The Impact of Endogenous Output Prices on the Greenhouse Gas Abatement Supply Curve

In this study, we examine how endogenous crop prices affect estimates of greenhouse gas abatement supply on corn and soybean acres at the farm level under alternative climate change scenarios in the U.S. Corn Belt. We combine a discrete choice model of farmer behavior with a spatially explicit biogeochemical model of GHG emissions and link this model to crop demand curves to allow for price feedbacks. Producers are offered payments from the GHG reductions achieved by adopting climate-smart practices, no-till, cover crops, and reduced nitrogen application, and their adoption behavior is simulated across varying carbon price and climate scenarios. Results indicate that accounting for endogenous prices increases estimated abatement, particularly from nitrous oxide reductions, by up to 18 percent at a carbon price of $190 t CO2e under the extreme climate scenario and by 25 percent under the sustainability scenario, relative to estimates based on exogenous prices. Results underscore the importance of considering market interactions when constructing abatement cost functions.