FASOMGHG contains accounting procedures which calculate GHG emissions, sequestration, and bioenergy offsets by the forestry and agricultural sectors includ­ing land use changes. Usage of crop residues and energy crops for the ethanol or electricity production replaces gasoline and coal-related emissions. At the same time, hauling and biomass processing produce emissions, also accounted for in the model. All GHGs are converted to a carbon dioxide equivalent (CO2e) basis using 100-year global warming potential (GWP) values (Beach et al. 2010). Table 1 pro­vides examples of GHG categories.

CO2e pricing (or GHG pricing) is modeled as a market payment for the reduction in net emissions (i. e., a reduction from baseline emissions or an increase in sequestration or bioenergy offsets). It also serves as a tax on net emissions increases such as an increase in hauling emissions associated with bioenergy production. GHG payment variables are created which pay a per ton price to the change in each GHG account relative to the baseline. The GHG payments can be either positive or negative in each account based on the net change in GHG (Beach et al. 2010). Table 2 presents the GHG prices in dollars

Carbon emissions from agricultural use of fossil fuels Carbon sequestered in agricultural soil Carbon sequestered in trees Carbon sequestered in forest products

Carbon emissions from gasoline use offset by conventional ethanol production

Carbon emissions in hauling for conventional ethanol production Carbon emissions in processing of conventional ethanol production Carbon emissions from gasoline use offset by cellulosic ethanol production

Carbon emissions in hauling for cellulosic ethanol production Carbon emissions in processing of cellulosic ethanol production Methane emissions from enteric fermentation by animals Methane emissions from animal manure Nitrous oxide emissions from crop fertilization Nitrous oxide emissions from animal manure

Source Adapted from Beach et al. (2010)

Table 2 GHG prices used in GHG prices used in the model (in $/ton of CO2e) the model (GHG price signal)

$0

$1

$5

$12

$15

$30

$50

$100

per ton of CO2e (in terms of their global warming potential[13]) which are used in the model.

GHG payments are designed to internalize the negative externality arising from GHG emissions. Not only do they provide incentives for use of agricultural and bioenergy activities that reduce net GHG emissions, but also they can make emis­sion efficient ethanol production more profitable by adding revenue streams. The magnitude of these GHG payments is determined by the amount of GHG emission offsets provided.

The GHG prices, used in this study, range from $0 per metric ton of CO2e to $100. Currently, carbon trading and CO2e prices are in effect in the European Union, under the European Union Emission Trading Scheme. Between 2005 and 2007, the GHG price peaked at $40 per ton. In 2008-2012, the price fluctuated between $9 and $40 per ton. The lowest carbon price happened in January 2013 at $4 per ton. The USA also had a voluntary trading system called the Chicago Climate Exchange. This exchange operated between October 2003 and July 2010 with a price in the range of $0.05-7.50 which subsequently closed. According to EPA estimates, the carbon price would need to rise from about $20 per ton in 2020 to more than $75 a ton in 2050 for the CO2 level in the atmosphere in 2050 to be 83 % less than it was in 2005 (Feldstein 2009). These higher carbon prices will be transmitted into higher prices of carbon dioxide intensive goods and services. Feldstein (2009) argues that the burden of higher carbon prices would mostly fall on households.