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Institutional aspects of policies for climate change mitigation in agriculture – reflections on experience
with agri-environment schemesIan Hodge
Department of Land EconomyUniversity of Cambridge
Workshop on mitigation of CO2 emissions by the agricultural sector
Bergen, 3rd-4th October 2011
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UNIVERSITY OFCAMBRIDGEDepartment of Land Economy
Institutional aspects of policies for climate change mitigation in agriculture – reflections
on experience with agri-environment schemes
• GHG emissions and mitigation options• Comparison with agri-environment policy• Reference level and policy approaches• Possible mechanism design for GHG
mitigation• Conclusions
2Department of Land Economy
Emissions of GHG from agriculture• Globally:
– 14% GHG emissions from agriculture• 47% of global CH4 (esp.
enteric fermentation in livestock digestion)
• 84% of global N2O (esp. from N and manure application to soils)
– 17% GHG emissions from land use change• Land use change (esp.
deforestation)
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Proportion of global carbon emission from various sources, 2004 (Intergovernmental Panel on Climate Change, 2007)
Department of Land Economy
Main sources of GHG emissions in agriculture
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Source: Smith et al. 2007
Western Europe Global
N2O soils
CH4 enteric
CH4 rice
CH4/N2O manure
CH4/N2O burning
Department of Land Economy
GHG emissions from agriculture(Sample of farms in England)
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Mean GHG emissions per ha
-2
0
2
4
6
8
10
12
14
Cereals Dairy General Hortic. LFA Lowland Mixed Nature Cropping Grazing Grazing Reserve
Average GHG emissions per hectare by farm type (CO2-eq/ha)
0
2
4
6
8
10
12
14
GH
G e
mis
sio
ns
(t/h
a)
mean CO2
mean N2O
mean CH4
Natural England. (2008). Carbon Baseline Survey Project
Department of Land Economy
GHG mitigation options in agriculture
• Reducing GHG emissions– Changes to agricultural production systems
• Enhancing removals– Carbon sequestration
• Displacing emissions outside agriculture– Biomass (direct combustion) and biofuels
(esp for transport)• Changes to demand and supply chain
– Reduced meat consumption, reduced transport and packaging, more seasonal, reduced waste
6Department of Land Economy
GHG mitigation in agriculture
• N2O– Crop management– Fertiliser efficiency– Manure management– Reducing manure-N
• Methane– Reduced enteric fermentation– On-farm / centralised anaerobic
digestion
7Department of Land Economy
Short-listed crops/ soils abatement measures
• Using biological fixation to provide nitrogen inputs (clover)• Reduce nitrogen fertiliser• Improving land drainage• Avoiding nitrogen excess• Full allowance of manure nitrogen supply• Species introduction (including legumes)• Improved timing of mineral fertiliser nitrogen application• Controlled release fertilisers• Nitrification inhibitors• Improved timing of slurry and poultry manure applications• Systems less reliant on inputs (nutrients, pesticides, etc)• Plant varieties with improved nitrogen use efficiency• Separate slurry applications from fertiliser applications• Reduced tillage/ no-till• Use composts, straw-based manures in preference to slurry
Moran et al. 20118
Indicative mitigation options in agriculture: some low hanging fruit?
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Carbon sequestrationLand as longer term store of carbon
• >90% terrestrial carbon in soils (rather than vegetation)
• Land use change is major source of GHG emissions– Preventing change (esp deforestation)– Promoting change (esp afforestation, nature
reserve)• Land management practices to
increase soil organic carbon, eg– Zero tillage– Reduced erosion and leaching– Biochar
10Department of Land Economy
Policies for reducing emissions
• Policy focus on carbon to date• Complexity:
– Multiple potential approaches to different GHGs to be implemented across substantial proportion of sector
– Farm specific cost-effective changes for mitigation– Mitigation externalities (side effects on GHG
emissions and impacts on other ecosystem services)• Implies many possible marginal changes to
agricultural systems:– Manure management and applications– Animal diets– Anaerobic digestion
• What policy mechanisms to influence systems and management practices at micro level?
