environ-
mental quality, are briefly reviewed. Such
quantitative information can suggest the de-
gree of urgency associated with implementing
CO2 control policies.
The Economics of Climate Change
Is there a role for economics in current climate
change research? Some argue the need to un-
derstand natural or physical processes before
performing economic analyses. Even econo-
mists question whether the standard-benefit
cost analysis (BCA) framework is adequate for
this task. Despite problems in applying BCA
to such long-term phenomenon as climate
change, there is clearly a role for economics in
climate change debates, if only in introducing
the notion of what Boulding refers to as "the
value of unseen alternatives." Even in the ab-
sence of data with which to measure correctly
the costs of various policy alternatives, eco-
nomics provides a useful perspective in terms
of recognizing opportunity costs and framing
policy questions, thus giving guidance to the
natural and physical scientists in data col-
lection. It is notable that some nonecono-
mists also take this position (see, for example,
Land and Schneider; Rind, Rosenzweig, and
Rosenzweig). Further, as evidenced by a sub-
stantialliterature on the value of information,
economic analysis of environmental change
need not await the resolution of all natural or
physical science uncertainties (e.g., Adams,
Crocker, and Katz).
While relatively few economists have partic-
ipated in climate change effects research, the
literature contains numerous economic analy-
ses on global climate change in general and on
agricultural effects and related resource issues
in particular. Some focus on forecasting emis-
sions and atmospheric concentrations of CO2
(e.g., Nordhaus and Yohe, Edmonds and
Climate Change and Agriculture 1273
Reilly), others on conceptual issues and prob-
lems in capturing agricultural supply response
to changes in climate (Ausbell, Sonka and
Lamb, Smith, Crosson). Together, these stud-
ies provide useful insights into the types of
questions to be addressed and the likely out-
come (direction) of specific causes and effects.
Economic perspective on several dimensions
of the climate change phenomenon are sum-
marized below.
Downloaded from http://ajae.oxfordjournals.org/ at University of Bath Library & Learning Centre on June 18, 2015
The Rate of CO 2 Buildup
Future increases in greenhouse gases will be
largely the result of man's activities. Econom-
ics, thus, has something to say about two is-
sues here: (a) the rate of atmospheric CO2
buildup and (b) the ultimate level of CO2 pro-
duced by that buildup. Over the past several
decades, CO2 emissions have increased about
4% per year, while atmospheric CO2 has been
increasing at the rate of 1% to 2% per year.
This has led some to expect a doubling of CO2
within fifty years; however, fossil-fuel con-
sumption (and emissions) in developed coun-
tries will be influenced by relative energy
prices, income, and other feedback mecha-
nisms (Edmonds and Reilly; Drennen and
Chapman). The role of the price mechanism
was demonstrated in the 1970s, when rising
real-energy prices triggered conservation and
substitute-fuels research. While economists
are not enthusiastic about command and
'4
control" regulatory policies, the prospect of
international agreements, such as the recent
Montreal Protocol on CFCs, may also provide
social incentives to alter consumption pat-
terns. Conversely, fossil-fuel development
and use is important in meeting industrializa-
tion goals in some planned and developing
economies, such as China. Biogeochemical
forces, such as the capacity of oceans to ab-
sorb additional CO2 , are also important. The
importance of economic and social incentives
on emissions is demonstrated in economic
analyses that suggest a likely decline in CO2
emissions, at least temporarily, from current
levels. The effect would be to push any dou-
bling of atmospheric CO2 to 2075 or later
(Reilly and Edmonds).
At some point, CO2 will cease to increase.
The most commonly assumed scenario in cur-
rent policy analyses is the eventual doubling of
atmospheric CO2 levels, from about 330 ppm
to 660 ppm. Economists have challenged the
1274 December 1989
choice of a particular CO2 increase, inquiring
if other levels are equally likely and of greater
policy relevance (Edmonds and Reilly, Cros-
son). For example, a CO2 level of 800 ppm
would be of greater concern than 400 ppm
because it is unlikely that the effects (i.e.,
