In the context of the Australian economy, livestock industries are regarded as the most viable economic industry. For instance, in the year 2008, the gross value of the livestock economy was projected at AUD 19.7 billion including AUD 14 billion as export earnings (Abare, 2008). Australia is the world largest economy in the export of wool and second behind Brazil in the export of red meat. Livestock is richly valued in the Northern part of the country that supports 16 million beef cattle. Globally, livestock industry is regarded as the most growing sub agricultural sector since population projected to double by the year 2020 due to continuous consumption of red meat in developing nations ( De Haan et al., 1996) With respect to increases in demand for red meat, Australian livestock industries have greater opportunity to supply the same in addressing global food security.
Even though this is regarded as a major step in tackling food security in both Australia and developing countries, it is also regarded as a major environmental issue since overproduction of the same leads to continuous greenhouses gas emission. Cows and sheep are the major red meat producers in Australia and their greenhouse gas emission accounts for the approximately same amount of greenhouse gas emitted by transport industry as a whole. Seventy percent of the total Australia greenhouse gas emissions in the livestock sub-sector is derived specifically from cows and sheep in the agricultural sector which is equivalent to 10 percent of the total national greenhouse gas emission and manure from cow and sheep also accounts for 1 percent of the national greenhouse which comprises of nitrous oxide and methane (Department of Climate Change, 2008). The data is significantly irrelevant due to its small contribution to the whole world methane emitted globally but a successful development of abatement strategies is regarded as a major mitigation towards greenhouses gas emission.
This paper, therefore, expounds on the effects of greenhouses gas emission from livestock digestions on the economic efficient equilibrium of the market. The analysis is based on the economic theory of externalities thus helps to articulate the effects in terms of cost-benefit analysis using private and social costs and benefits respectively.
Statistical Data Description of Australia Greenhouse Gas Emission with Comparison to the USA
Methane quantity (MtCo2-e)
(Years)
Livestock category
1990
2002
2008
Beef Cattle
38.7
39.45
36.6
Dairy cattle
5.0
7.65
6.8
Feedlot cattle
1.65
1.98
2.1
Sheep
25.0
16.2
13.6
Diagram 1: Greenhouse gas emission from livestock industry in Australia in the year 1990, 2002 and 2008 (Department of Climate Change, 2008)
From the above diagram, it is evidently noted that even though methane gas emission has been decreasing from 1990, its impact on the livestock digestion still remains a major impact on consumption of red meat from cows and sheep. The research paper implicitly looks onto these two major significant contributors of greenhouse gas emission in Australia.
During the year 1990
During the year 2008
Emission
Emission
Sector
MtCo2-e
Share in %
MtCo2-e
Share in%
Beef Cattle
94.5
71.6
100.8
71.7
Dairy Cattle
32
24.2
33.1
23.5
Swine
1.7
1.4
2.1
1.5
Horses
1.9
1.4
3.6
2.6
Sheep
1.9
1.4
1
0.7
Total
132
100
140.6
100
Diagram 2: United States of America Greenhouse gas Emission for the years 1990 and 2008 (EPA, 2010)
The USA is the major contributor in the whole world of greenhouse gas emission into the atmosphere. Comparing the USA data for the year 1990 and 2008 with that of Australia, it is evidently clear that even though Australia greenhouse gas emission is insignificant to that of USA but it still has a positive effect on the production of red meat which is distributed globally.
