CO2-driven crop comparative advantage and planting decision: Evidence from US cropland

Abstract

In addition to the well-known per-acre yield benefits, elevated CO₂ also influences cropping patterns. An important characteristic of CO₂ fertilization is that C3 crops exhibit a more pronounced response to elevated CO₂ levels in comparison to C4 crops. Such differential responses of C3 and C4 crops to increasing CO₂ levels are likely to alter cropping patterns in favor of C3 crops, as CO₂ provides C3 crops with a comparative advantage. This study empirically investigates the CO₂ effects on the corn and soybean acreage, the most representative C4 and C3 crops, in the U.S. Employing an instrumental variable that exploits exogenous variation driven by wind, I find that a one-ppm rise in CO₂ significantly reduces the corn acreage by 1.19% and increases the soybean acreage by 1.51%. The CO₂-driven shrinkage in corn acreage may involve switching to soybeans, spring wheat, and cotton, with CO₂-driven soybean expansion achieved by replacing corn and sorghum. Neglecting the CO₂-driven acreage shift would lead, according to the forecast simulations, to an underestimation of the CO₂ fertilization effect on soybean production and an overestimation of the CO₂ fertilization effect on corn production. Given the diverse uses of corn and soybeans, such shifts in their acreage and production could have important implications for multiple sectors and market dynamics.