damage function) of climate change will be
linear over policy-relevent ranges. Analyses of
the sensitivity of CO2 emissions to economic
assumptions suggest the need to consider al-
ternative atmospheric CO2 levels in future re-
search (Reilly et al.).
The Effect of CO2 on Climate
Whatever the ultimate level of atmospheric
CO2 , climate changes are expected. Forecast-
ing these changes in climate is an imprecise
science (Schneider; Rosenzweig, this issue).
While economists cannot assess the reliability
of such forecasts (other than to question the
CO2 values used to perturb the models), there
is concern over the critical role of these pre-
dictions in economic analyses (Dudek, Adams
et al., Crosson). As discussed subsequently,
the differences in regional precipitation pre-
dictions across GCMs is particularly unset-
tling. Further, it has been suggested that in-
creases in atmospheric CO2 will increase
rainfall variability. Resolution of differences in
expected regional rainfall amounts and dis-
tribution, including frequency of extreme
events such as drought, is needed, as the
hydrological implications of these forecasts is
critical to almost all "effects" research.
The Effect of Climate Change on Human
Welfare-Gainers and Losers
Although climate changes from CO2 increases
are likely, it is not evident that these changes
will be uniformly bad in terms of human wel-
fare. For example, the conclusion of most
economic (and plant science) commentators is
that aggregate agricultural production (both in
the U.S. and world wide) is unlikely to be
seriously impaired by a global warming of the
magnitudes predicted by some of the GCMs.
Projections based on world food production
and population trends indicate that agricul-
tural productivity appears capable of meeting
demand in the presence of modest global Some Recent Quantitative Evidence from
warming (Crosson). Plant scientists believe U.S. Agriculture
that for some regions, the CO2 "fertilizer ef-
feet" may actually increase agricultural pro- Quantitative analyses are useful to test the
ductivity over what it would be in the absence importance of qualitative assertions, as well as
of climate change (Peart et al.). to establish the significance of an effect. In-
Amer. J. Agr. Econ.
Can agriculture adjust rapidly enough to
deal with climate change? If the past is any
indicator, agriculture has shown the ability to
respond to price signals or other incentives.
For example, the development and application
of irrigation technology has dramatically al-
tered the structure of agriculture since World
War II. Similarly, the use of hybrid com, the
spread of soybean production, and the trans-
formation from animal to mechanical power
occurred within time frames substantially
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shorter than that of climate change used in
current discussions.
Although aggregate production may not be
an issue, the distribution of climate effects is
important. Regional agricultural gainers and
losers (both globally and nationally) are likely,
given the regional differences in precipitation
in the GCMs that imply altered water balances
and agricultural comparative advantage. In
terms of other effects, sea level rise would also
have distributional consequences. For exam-
ple, rises of one or more meters could have
serious consequences for some poorer nations
with sizable coastal zones, such as Indonesia
or Bangladesh, but only moderate effects on
some coastal communities in the United
States.
Other dimensions of equity are involved
with climate change. Specifically, given the
long time frame of climate change, intergenera-
tional issues are unavoidable. Indeed, climate
change may be the nexus between the welfare
of present and future generations, as fossil-
fuel combustion today implies foregone oppor-
tunities for future generations. Conversely,
subsequent generations typically benefit (in
the form of higher material standards of living)
from current investments in technology, capi-
tal stocks, and other infrastructure. Of special
importance is the future stock of environmen-
tal (nonmaterial) wealth and growth of knowl-
edge concerning the value of that stock. The
relative importance of nonmarketed public
goods and other environmental commodities
has typically increased with income, yet such
commodities are expected to be under in-
creased pressure with climate change.
Adams Climate Change and Agriculture 1275

