Crop Management Decisions under Carbon Pricing in Ontario: A Stochastic Dynamic Programming Approach

Abstract

Efficient cost-share programs and carbon-offset markets seek to incentivize farmers to adjust their crop management practices. The abatement cost of emissions depends on farmers’ private value of the public goods supplied with soil conservation. Increasing diversity in cropping rotations with legume cover crops and winter wheat sequesters greater carbon than simple corn-soy rotations yet increases nitrous oxide emissions. Due to the role of weather-dependent uncertainty in management decisions and ecological patterns, we use a stochastic dynamic programming model to find the optimal crop choices and cover crop use in the presence of a carbon price. Our findings provide insight into the abatement costs of emissions with soil conservation practices and incentive pricing given heterogeneity in farmer and field characteristic, the inter-related nature of externalities, and weather uncertainty.