Post on 28-Jul-2015
INCENTIVISING CLIMATE-SMART
AGRICULTURE
Alan Matthews
Professor Emeritus of European Agricultural Policy
Trinity College Dublin
Presentation to the Institute for International and European Affairs
5 June 2015
Climate-smart agriculture
• Climate-smart agriculture involves sustainably increasing
agricultural productivity and incomes, adapting and
building resilience to climate change, and reducing
greenhouse gases emissions where possible
• (UN Climate Summit 2014).
• Today, will only talk about the first and last aspects and
will not discuss adaptation for lack of time
2
The issue
Don’t blame
me! I’m only
doing my best
to produce milk
and meat to
satisfy human
needs
… but she’s also producing greenhouse
gas emissions without realising it
4
Perceptions and cost
• Greenhouse gas emissions are a negative externality
• Causes unpriced damage
• But invisible, long-term, far-away, global
• Compare to water pollution
• Very difficult for farmers to comprehend (Bogue, 2013)
• But emissions are a real cost. Placing a value on carbon
is important to ensure effective incentives are in place to
tackle climate change
• Measured either by
• Social cost of carbon – the marginal damage cost of emissions
caused by emitting 1 additional unit of carbon to the atmosphere
• Carbon price - the marginal abatement cost to the state of meeting
targets set by international commitments
5
EU targets
• Emissions Trading Sector (ETS)
• Energy and energy-intensive industry
• EU-wide target
• Non-ETS sector
• Transport, agriculture, housing, waste, small industry
• National targets set by the Effort-Sharing Directive
6
Target and flexibility mechanisms - 2020
• 2020 target
• Irish target is 20% reduction in non-ETS emissions by 2020 relative
to 2005 (10% average for EU)
• Flexibilities
• Annual targets, but banking and borrowing allowed across years
• Use of transfers from other Member States
• Limited use of international credits from project activities
• Land Use, Land Use Change and Forestry (LULUCF) not included
• Recognised that this target was relatively more stringent (implying
higher carbon price) in Ireland than in other MS
7
Target and flexibility mechanisms - 2030
• 2030 target • 30% EU-wide reduction in non-ETS emissions
• National targets to be distributed on basis of relative GDP per capita spanning from 0% to -40%, taking account of cost-effectiveness for countries with above-average GDP per capita.
• Coherence between EU’s food security and climate change objectives to be ensured
• Flexibilities • International offsets will not be counted
• Possibility of transfers between MS will be significantly enhanced
• Possibility to offset non-ETS emissions with ETS allowances mooted
• Policy proposal how to include (LULUCF) in the mitigation framework to be brought forward before 2020
8
Separate methane targets?
• EU Clean Air Programme
• Revision of the National Emissions Ceiling Directive 2013
• Establishes new national reduction commitments for
ammonia in 2020 and 2030 as well as for methane in
2030
• Proposed EU-wide methane reductions up to 30% in 2025
and 33% in 2030 compared with 2005, differentiated by
Member State
• Ireland’s proposed targets (-7% for both ammonia and
methane by 2030) the lowest for any MS
9
Estimates of cost of carbon
• Social cost of carbon
• Current UK government guidance for policy appraisal include
central estimates for 2010 of £14/tCO2e for sectors covered by the
EU Emissions trading scheme (ETS) and £52/tCO2e for non-ETS
sectors, both rising over time to £200/tCO2e in 2050 at 2009 prices
(DECC 2010)
• Carbon price
• EPA estimate is for €2010/tCO2 of €20 in 2020 and €57 in 2035
(EPA, 2015)
10
Costing livestock GHG emissions, 2012 data
with estimated carbon costs 2020 and 2030-35
Cost of GHG emissions 2020 2030-35 Source
Dairy Beef Dairy Beef
Carbon tax €2010/tCO2 20 20 57 57 EPA GHG Projections Report, 2015
Production (milk in million litres, beef in tonnes cwt)
5,232
495,400
5,232
495,400 CSO Statistical database
Value of production, €m
1,630
2,120
1,630
2,120
CSO Output, Input and Income Arising in Agriculture
Total CO2e emissions (million tonnes)
5.32
11.38
5.32
11.38
Own calculations based on EPA National Inventory Report 2015
Total cost (€ million)
106.4
227.6
303.2 648.8
Average value (litre, kg), € 0.31
4.28 0.31 4.28
Cost of GHG emissions as % of sales value 6.5% 10.7% 18.6% 30.6%
Cost per unit (€/l, €/kg) 0.02 0.46 0.06 1.31 Source: Own calculations
11
The agricultural industry narrative
• Irish agriculture is, relatively, highly carbon efficient
• Restricting Irish production flies in the face of the world’s
increasing demand for food
• Restricting Irish production means production moves to
less carbon-efficient areas, increasing global emissions
• Abatement is difficult, so focus should be put on reducing
emissions intensity
• These are all arguments to be made in setting Ireland’s
target, but when the target is set, they become irrelevant
• Target is absolute and must be met in absolute terms.