formation on the prospective economic costs under rainfed conditions and year-to-year
of climate change and the sensitivity of those variability of irrigated yields is also lower.
estimates to specific data uncertainties can as- When the fertilizer effects of increased CO2
sist in the planning process and also serve to are simulated along with climate change, yield
inform the public as to the potential magnitude reductions are mitigated and, in some cases,
of the problem. increase over the baseline (for GISS). In all
Several analyses have estimated the eco- scenarios, crop yields in northern latitudes are
nomic costs (damages) to agriculture from affected less than more southerly areas of the
climate change (d' Arge, Kokoski and Smith, United States.
Dudek, Adams et al.). The procedures, geo-
graphical coverage, climate change assump- Crop Water Use and Regional Water

Downloaded from http://ajae.oxfordjournals.org/ at University of Bath Library & Learning Centre on June 18, 2015
tions, and data bases used in each study differ, Availability
hence the numbers are not strictly compara-
ble. For this discussion, some revised results In addition to altering crop yields, changes in
are used from a preliminary analysis of climate temperature and precipitation affect crop
change effects on U.S. agriculture (Adams water requirements for irrigation. In a depar-
et al.). General findings are evaluated in the ture from Adams et al., changes in crop water
context of the qualitative implications dis- requirements are obtained from the CERES
cussed above. Details of the study, including crop simulations. Specifically, crop evapo-
important assumptions and limitations, are transpiration under alternative climate and
presented in Adams et al. CO2 levels is used to develop crop irrigation
requirements for com, wheat, and soybeans.
Procedure and Crop Yield Data Depending on crop and region, water require-
ments are expected to increase substantially.
Representative regional changes in crop water
The climate change forecasts used here are
from the NASA/Goddard Institute of Space use for irrigated crops are provided in table 2.
Science (GISS) model and the Princeton Climate change will influence snow pack,
Geophysical Fluid Dynamics Laboratory groundwater recharge, stream flow, and other
(GFDL) model and reflect a doubling of at- factors involved with water supply. This, in
mospheric CO2 (Rosenzweig, this issue). tum, will affect available irrigation water (both
These forecasts reflect changes in regional ground and surface sources). Changes in
temperature and rainfall from historical cli- ground and surface water availability are esti-
mate data for the period 1951-80. Crop simu- mated using a hydrologic mass-balance ap-
lation models are then used to project the ef- proach that reflects the interactions of evap-
fects of such climatic changes on yields of oration, rainfall, and temperature forecasts
irrigated and rainfed cultivars of wheat, com, from the GCMs. For example, if a region cur-
and soybeans (Rosenzweig, Peart et al.). Two rently has greater rainfall than evaporation,
sets of crop yield projections are generated for the same percentage increase in evaporation
each GCM; one set reflects changes in climatic and precipitation could increase the differen-
conditions only, the second includes climate tial, suggesting a potential increase in runoff.
changes and the effects of increased concen-
trations of CO2 on photosynthesis and water The Economic Model
use efficiency, i.e., a CO2 "fertilizer effect."
Representative yield projections for rainfed The final step involves adjustments in the pa-
com and soybeans are presented in table 1. rameters of an economic model of the U. S.
The average yield change projected across agricultural sector to reflect the physical ef-
wheat, com, and soybeans in a region was fects of climate change described above. As
assumed to equal the yield sensitivity of other described elsewhere, the model simulates the
crops in that region (cotton, hay, other grains). effects of changes in agricultural demand, re-
As is evident from the table, the forecast cli- source usage, or resource availability in terms
mate conditions suggest reduced yields, with of agricultural prices, quantities produced,
projected yield reductions under GISS climate consumers' and producers' welfare, exports,
projections for rainfed crops being substan- imports, and food processing (Cheng and
