Page 159 - Ecuador's Banana Sector under Climate Change

chapter 6: climate change policies and their potential impact on ecuador’s banana sector - an economic analysis
5.2 Emissions as a consequence of fossil-fuel
Emissions from fossil fuels (63 kg/t) account for approximately one fifth of GHG emissions with regard to conventionally produced bananas and one third from organically grown bananas. Most of these emissions derive from fossil fuels that are used for on-farm agricultural equipment and power generation. In economic terms, the data are similar to those that relate to domestic transportation, discussed in Section 4.2, where the addition of a petrol tax of 7 cents per litre would encourage some energy conservation and increase the return on more energy-efficient equipment. Fossil oils also are used as emulsifiers for pesticide blending and as lubricants. They emit CO2 but at a slower rate than combustible hydrocarbons. Unless competitively-priced bio-emulsifiers or biolubricant substitutes are available, the demand for fossil oils for these uses is likely to be relatively price insensitive. A CO2 emission tax, therefore, would have less impact on emissions than on the emissions from combustible hydrocarbons.
5.3 Fertilizer and nitrous oxide emissions
The greatest potential for reducing GHG emissions related to the production of bananas is to lower the nitrous oxide (N2O) emissions from nitrogen-based fertilizers and improve soil management practices. A USD 30-per tonne CO2e emission tax for nitrogenous fertilizer would equal USD 186 per tonne of nitrogen content.57 Urea, the most widely traded form of nitrogenous fertilizer, is 46 percent nitrogen and, thus, it would be taxed at USD 85.56 per metric tonne. Since urea is currently quoted at approximately USD 350 per metric tonne, this would result in an effective emission tax rate of 24.4 percent, depending on the market price of urea. Were urea to trade at USD 200 per metric tonne, the tax rate would be 43 percent. Given that nitrogenous fertilizers are valued depending on their nitrogen content, the tax rate calculated for urea would more or less include all nitrogenous fertilizers. Due to the significant effects of N2O on global warming, these emission tax rates are the highest tax rates that are discussed in this chapter.
According to FAOSTAT, Ecuador imports all of its synthetic fertilizers. The absence of a domestic fertilizer manufacturer would remove the potential for opposition to a fertilizer levy. Moreover, the administration of taxes is feasible when the levy is imposed at the border with minimum leakage. The higher cost of synthetic fertilizer would increase the price of domestic organic nitrogen, which would encourage banana producers to reduce either their use of fertilizer, use it more efficiently or combine both uses.58 This would result in a significant lowering of the GHG emissions from production.59
57 A tonne of nitrogen generates 20 kg of N20 (using the generally assumed factor, 0.02). A kg of N20 has a global warming potential of 310 kg of CO2. Therefore, one metric tonne of nitrogen will generate 6.2 metric tonnes of CO2e. At USD 30 per metric tonne of CO2e, the tax would be USD 186 per metric tonne of nitrogen content.
58 In microeconomic terms, this is a tax on a factor of production. Banana producers respond by moving along their (fixed) value of marginal product curve, thus purchasing less chemicals. Alternatively, they shift their VMP curve upwards, using chemicals more effectively or some combination thereof, reducing input and improving the efficiency of input use.
59 The revenue from a tax on fertilizers could contribute to funding the research on the use of nitrogen, as
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