Pursuing higher environmental goals for agriculture in an interconnected world

Abstract

Governments in many countries are pursuing higher environmental goals for agriculture. However, in an interconnected world, the unilateral adoption of environmental policies for agriculture can reduce the producers' competitiveness and induce pollution leakage. This report analyses these challenges and discusses policy solutions, focusing on two examples: climate change mitigation policies and policies limiting the environmental impacts of pesticides. The extent of competitiveness and leakage effects is found to depend on market conditions, differences in pollution intensity, and the type of environmental policy adopted. Two policy routes are identified to improve agriculture's environmental performance while maintaining the benefits of global markets. The first route relies on "direct" environmental policies, such as market-based instruments or regulations, which are rapidly effective in limiting environmental impacts but may require additional complementary policies to limit their potential competitiveness and leakage impacts. The second route involves alternative policies acting on agricultural supply, demand, or through private sector engagement, which limit competitiveness and leakage impacts but may require time to be environmentally effective.