tially less than reductions under GFDL. Yield McCarl). Included are production, processing,
reductions are much less under irrigation than domestic consumption, imports, exports, and
1276 December 1989
T~ble 1. Projected Regional Dryland Crop Yield Changes for Corn and Soybeans, with and
without CO2 Growth Effects (% change in yield)
GISS Model
Com Soybeans
Region w/o CO2 w/C02 w/o CO2
Lake States -2.2 42.0 -35.7
Com Belt -24.1 15.3 -26.8
Northern Plains -31.4 20.0 -26.0
Southeast -70.9 -2.1 -42.6
Delta -32.0 -0.5 -68.0
Southern Plains 14.1 28.7 -45.4
Source: Rosenzweig; Peart et at.
input procurement activities, working from a
set of budgets (both irrigated and rainfed pro-
duction) for forty-two crop and livestock
commodities. For production purposes, the
U.S. is disaggregated into sixty-four geograph-
ical subregions. Each region possesses differ-
ent endowments of land, labor, and water, as
well as crop yields. The input of particular
importance in this assessment is water, which
is disaggregated into surface and groundwater
sources. Surface water is available for a con-
stant price, but the amount of groundwater is
provided according to a supply schedule
where increasing amounts of water are avail-
able for higher prices.
Adjustments in modeled crop yields, irri-
gated crop water requirements and irrigation
water availability are made according to each
climate change scenario. Separate model solu-
tions are then generated under these adjust-
ments and compared to a base case or "no
climate change" scenario. A major issue is the
treatment of technological change, resource
availability, and product demand. Given that a
doubling of atmospheric CO2 levels is pro-
jected to take fifty years or longer, projecting
future yields (in the absence of climate
change) and commodity demands is a specula-
tive exercise. Consequently, 1981-83 eco-
nomic and agronomic conditions are used to
provide a consistent set of baseline data for
the analysis. Alternative demand (based on
population growth) and technology scenarios
are examined to partially explore the sensitiv-
ity of the assessment to some types of dy-
namic adjustments.
Results
Given the range of climate forecasts used
here, it is not surprising that the economic
Amer. J. Agr. Econ.
GDFL Model
Com Soybeans
w/C02 w/o CO2 w/C02 w/o CO2 w/C02
42.0 -56.8 -12.7 -54.1 7.8
35.2 -51.4 -12.3 -55.8 -3.7
44.2 -71.5 -19.2 -55.8 1.4
9.7 -66.1 2.1 -72.4 -22.2
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-12.5 --59.0 13.2 -79.7 -35.7
3.1 -20.5 -8.3 -68.2 -31.6
analysis suggests some widely divergent ef-
fects. Table 3 captures some of these differ-
ences in the form of Fisher price and quantity
indices and total economic surplus changes for
each analysis. Depending on one's risk prefer-
ences, the results could suggest distinctly dif-
ferent policy responses. It is thus useful to
explore the plausibility of each analysis.
Although it is not possible to assign prob-
abilities to individual GCM forecasts, plant
scientists generally believe that those analyses
which incorporate CO2 fertilizer effects with
climate change are the mos1t plausible. These
two analyses (GISS + FE and GFDL + FE),
give rise to somewhat different expectations
regarding U.S. food production capacity. For
example, under GFDL + FE, annual crop
production would be about 80% of the base
case, with a corresponding increase in com-
modity prices of about 300/0. This translates
into an annualized economic surplus loss of
about $10.5 billion (1982). Conversely, the
GISS combined analysis shows an increase in
total food production of about 10%, with an
overall food price reduction. This leads to a
net gain in welfare of approximately $9.9 bil-
lion.
In view of the diffuse priors associated with
the GCM forecasts, the economic conse-
quences of the GFDL seem particularly rele-
vant for policy discussion. Specifically, does a
reduction in aggregate food production of the
amount portrayed under GFDL threaten
domestic food security? Some perspective can
be gained by looking at historical U.S. produc-
tion. Specifically, for the period 1950-55, the
U.S. per capita production of these commod-
ities was actually less than what it would be
after the changes in yields and water availabil-
ity implied by either GFDL case under a
doubling of CO2 , Substantial reductions occur
Adams Climate Change and Agriculture 1277

