ball, environment, grass

Towards EU carbon farming legislation: what is the role of the ETS?

Jonathan Verschuuren, Professor of International and European Environmental Law at Tilburg Law School

This is the first in a series of blogposts on a new project which we, at Tilburg Law School, have embarked on.[1] The projects starts from the recognition that the Paris Climate Agreement goals can only be achieved when greenhouse gas emissions from agriculture and land use are reduced and the sequestration capacity of these sectors is fully utilized. In most countries around the world, including in the EU, the heart of climate change mitigation policy consists of some form of carbon pricing mechanism. It seems inevitable that agricultural activities have to be included in carbon pricing mechanisms, such as the EU Emissions Trading Scheme (ETS). So far, however, policy makers have been reluctant to do so, partly because of the lack of political will, and partly because of the difficulty of measuring emissions and emission reductions at farm level.  With the improvement of measuring technologies and carbon accounting methods, however, the possibility to also regulate agriculture under the EU emissions trading scheme has become within reach.

This project aims to develop a regulatory framework that allows agricultural greenhouse gas emissions to be included in the EU ETS and to be aligned with the Common Agricultural Policy (CAP). This will be achieved through an ex post assessment of novel regulatory approaches in Alberta, California, China, and Australia and through an ex-ante assessment of inclusion of agricultural emissions under the EU ETS, either indirectly, through allowing on farm offsets, or directly, through requiring farmers to surrender allowances. Various models of inclusion of agriculture in the EU ETS will be developed and tested under a traditional ex-ante assessment methodology consisting of focus groups and stakeholder interviews.

The project runs from 2020 until 2023, so our proposals can be included in the first discussions for the post 2030 trading phase. An earlier adoption is not very likely, since inclusion of the agricultural sector in the EU ETS will have a big impact on the system. Changing the rules of the game in the middle of the current trading phase, which runs from 2020 until 2030, is not entirely impossible, but also not advisable due to the disruption of the carbon market it may cause. The European Commission, however, is stepping up its efforts to reduce agricultural GHG emissions through its European Green Deal Policy, which includes a proposal for a European Climate Law and a Farm to Fork Strategy.

The 2020 proposal for a European Climate Law introduces an ambitious overall target for the EU’s mitigation policy as it requires the Member States to have emissions and removals of greenhouse gases balanced at the level of the EU at the latest by 2050, and to pursue a new 2030 target of 50 to 55% emission reductions compared to 1990. Although the AFOLU sector is not specifically mentioned in the European Climate Law, it is impossible to achieve such targets without a drastic reduction of emissions from this sector. It comes as no surprise, therefore, that the EU 2030 Climate Target Plan, presented in September 2020, does pay ample attention both to agriculture and to land use, land use change and forestry (LULUCF). The 2030 Climate Target Plan states that new measures are being considered for the 2030-2050 period, including an expansion of the LULUCF Regulation to also cover non-CO2 emissions from agriculture. The European Commission does not mention the option to integrate agricultural emissions into the EU ETS. Instead,

‘(o)vertime, the Commission clearly sees merit in the creation of an Agriculture, Forestry and Land Use sector with its own specific policy framework covering all emissions and removals of these sectors and to become the first sector to deliver net zero greenhouse gas emissions. Subsequently, this sector would generate carbon removals to balance remaining emissions in other sectors induced by a robust carbon removal certification system.’ [2]

Similarly, in the 2020 Farm to Fork Strategy, the European Commission is hinting at a new EU carbon farming initiative:

‘An example of a new green business model is carbon sequestration by farmers and foresters. Farming practices that remove CO2 from the atmosphere contribute to the climate neutrality objective and should be rewarded, either via the common agricultural policy (CAP) or other public or private initiatives (carbon market). A new EU carbon farming initiative under the Climate Pact will promote this new business model, which provides farmers with a new source of income and helps other sectors to decarbonise the food chain. As announced in the Circular Economy Action Plan (CEAP), the Commission will develop a regulatory framework for certifying carbon removals based on robust and transparent carbon accounting to monitor and verify the authenticity of carbon removals.’[3]

One of the “other public initiatives” for a carbon market mentioned in the Farm to Fork Strategy might very well be integration of agricultural emissions in the EU ETS. In the remainder of this blogpost, I will have a first brief look at what carbon farming as part of the EU ETS might look like.

