Differentiating Climate Efficiency in Agrifood Systems: A Stylised Simulation Model With Carbon Opportunity Costs

ABSTRACT The agrifood system generates around one‐third of global greenhouse gas emissions, driven by land use and land‐use change. Existing policy assessments focus on net emissions changes, overlooking efficiency losses within market dynamics and the carbon sequestration potential of land. This study enhances agrifood policy assessment by extending ex‐post model reporting and differentiating efficiency changes on the supply and demand side. As proof of concept, a simplified partial equilibrium model with two regions and two commodities simulates different taxation and subsidisation schemes. Incorporating carbon opportunity costs to capture land's carbon sink capacity alters efficiency rankings of production sites and commodities and changes the assessment of policies' climate impacts. Disaggregating climate efficiency into supply and demand side reveals efficiency losses obscured when assessing solely net emission changes. Accounting for carbon opportunity costs and differentiating between supply‐ and demand‐side efficiency reveals effects that net emission reporting does not capture and can, thus, inform policy design. This contribution is best read as a methodological proof of concept. Additionally, we describe the steps and the challenges to integrate the developed framework into a full‐scale simulation model for applied policy analysis.