Table 2. Average Change in Water Use for Irrigated Crops (% change)

Region GISS GFDL GISS GFDL

Without CO2 Growth Effects With CO2 Growth Effects

Southeast 34 169 25 162

Delta 31 76 28 70
Com Belt 11 70 -5 5
Lake States 17 50 -15 38
Southern Plains 22 40 12 3
Source: Rosenzweig; Peart et al.

in exports in both cases, but the true trade
implications are not addressed here, given that
changes in agricultural production in the rest
of the world are ignored. Sensitivity analyses
of population and technological change did not
dramatically alter the results (allowing for
technology in the form of increased yields
offsets more of these climate effects, whereas
increased demand exacerbates the losses).
Most qualitative evidence indicates poten-
tial gainers and losers, as regional comparative
advantage changes in response to regional
changes in climate. The empirical analyses
bears this out (within the constraints imposed
by a spatial equilibrium model). Specifically,
acreage is reduced in regions in the more
southerly latitudes, such as the Southeast or
Delta, while some expansion is observed in
the Great Lakes and Northern Plains. These
shifts are driven by the yield forecasts and
resource (water) availability associated with
each climate change scenario. Shifts in acre-
age imply gains and losses across rural com-
munities in the United States.
As expected, potential adverse etfects of
climate change are partially mitigated by input
and output adjustments. One mitigation pro-
cedure is irrigation. Because crops grown
under irrigation maintain or even increase
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yields under the predicted climate conditions,
model solutions show an increase in irrigated
acreage; however, for most regions, the crop
models imply sharp increases in irrigation re-
quirements (because of increased crop evapo-
transpiration), placing greater pressure on sur-
face and ground water sources. The rise in
commodity prices in some analyses (GFDL)
increases the feasibility of overdrafting of
groundwater, even in the face of rising pump-
ing costs. The GeMs, however, provide little
confidence in the area of regional precipitation
and runoff (either surface or deep percola-
tion). Hence the sustainability of an increase
in irrigated acreage is uncertain.
In addition to linkages between water sup-
ply and agriculture, climate change affects
other physical and biological resources. Soil
erosion from expansion of agriculture in
northern regions may increase (Rosenzweig).
Water quality may also be affected by in-
creased irrigation. Fish and wildlife resources
are expected to be dramatically altered by cli-
mate change, even in the absence of structural
changes in agriculture (Breckenridge et al.).
With increasing demand for water (from ag-
riculture or other uses) fishery habitat in many
regions is likely to be reduced. Unlike agricul-
tural effects, the natural science evidence for

Table 3. Economic Surplus and Fisher Price and Quantity Indices for Climate Change Scenarios
(Base = 1.00)
Livestock Change in
Field Crops" Commodities" Economic
Surplus
Quantity ($ billion)
Climate Model Price ----~. __ . _ - - - -Price
---
Quantity

GISS 1.18 .90 1.02 .99 -6.5

GISS + FE .82 1.10 .84 1.06 +9.9
GFDL 2.09 .61 1.35 .88 -35.9
GFDL + FE 1.28 .81 1.07 .98 -10.5

a Field crops include com, wheat, soybeans, sorghum, cotton, oats, hay (alfalfa and grass hays), and silage.
b Livestock commodities include milk products, beef, pork, and poultry.
1278 December 1989 Amer. J. Agr. Econ.

North America indicates few wildlife gains
(the few identified gains are to some polar
breeding bird species). Globally, wildlife pop-
ulations will be influenced by shifts in habitat
and the property rights that exist in those new
environs (Batie and Shugart). While these
wildlife assessments are speculative, it is
doubtful that technology or other human adap-
tations will have much good news in the way
of mitigation for natural ecological conse-
quences. Perhaps rising real income or rising
such as sea level rise. Finally, potential ir-
reversibility of some effects, such as losses in
biodiversity and the uncertainties in current
scientific understanding of the climate change
phenomenon imply adoption of Ciriacy-
Wantrup's "safe minimum standard" ap-
proach with respect to ultimate CO2 levels.
Given uncertainties about where and when
climate change will occur and what the effects
may be, reduction in greenhouse gas emis-
sions over the next few decades is insurance to

prices for wildlife-based recreation will gener-
ate investments in wildlife habitat, but the evi-
dence of the last decade on many migratory
and fugitive species is not encouraging.
Policy Implications: A Need for CO2
Abatement?
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buy additional time to resolve these issues
and, hence, determine what constitutes a
"safe" level. A reduction in CO2 emissions
also represents a reasonable concession to the
welfare of future generations, whose interests
are likely to be circumscribed by climate
change.

A lot has been written recently in the popular References

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