Energy and Non-Energy Input Substitution in Agriculture: A Case Study
of the Prairie Provinces. By Tulay Yildirim and Varghese Manaloor.
June 1995, Saskatoon, Saskatchewan.
Interest in agricultural energy use in the late 1970's occurred mainly because
of rising energy prices. During the 1990's environmental concerns were
added on to the debate. Increased crop production in Canada, as in the rest
of the developed world, has been achieved through technical change, that
is, through the expanded use of increasingly sophisticated inputs, such as
farm machinery, fertilizers, herbicides, and irrigation, and through the
clearing of new lands, which all involved the use of commercial energy.
And the substitution of capital for labour has also increased the reliance
of agriculture on non-renewable energy resources.
Canada has made a commitment to the international community to stabilize
CO2 emissions at 1990 levels. The Climate Change Task
Group recommended that voluntary measures should be given priority, yet
acknowledged that the option for stabilization may have to involve the use
of economic instruments, such as energy taxes, carbon taxes, and the removal
or redirection of subsidies. These measures are proposed as tools to
change the current incentive structure and, hence, the energy-use patterns.
The removal of the current provincial tax rebates to farm fuel consumption,
or the introduction of a new energy or carbon tax are expected to affect
both the cost of production, and farm energy use. These impacts largely
depend upon the possibility of substitution between energy and other farm
inputs, which in turn, is determined by the current production technology.
In order to assess the potential impacts of such policies, the elasticity
of substitution between input pairs, and the price elasticities of demand
for inputs were estimated in this study.
The estimated elasticities indicate that all inputs are price inelastic,
with the exception of indirect energy. Direct energy is the least responsive
to own-price changes. The implication of this is that the removal of
provincial tax rebates on farm fuel use or the introduction of a new energy
tax would not reduce energy use in agriculture significantly. Therefore,
these policy changes are not expected to affect the sectors' contribution
to CO2 emissions in the Prairies significantly. An
interesting result of this analysis is the high elasticity of substitution
between direct and indirect energy inputs, which shows that any measure that
may cause the direct/indirect energy price ratio to increase would result
in an increase in indirect energy use vis-à-vis direct energy use.
Thus, it is possible to reduce direct energy use in agriculture by
introducing economic instruments. This, however, would result in increased
use of chemicals and fertilizers, that is, indirect energy, and would negate
the impacts of policy changes on gross CO2 emissions partially.