THE CASE of MOSEL VALLEY VINEYARDS Orley Ashenfelter and Karl Storchmann*
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USING HEDONIC MODELS OF SOLAR RADIATION AND WEATHER TO ASSESS THE ECONOMIC EFFECT OF CLIMATE CHANGE: THE CASE OF MOSEL VALLEY VINEYARDS Orley Ashenfelter and Karl Storchmann* Abstract—In this paper we use two alternative methods to assess the consider difficult issues of functional form and specification effects of climate change on the quality of wines from the vineyards of the Mosel Valley in Germany. In the first, structural approach we use a by Schlenker, Hanemann, and Fisher (2005, 2006) and physical model of solar radiation to measure the amount of energy Descheˆnes and Greenstone (2006). These more recent stud- collected by a vineyard and then to establish the econometric relation ies generally find considerable heterogeneity in the expected between energy and vineyard quality. Coupling this hedonic function with the physics of heat and energy permits a calculation of the impact of any effects of climate change. Depending on the region consid- temperature change on vineyard quality (and prices). In a second ap- ered, climate change may lead to either positive or negative proach, we measure the effect of year-to-year changes in the weather on effects on land values, with considerable uncertainty about land or crop values in the same region and use the estimated hedonic equation to measure the effect of temperature change on prices. The the aggregate effect. Our approach follows this more recent empirical results of both analyses indicate that the vineyards of the Mosel work by studying a very specific area and type of crop and Valley will increase in value under a scenario of global warming, and by establishing the economic relation using time-series perhaps by a considerable amount. variation in the weather. As is well known, there are likely to be winners and I. Introduction losers from any potential climate change. The empirical results of both analyses are broadly similar and indicate that N this paper we provide and compare the results of two the vineyards of the Mosel Valley will increase in value Imethods for assessing the effects of climate change on the under a scenario of global warming, and perhaps by a quality of agricultural land using a rich set of data on the considerable amount. Vineyard and grape prices increase vineyards of the Mosel Valley in Germany. The first method more than proportionally with greater ripeness, so that we uses a structural model of solar radiation to measure the estimate a 3°C increase in temperature would more than amount of energy collected by a vineyard and then to double the value of this vineyard area, while a 1°C increase establish the econometric relation between energy and vine- would increase prices by more than 20%. yard quality. Coupling this hedonic function with the ele- The paper is structured as follows. In section II, we mentary physics of heat and energy permits a calculation of explain how solar radiation is captured by a vineyard and the impact of any temperature change on vineyard quality how an energy value can be calculated for each vineyard site (and prices). Although we show that this approach can, in using the basic physics of solar panel construction. Section principle, be applied to any crop grown on any land, the III discusses the data we use for the analysis, including the vineyards of the Mosel are a particularly attractive place to data on vineyard quality that we have constructed and the assess this method for measuring the effect that expected hedonic characteristics of the vineyards we study. In section climate changes may have on quality and relative prices. IV, we present the estimates of our hedonic model of Since the vineyards of this valley are situated near the far vineyard site quality, while section V contains our calcula- northern boundary feasible for grape production, they differ tions of the impact of possible climate change on the quality enormously in their suitability for grape growing. We show distribution of vineyard sites. In section VI, we report that this variability is due primarily to the extent to which estimates of the effect of time-series variation in the weather each vineyard is able to capture radiant solar energy, so that on wine prices and accounting profits and compare the these data provide a particularly credible experiment for implied estimated effects of climate change on land prices identifying and measuring the appropriate hedonic equation. with those we obtain from the cross-section model of The second method uses the so-called Ricardian approach vineyard quality determination. We summarize our findings applied by Mendelsohn, Nordhaus, and Shaw (1994) to the in section VII. study of effects of climate change on agriculture. Their empirical research, based as it is on hedonic models from II. Radiation Use Efficiency, Solar Panels, and highly aggregated data, has been critiqued and extended to Vineyards Received for publication October 16, 2006. Revision accepted for Commercial viticulture is found only between 35° and publication August 14, 2008. 