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CO2e emissions per hectare, EU countries 2012
Ireland is carbon-
efficient but not a low-
emission agriculture
Source: FAOSTAT
Agricultural emissions and food consumption
• IPCC inventories (and EU targets) aim at measuring and
reducing production of emissions.
• At global level, increasingly recognised that diet changes
towards less-carbon intensive diets (especially in
developed countries) are an important part of the solution
• Consumers should pay the full economic cost of food
• This implies both domestic production and imports must
be treated equally
• However, very limited pay-off in terms of meeting Irish
non-ETS targets from either changing food consumption
patterns or reducing food waste given IPCC accounting
rules
14
Trend in Emissions from Agriculture 1990-2012
Source: Duffy et al, EPA National Inventory Report 2015
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0
20
40
60
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100
120
1401
99
0
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91
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Ind
ex, 2
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0=1
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Agricultural output index, 1990-2014, 2020?
Food Harvest 2020?
18
Agricultural emissions have fallen in the
past because agricultural output has not
grown over the past quarter-century while
productivity improvement has meant fewer
cows and less nitrogen required
This will change due to ambitious growth
targets under FH2020
Projected sectoral share of non-ETS greenhouse gas emissions
in 2020 and 2035 for the With Additional Measures scenario
Source: EPA 2015
2020
2035
19
With Measures and With Additional Measures greenhouse gas
emissions projections for the non-ETS sectors to 2035
Source: Based on EPA 2015
Path to 30% reduction in non-ETS
emissions by 2030 extended to 2035
21
Possible
scale of
reduction
required
Responses
• Emissions reduction
• Changes in farm management practices and introduction of
technological options to reduce emissions intensity of output
• Shifts to less emissions-intensive land uses
• Carbon sequestration
• Forests
• Agricultural soils
• Avoided emissions elsewhere
• Bioenergy
• Wood products
23
Marginal abatement cost curve
• Measures the cost and abatement potential associated
with different potential abatement measures
• Irish MAC curve based on Teagasc research on mitigation
measures
• Considers measures to reduce emissions intensity but
does not focus on options to switch land use to less
emission-intensive or sequestration activities (only
bioenergy options)
• Actual vs technical potential – why are the large win-win
options not already exploited?
24
Farming and ‘avoided emissions’ in other sectors
• Farming has the potential to produce bioenergy (solid,
liquid, gas) which can replace (fossil) energy use in the
heat, transport and electricity sectors
• Controversial because of potential competition with food
production and because total GHG emission savings are
questioned
• Credits for use in electricity generation (co-firing in peat
plants) lower demand for allowances in the ETS sector
• Some potential (e.g. solid fuel heating, biogas) to reduce
fossil fuel use for heat on farms, institutions and homes,
indirectly contributing to meeting non-ETS target
27
Prospects for carbon sequestration
• Awaiting Commission proposal on how LULUCF sector
will be treated in meeting 2030 targets
• Measuring soil carbon stocks
• High spatial variability within fields
• Annual changes in stocks are small relative to total store, so long
period (5 years or more) needed to reliably detect and measure
stock changes
• Forestry is a potential sink in Irish circumstances
28
Trend in Emissions and Removals from Land
Use Land-Use Change and Forestry 1990-2012
Source: Duffy et al, EPA National Inventory Report 2015
29
Climate Action and Low Carbon
Development Bill 2015
• The Bill sets out the national objective of transitioning to a
low carbon, climate resilient and environmentally
sustainable economy in the period up to and including the
year 2050.
• ….
• “the need to achieve the objectives of a national mitigation
plan at the least cost to the national economy and
adopt measures that are cost-effective and do not impose
an unreasonable burden on the Exchequer”
32
Treatment of agricultural emissions
internationally
• Voluntary incentive schemes
• United States, EU countries
• Inclusion in compliance offset schemes
• California’s mandatory cap-and-trade, offsets can amount to 8% of
the allowance, including agricultural projects in US, Canada and
Mexico
• Australia 2011 Clean Energy Bill, those liable can cover up to 5% of
their obligations with domestic agricultural and forestry credits
certified by the Carbon Farming Initiative
• Canada: included ‘cropland management’ under KP Article 3.4
• US: land use offsets were proposed in failed Waxman-Markey cap-
and-trade bill
• Voluntary offset scheme operate in various EU countries
33
Treatment of agricultural emissions
internationally
• Inclusion in carbon levy/cap-and-trade scheme
• New Zealand had proposed in include agriculture in its ETS from
Jan 2015, with compliance obligations set at processor and
fertiliser supplier level
• Withdrew the proposal in 2013
• The Government indicated biological emissions from agriculture will
only incur surrender obligations if there are technologies available
to reduce these emissions and its international competitors are
taking sufficient action on their emissions. Agricultural producers
are still required to report on their emissions.
