Options to overcome the barriers to pricing European agricultural emissions

Abstract

Although agriculture could contribute substantially to European emission reductions, its mitigation potential lies untapped and dormant. Market-based instruments could be pivotal in incentivizing cost-effective abatement. However, sector specificities in transaction costs, leakage risks and distributional impacts impede its implementation. The significance of such barriers critically hinges on the dimensions of policy design. This article synthesizes the work on emissions pricing in agriculture together with the literature on the design of market-based instruments. To structure the discussion, an options space is suggested to map policy options, focusing on three key dimensions of policy design. More specifically, it examines the role of policy coverage, instruments and transfers to farmers in overcoming the barriers. First, the results show that a significant proportion of agricultural emissions and mitigation potential could be covered by a policy targeting large farms and few emission sources, thereby reducing transaction costs. Second, whether an instrument is voluntary or mandatory influences distributional outcomes and leakage. Voluntary instruments can mitigate distributional concerns and leakage risks but can lead to subsidy lock-in and carbon price distortion. Third, the impact on transfers resulting from the interaction of the Common Agricultural Policy (CAP) with emissions pricing will play a key role in shaping political feasibility and has so far been underappreciated.Bien que l'agriculture puisse contribuer substantiellement aux réductions d'émissions européennes, son potentiel d'atténuation reste largement inexploité. Les instruments économiques pourraient jouer un rôle essentiel dans l'atteinte d'objectifs d'atténuation à moindre coût. Cependant, les spécificités de ce secteur en terme de coûts de transaction, de risques de fuite et d'impacts redistributifs entravent leur mise en œuvre. L'importance de ces barrières dépend étroitement de la conception des politiques publiques. Cet article synthétise le travail sur la tarification des émissions dans l'agriculture. Un ensemble d'options est proposé et analysé selon trois dimensions clés de la conception des instruments de politiques publiques : leur couverture, leur type et les transferts aux agriculteurs

Land Use, Livestock, Quantity Governance, and Economic Instruments—Sustainability Beyond Big Livestock Herds and Fossil Fuels

“…This is also due to the fact that e.g., meat taxes, feed taxes or N levies only address individual aspects of livestock products (more detailed on this [18] (pp. 341-351), [80,81,88,89]). Instead, as announced, a cap-and-trade approach and a livestock-to-land ratio will be discussed in the following, as well as a possible combination of both policy approaches.…”

“…Kazakhstan currently considers implementation of a comprehensive trading scheme [94] (p. 124), [95] (p. 8). The planned introduction in New Zealand, together with some publications on emissions trading in agriculture, provides some ideas for the analysis below [15,18,19,21,88,89,96]. In any case, several detailed questions must be answered in any cap-and-trade system (auctioning or free issuance of allowances; flexibility of allowances; exact trading periods; trading platforms; market intervention mechanisms for possible market stabilisation).…”

“…Those questions are analysed in the following, based on the objective in Article 2 paragraph 1 PA and the above-mentioned findings on governance problems (and behavioural motivation). These questions concern norm addressees, selected governance units or control parameters and along with it the emissions recorded, whether a system is binding, a cap in accordance with the objective pursued as well as effective controls and sanctions [15,89,90]. Since Article 2 paragraph 1 PA implies zero emissions in two decades, the emissions cap would have to be chosen in a way that the remaining emissions can be offset through the management of land, forests and in particular wetlands, as has already become clear [97] (pp.…”

“…In addition, the definition of a minimum size of farms poses further problems as this would create incentives to circumvent emissions trading by dividing livestock farms into smaller plants. Also, a complex fight about the minimum size for regulation might likely lead to a political dead lock [89], [104] (p. 208). Furthermore, such a partial regulation could also be regarded as suffering from a lack of rigour with regard to the Paris climate target.…”

“…An emission calculation at farm level seems obvious because emissions-as with the existing EU ETS [101]-would be recorded where they occur. Their determination at farm level could, for example, include information on mineral fertiliser and feed purchases, feed cultivation areas, feeding, soil cultivation methods, manure management and livestock numbers [89] (p. 17), [96] (p. 665). The advantage of this option is that climate-friendly practices would be directly encouraged as particularly climate-friendly farmers would be rewarded.…”