11Department of Land Economy
Issues in the evolution of agri-environment policy
• Defining the reference level• Developing contracts (inputs and outputs)• Addressing asymmetric information (or not)• Intensive and extensive margins• Targeted and deep v. Broad and shallow (optimal
transactions costs)• Policy evaluation• Other issues
– Co-ordinating actions– Long term security
Department of Land Economy 12
Comparison with agri-environment policy
• Public policy objectives to deliver public goods• Environmental objectives:
– Threats to conservation from land use intensification: but uncertainty as to precise outcomes wanted
– Clear objective for GHG mitigation
• Political economy:– Agri-environment context of CAP surpluses:
• Exchequer savings from reduced production• Redirection of existing farm budget
– International pressures to deliver GHG mitigation
Department of Land Economy 13
Possible approach to voluntary climate mitigation contracts
• Define reference level• Identify farm-level actions• Calculate GHG reductions from units of action• Offer and allocate contracts to undertake
identified actions• Monitor and enforce• Evaluate
Department of Land Economy 14
Defining property rightsPublic goods and environmental damage
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Public goods
LandscapeBiodiversity External benefits: Provider gets principleEcosystem functionsCommunity support_____________________Reference level for environmental quality_____
Environmental damage
Soil erosionWater pollution External costs: Polluter pays principlePesticides in the environmentAtmospheric emissions
Department of Land Economy
Policy approaches
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Social optimumEnvironmental quality
Private optimum
Reference level
Provider Gets Principle
Polluter Pays Principle
Department of Land Economy
Defining a reference level for GHG emissions
• Regulatory baseline• Cross-compliance for standard policy
subsidy?• Code of good agricultural practice• Property rights in carbon in land
Department of Land Economy 17
Property rights in carbon• Reference level of carbon in soil
and on land?• Carbon retention depends on land
management • What duties to protect existing
carbon? (eg upland moorland soils)• Incentives and land management
for carbon sequestration?
18Department of Land Economy
Defining the reference level for carbon in soils
• Possible standards:– Current status– Average for region– Expected level under ‘good’ land
management• Payments to exceed level and
penalties for falling below it• Measurement of carbon levels in
practice on particular sites19Department of Land Economy
Hierarchy of approaches in agri-environment policy
Conservation ownership
Regulation
Cross-compliance: SMR & GAEC
Entry Level Stewardship
Higher Level Stewardship
Designated sites
Land Area
Conservation intensity
Department of Land Economy 20
Criteria for designing a policy mechanism
• Precision: achieving desired objectives at least cost
• Transactions costs: costs of introducing, implementing, monitoring and enforcing
• Dynamic incentives: capacity to responding to changing information and circumstances
• Co-benefits: impacts of other policy objectives• Equity/ fairness: treatment of stakeholders
affected by policy and its general acceptability
21Department of Land Economy
Environmental contracts for GHG mitigation
• Limited information on GHG impacts and limits to measurement and monitoring
• Multiplicity of options within different agricultural systems– Asymmetric information – principal cannot know costs or cost-
effective options– Limited differentiation by location – no basis for spatial
targeting• Identifiable target outcomes (GHG mitigation) of equal value in all
cases• Correlated with delivery of other ecosystem service outputs• Subject to changing technology and prices over time – flexibility
Department of Land Economy 22
Potential mechanism design• Payments for changes in farm activities (inputs rather than
outputs)• Degree of information asymmetry: use of competitive
allocation• Ecosystems approach: integrate with delivery of other
services• Coverage across large proportion of farmed land: availability
to all farmers?• Low transactions costs per farmer enrolled• Alternative models:
– Ranking bids: environmental benefits index (CRP)– Fixed payment for combination of measures (ELS)
Department of Land Economy 23
Ranking bids: environmental benefits index(Conservation Reserve Program model)
• Menu of options for management changes offered to appeal to range of different farm circumstances
• Farmers invited to offer to implement options and the price for which they would be adopted
• Bids assessed in terms of predicted GHG mitigation, other ecosystem service co-benefits and price against environmental benefits index
• Bids ranked and accepted within available budget• Monitoring and enforcement
Department of Land Economy 24
Fixed payment for combination of measures(Entry Level Stewardship model)
• Menu of options for management changes offered to appeal to range of different farm circumstances
• Points associated with individual options• Farmers required to adopt options so as to attain a
total number of points dependent on holding area• Farmers meeting requirement can enter scheme• Monitor and enforce
Department of Land Economy 25
Implications of alternative models
• CRP approach promotes efficiency and constrains public expenditure
• ELS establishes right to payment irrespective of counterfactual or individual cost. Flexibility promotes cost effective solutions (st generating equal GHG mitigation). Transfers surplus to participants
Department of Land Economy 26
Further policy extensions
• Promotion of co-ordination amongst farms (eg anaerobic digestion)– Policy framework and institutional
arrangements for internal decision-making (eg environmental co-ops)
• Long term security for carbon sequestration– Use of covenants/ easements and alternative
landownership– Potential markets via offsetting
Department of Land Economy 27
Policy options for carbon sequestration in land
Regulation
Carbon Market
Environmental contracts
Precision Low High High
Transactions costs
Low High High
Long term security
High Medium Low
Dynamic incentives
Low Medium Medium
Co-benefits Low Low High
Equity/ fairness Low?? High High
28Department of Land Economy
Conclusions• Wide variety of (often minor) changes required but
also some fundamental, long term changes in land use
• Uncertainty as to least cost technology and options
• Asymmetric information and need for an adaptive approach
• Need for explicit reference level
• Policy should cover large proportion of farm sector
• Low transactions costs per entrant
• Competitive tendering to address information problem
• CRP and ELS illustrate the sort of approach implied
• Further consideration for co-ordinated action and long term security
29