50° latitude. Located between 49.61° and 50.34° latitude, * Ashenfelter: Princeton University; Storchmann: Whitman College and the vineyards of Germany’s Mosel region are thus at the New York University. We are indebted to many people in the Mosel Valley for assistance with cold limit for grape growing. As a result, all Mosel vine- our research, but particularly to Rita and Clemens Busch of Pu¨nderich. We yards depend on special site characteristics to ensure winter are indebted to Kym Anderson, Victor Ginsburgh, Robert Stavins, and survival and ripening (Gladstones, 1992). As we will show, especially Michael Greenstone for helpful comments on an earlier draft of this paper. We also thank two anonymous referees whose comments with these growing conditions, a good vineyard site must helped to substantially improve this paper. be, among other things, a natural solar panel, maximizing The Review of Economics and Statistics, May 2010, 92(2): 333–349 © 2010 The President and Fellows of Harvard College and the Massachusetts Institute of Technology Downloaded from http://www.mitpressjournals.org/doi/pdf/10.1162/rest.2010.11377 by guest on 02 October 2021 334 THE REVIEW OF ECONOMICS AND STATISTICS TABLE 1.—SOLAR RADIATION EFFICIENCY OF SELECTED CROPS highly dependent on the amount, kind, and density of a Crop RUEmax clouds, and it varies with time and place. For simplicity, engineers often calculate the so-called extraterrestrial radi- C4 species Sugarcane 2.0 Maize 1.8 ation, that is, the radiation that would be available if there Grain sorghum 1.7 were no atmosphere (Duffie & Beckman, 1991). This is the C3 species Potato 1.7 Wheat 1.6 simplification we will use to construct a measure of the Sunflower 1.6 differences in solar radiation input provided by the different Rice 1.4 vineyards of the Mosel Valley. Since all these vineyards lie Soybean 1.3 Other Tomato 1.5 in a very small geographical region, we know that differ- Cauliflower 1.1 ences across vineyards in total radiation are due primarily to Apple 0.8 differences in site characteristics, not to differences in the Grapevine (merlot) 0.7 weather. Sources: Sinclair and Muchow (1999), Environmental Protection Agency (2002), and Castelan-Estrada (2001). Figure 1 shows the extraterrestrial radiation on a horizon- a Maximum RUE in gram dry matter MJϪ1mϪ2 of intercepted solar radiation. tal surface for different geographical latitudes in the North- ern Hemisphere. It is apparent that there is a large difference the incoming solar radiation with its angle of incidence and in both the total amount of energy as well as its distribution orientation. over the year. While a plane at the equator receives the maximum energy amount of about 13.2 GJmϪ2aϪ1, the A. Radiation Use Efficiency incoming radiation decreases with increasing latitude. With an energy level of 9.1 GJmϪ2aϪ1 the Mosel-Saar-Ruwer Surprisingly, formal research on the influence of light on region obtains only two-thirds of the total maximum energy crop growth dates primarily from the late 1950s (De Wit, amount. Moreover, whereas the energy flux at the equator is 1959). Some twenty years later, Monteith (1977) provided comparatively evenly distributed, the radiation pattern be- the basis for calculating the quantitative relationship be- comes increasingly focused on June 21 the farther north one tween intercepted solar radiation (energy) and the amount of gets. Daily solar radiation in the North is even greater in the dry biomass produced. This relationship is expressed by the summer than at equatorial latitudes because of the North’s term radiation use efficiency (RUE), and it measures the long summer days. As figure 1 indicates, the farther north Ϫ Ϫ mass accumulation in gram dry matter per MJ 1m 2 of one goes, the less energy there is available during off-peak intercepted solar radiation. It is this biomass that represents times in late spring and late summer. For instance, at the end the economically valuable output of a plant. of October, the main harvest time for Riesling grapes in the Subsequent studies have estimated RUE for different Mosel valley, there is only a photon flux of 13 MJmϪ2dayϪ1 crops (Sinclair & Muchow, 1999), and this research contin- compared to 37 MJmϪ2dayϪ1 at the equator, that is, only ues today. It is likely that the RUE is fairly similar for the one-third of the maximal achievable amount. members of a specific crop but varies significantly among This energy deficit at high latitudes can be remedied by crop species. As shown in table 1, C4 species such as maize, the right slope. Figure 2 shows the solar radiation for the sorghum, and sugarcane have significantly higher RUE than Mosel city of Trier (49.8° north) by inclination (assuming a do the C3 species, such as potatoes, wheat, barley, rice, southern orientation).