Emission
Sector
MtCo2-e
Share in %
Primary Industries
146.7
27.50%
Agriculture
64.3
12.10%
Mining
82.3
15.40%
Manufacturing
60
11.30%
Electricity and Gas
201.2
37.70%
Services and Transport
64.3
12.10%
Residential
60.9
11.40%
Total
533
100%
Diagram 3: Australia’s Direct Greenhouse Gas emission by Economic Sectors 2016 (Australia Greenhouse Emission Information System, 2016)
From the diagram above, agricultural sector contributes to 12.1 percent of the greenhouse gas emission in the whole Australia, just behind mining sector. This has an alarming effect to consumers who depend on red meat from livestock since once the digestion of the same gas has occurred; livestock will be butchered and sold to the consumers who will have both health complications and economic effects (Department of Climate Change, 2008)
Market Failure of Greenhouses Gas Emission for the Livestock Digestion on Consumers
Greenhouses gas emission in Australia from livestock digestions contributes to a major economic loss to consumers since there is neither a market price for GHC emissions. Either way, there are no alternate institutions to impose limits on it thus this paper regards GHC emission as an uncorrelated negative externality. Economic equilibrium is always inefficient in the presence of uncorrelated externalities hence since it leads to no economic opportunity cost. This can only be revised by investing resources which are mostly diverted from their intentional use to mitigating such externalities thus raising economic well-being of both the present and future generations. An externality is defined as the cost or benefit that adversely affects an agent who did not choose to incur same cost or benefits from the third party (Rezai et al., 2009)
Greenhouses gas emission from livestock digestion is regarded as a negative externality and it is incorporated with some economic costs and benefits. This includes private costs which are defined as costs incurred when producing a commodity like in this paper the commodity being produced is the red meat. The social cost is regarded to be greater than private costs and it includes the greenhouse gas emitted in the environment from the livestock ranching. There are disadvantages that the society as a whole suffers from the actions of the producer hence refers to negative externalities. The externality is divided into two i.e. negative and positive externalities. The social cost can then be calculated as private cost plus negative externalities. Theory of externalities is a very fundamental economic argument that was captured by leissez-faire economists such as Milton Friedman and Friedrich Hayek who referred to it as a neighborhood effect (Rezai et al., 2009)
Negative Externalities
Diagram 4: Negative externalities with deadweight welfare effects
From the above diagram, economic equilibrium is experienced at the point where the price ‘P1’ is equal to quantity demanded ‘Q1’ which is the point where private cost cuts the demand curve. Due to negative externalities which are the greenhouse gas emission from livestock digestion, the socially optimum position will be at a point where price ‘P2’ and quantity demanded ‘Q2’ meets. This shows a higher price charged for the produce from cows and sheep at a lower quantity demanded by consumers. The ideal equilibrium is therefore found at ‘E2’ instead of ‘E1’ representing current equilibrium since that is the point where social cost-benefit is incorporated through the general price of red meat will increase leading to a deadweight welfares loss to the livestock industry.
Policies to Reduce Livestock Industry’s Carbon Emissions from Livestock Digestions
Economic concern for negative externalities brought about by greenhouses gas emission for livestock digestions can be rectified through appropriate policy interventions which include direct livestock methane tax on the producers for those that emit greenhouse gases. This will provide a clear guideline on rational decisions which stimulates innovation of low-carbon technologies. The Australian governments have adopted an emission trading scheme (ETS) which came to effect on 1st July 2012 with a fixed price. Taxing livestock red meat producers is a way to restore market perfection thus helping to recover from social costs that the consumers of the same product have incorporated. Producers of livestock will, therefore, transfer the tax price to consumers in form of price increase thus reducing consumption due to increase in price.
Use of technological advancements such as updated animal breeding which includes the selection of a generic line of cows and sheep that has lower methane emission i.e. feed conversion efficiency is the best way to tackle a long-term greenhouse gas emission from livestock in Australia. This will help to reduce a certain significant level of methane emission during the dry matter of digestion hence helps to minimize negative externalities caused to consumers and the community as a whole. Rumen manipulation is also another technological way through which predatory microbes help to reduce greenhouse gas emission from livestock digestions.
Finding a balance between increased livestock product usage both in Australia and developing countries and environmental conservation remains a major challenge. Increased greenhouses gas emission for the livestock digestion that affects health pattern of consumers can be resolved through close substitute products such as agricultural green meals including beans, peas, and green grams. Substituting livestock products with cereals that provides proteins will be the best option thus minimizing negative externalities that consumers incur without notice. This will reduce the demand for red meat from cows and sheep since they provide same diets (De Haan et al., 1996)
Conclusions
Negative externalities such as greenhouses gas emission from livestock digestion have no market incentive drives which can lead to perfect market equilibrium. It is therefore prudent for the Australian government to continuously implement the best economic policies such as the Pigouvian tax on the producers and users of new technologies that will continuously help to eradicate such problems. Consumers should also have alternative ways through which they can minimize usage of red meat like consumption of cereal products such as beans and peas. Even though livestock product is relatively low in price for developing countries where population keeps on increasing at a larger proportion, conservation of the environment through a carbon neural by 2030 still remain a major goal for the Australians.
Reference
Abare (2008). Australian Commodities. Retrieved from www.abareconomics.com
(Accessed on 27. 04.2018)
Department of Climate Change (2008) National Greenhouse Gas Inventory 2006. (Commonwealth of Australia: Canberra).
De Haan, C., Steinfeld, H. and Blackburn, H. 1996. Livestock and the Environment: Finding a balance. Draft Summary Report. FAO/World Bank.
Environmental Protection Agency (2010). International Anthropogenic Methane Emissions: Estimates for 1990 and 2010. Washington DC: Office for Policy, Planning and Evaluation
Rezai et al (2009). Global warming and Economic Externalities. Working paper 2009-3 Schwartz Centre of Economic Policy Analysis. Department of Economics.
