Enhancing Climate Change Mitigation through Agriculture by OECD

Author:OECD
Language: eng
Format: epub
Tags: environment/agriculture
Publisher: OECD Publishing
Published: 2019-10-16T00:00:00+00:00

Conclusions

There is increasing policy interest in exploring means to reduce GHG emissions in agriculture. Studies have shown there is a diversity of technical measures that farms could undertake with varying cost-effectiveness, but the policy levers to encourage their uptake has not been studied as much. This chapter addresses this gap by assessing the relative effectiveness and cost effectiveness of key GHG mitigation policy instruments in reducing emissions from crop and livestock (focusing on dairy) production. It looks at six policy instruments: an emission constraint, emission tax, abatement subsidy, input tax on nitrogen fertiliser, input tax on ruminant heads, and emissions trading, and applies these to the European Union. To do this, a detailed quantitative bio-economic farm model covering both production activities was developed and applied to farms representing a diversity of regional-level situations in Europe, drawing on data from the CAPRI database. On the basis of these data, four representative farms from four EU countries were developed to illustrate how differential crop and milk productivity and production costs affect the GHG mitigation effectiveness and costs of policies.

Consistent with other studies about GHG mitigation in European agriculture, the results show rather high abatement costs in mixed dairy and crop production, at least when targeting large GHG emission reduction. Study results confirm that the market-based instruments based on all GHG emissions (GHG emission tax, GHG abatement subsidy, and cap-and-trade scheme) are the most cost-effective options for GHG mitigation in agriculture. Moreover, results show it pays to target GHG emissions broadly, since the policy instruments that target all GHG emissions from farms are more cost-effective than the instruments targeting only a subset of emissions or proxies of emissions (e.g. input tax on nitrogen fertiliser or input tax on ruminant heads). This is the case even when higher policy-related transaction costs (related to monitoring, reporting and verification of emissions) are accounted for, in particular for a GHG emission tax and a GHG abatement subsidy.

The results underline the importance of investment costs and the planning horizon when evaluating GHG abatement strategies and costs in crop and dairy production. Investment costs lead to substantially different reactions by farms in the short and long run. In the short run, investment costs are sunk and farms continue dairy operations as long as market revenues exceed variable costs of milk production (including any GHG tax payments or abatement subsidies). Dairy farming is labour intensive, and the impact of sunk investment costs is intensified if farm labour input has low or zero opportunity costs (that is, no off-farm employment opportunities). As a result, in the short run, reductions in GHG emissions are likely to be modest. Long-run calculations assume that farms face fixed costs of investment in dairy production. Under this assumption, the mitigation effectiveness of policy instruments increases. This, however, varies across farm situations. For example, in the case of a GHG emission tax, some farms start reducing the number of dairy cows with the lowest emission tax level of EUR 9/ton of CO2eq. Other farms start to adjust the size of their dairy operation only when the emission tax is EUR 50/ton of CO2eq.

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