• Vigorously pursuing research on mitigation options in the livestock
sector
• However, NZ does not face a binding cost on excess emissions as
Ireland does.
34
CAP policy instruments post 2014
• Pillar 1 greening measures
• Require crop diversification on larger tillage farms
• Require Ecological Focus Areas on larger tillage farms
• Maintain permanent pasture area at national level
• Cross compliance GAEC 4-6 address soil carbon maintenance
• Pillar 2 Ireland’s Rural Development Programme
• Encouragement to organic farming
• Investment grants
• Measures under GLAS agri-environment scheme
• Beef Data and Genomics Programme
• Knowledge development and transfer
• Other
• Roll-out of the Carbon Navigator
• No indicators or targets set for desired GHG reduction
35
Competing incentives affecting land use
• Returns to agriculture, forestry and bioenergy uses of land
in Ireland heavily influenced by public policies
• Agricultural land use supported by direct payments (SFP/BFP),
LFA/ANC payments, and REPS/AEOS/GLAS payments
• Discouragement to forestry significantly reduced by the ability to
stack SFP entitlements 2005-2014 and by payment of BFP to land
afforested since 2009, but some negative incentives remains
• Incentive structure could change in future even in
absence of climate policy
• Design and size of CAP budget after 2020
• Impact of possible trade agreements (Doha, TTIP)
36
If farmer rents out land for grazing only, average rent per hectare in recent
years has varied between €250-350 depending on region, source: SCSI 2014
Cost of carbon emissions not included
37
If farmer rents out land for grazing only, average rent per hectare in recent
years has varied between €250-350 depending on region, source: SCSI 2014
Cost of carbon emissions not included
38
Investment performance of afforestation with
alternative superseded agricultural enterprises.
39
Source: Breen, Clancy, Ryan and Wallace, 2010
Forestry (with grants) shows positive return relative to alternative
agricultural uses of that land, yet planting rates remain low
Annual state and private afforestation,
1922-2013
40
Source: Ireland’s Forests, Annual Statistics 2014
Planting rates
falling, despite
eligibility for
SFP since 2005
Planting rates
falling, despite
eligibility for
SFP since 2005
Assumptions 80% Sitka spruce Yield class 16, 20% beech Yield class 6 GPC 3 grant and premia rates, fencing grant excluded Preferential tax treatment (income from sales of timber exempt from tax) not taken into account 40 year planting cycle Carbon sequestration rates assumed averaged over cycle Sitka spruce 3.6tC/ha, beech 2.4tC/ha (Byrne and Black, 2003)
41
If we assume that state support for private forestry is justified solely
because of the carbon sequestered, the level of support seems more
than adequate. But forestry still competes on an unlevel playing field
because carbon emissions from alternative enterprises are not priced
Some conclusions
• Increased agricultural output should be encouraged,
provided all costs are fully accounted for.
• Other sectors in the non-ETS sector pay a carbon tax
(fuel, heating)
• Carbon values of forestry sequestration and bioenergy
are, at least implicitly, recognised….
• … but carbon emissions from agricultural production are
given a free pass, despite the evidence of significant
abatement opportunities at negative cost to farmers
• In the context of a constraining ceiling for non-ETS
emissions, this is neither efficient nor sustainable
42
But jobs and carbon leakage?
• Jobs
• Pricing biological carbon emissions on the same basis as carbon
emissions in other sectors of Irish economy would encourage a
reallocation not a loss of jobs
• Revenue raised stays in the country, unlike purchase of carbon
permits from abroad
• Carbon leakage and competition
• Potentially to third countries or to EU countries where agriculture
has lower tax rate or remains untaxed – unlevel playing field
• Hugely desirable to get commitment for level playing field on
carbon pricing for agriculture throughout EU
• How to address unfair import competition will become clearer after
we see shape of Paris COP 2015 deal
43
The bottom line
• For the incentive effects of a carbon charge to be effective,
farmers need to get credit for the changes that they make
• A challenge for inventory acounting to capture relevant reductions
• If Ireland were the only country in the EU, or the world, to
properly price its biological carbon emissions, this would put
Irish agriculture at a large competitive disadvantage
• Possible solution is to proceed with introducing carbon charge
system but to introduce charge initially at a low rate until critical
mass of countries has caught up
• Under cap-and-trade system, existing emissions could be
grandfathered and charge applied to marginal quantities
• Acting first would be a credible supplement to Origin Green
claim that Ireland is world leader in sustainable agriculture
44