Two models of integration: direct inclusion in the ETS or through offsets

In the EU, the ETS has gradually expanded to require GHG emitting activities to surrender allowances for the amount of GHGs emitted. Directly requiring farmers to surrender allowances for their emissions under an ETS has not been proposed much and is not a requirement in any of the emissions trading systems around the world. The direct inclusion of farming in an ETS is considered problematic because of the difficulty of measuring emissions and emission reductions at the farm level because of the variety of factors involved (such as the diet of individual animals, tillage intensity, soil composition, weather systems of individual regions, the way in which fertilizer is applied, etc.). In addition, most farms also remove CO2 through sequestration in soils and vegetation. For a small number of farming activities, however, direct inclusion in the ETS seems possible, especially for large scale livestock keeping within closed buildings, such as piggeries. Methane emissions can easily be monitored here, technologies to capture the methane and convert it into biogas exist, thus allowing farmers to choose between  buying allowances or investing in such technologies. With the improvement of measuring technologies and carbon accounting methods, however, the possibility to also regulate more forms of agriculture with high GHG emissions may become within grasp.

Most countries that have an ETS, have included agricultural emissions as offsets. This is true for most newly created emissions trading schemes, for example Alberta (2012), California (2014), and China (2018) (Ontario had it, but there, the ETS was revoked in 2018). All of these schemes allow regulated industries to acquire allowances from offsets in agriculture, either avoided emissions or increased sequestration. The latter incentivizes farmers to farm carbon in addition to crops as was also suggested as a policy option for the EU by the Agricultural Markets Task Force. The Canadian province of Alberta, for example, allows farmers to register and implement such projects as conservation  cropping, agriculture nitrous oxide emission reduction, changed beef  feed, methane reducing dairy production and biogas production from manure. The offsets generated under these projects can then be sold by the farmers to Alberta’s industrial emitters that have not met their provincially mandated reduction obligation.

The country with the longest experience in financing farmers for their avoided emissions and increased sequestration is Australia with its Carbon Farming Initiative (2011). Although this formally is not part of an emissions trading system as here the government acquires the offsets rather than regulated industries, the legal rules governing the Australian system are very similar to those in an ETS and can be used as a source of inspiration for a modified EU ETS that includes agricultural emissions. A positive evaluation of the Australian scheme shows that the EU, indeed, can rely on the Australian experiences with its extensive methodologies on a range of carbon farming methods. See our earlier blogpost here and here. These include for example soil carbon sequestration, beef cattle herd management, and beef cattle feed methods. The evaluation does show, though, that the drafting of many rules and regulations is needed, such as rules that require farmers to establish a baseline level of soil carbon, and to monitor, report and verify the amount of CO2 sequestered in the projects allowed under the ETS offsets regime, as well as rules on commitment periods.

Relationship to other policy instruments

In the EU, as of 2021, agricultural GHG emissions will be regulated under Regulation 2018/841/EU on Emissions from Land Use and Forestry (LULUCF Regulation). It requires emissions and removals in land use and forestry sectors, including agricultural land use for arable crops and grassland, to be balanced. This will require some sequestration efforts due to losses occurring under conventional agricultural practices, but this can also be achieved in for instance the forestry sector. Furthermore, emissions from livestock are not included. Integration of agricultural emissions into the EU ETS, either directly or through offsets, will have to be aligned with the LULUCF Regulation.

Alignment with the EU’s Common Agriculture Policy (CAP) will also be necessary. The CAP currently  encourages farmers to apply climate-friendly practices and techniques. Both the cross-compliance mechanism, the direct payments and the subsidies for rural development relate partly to taking climate measures. It has generally been accepted in literature, however, that current EU climate and agriculture policies are largely insufficient. A much stronger focus of the CAP on climate change is advocated, for instance in this recent study published by the European Commission.

Several individual countries have introduced or are considering the introduction of domestic carbon taxes or even a meat tax aimed at further reducing GHG emissions, beyond the requirements of current EU instruments.  These domestic instruments should also be taken into account when designing a new pricing mechanism for agricultural emissions.

Impact on food security

Research by the World Bank shows that mitigation policies using a global carbon price which does not account for food production implications, will hurt crop and livestock production. To avoid such negative impacts, carbon pricing policies should be developed thoughtfully, and aim for adaptation and food production co-benefits. As discussed in an earlier blogpost, increased resilience and reduced emissions can sometimes go hand-in-hand. It is evident, however, that changes in consumption will be necessary as well. The difficulty of reducing emissions from free roaming cattle and the sheer amount of land needed to grow animal fodder for a world population of around 10 billion in 2050 necessitate dietary changes with households moving away from meat and towards plant based food and seasonal produce, reduced overconsumption of food and reduced food waste. In a great recent article in the new journal Nature Food, Rockström et al. argue that recent modelling analysis suggests ‘that it is biophysically possible to feed 10 billion people a healthy diet within planetary boundaries, and in ways that leave at least 50% of natural ecosystems intact’ as long as there is a global shifting towards healthy diets, increased productivity while transitioning to regenerative production practices, and reduced food waste and loss by 50%. Any regulatory approach towards reducing GHG emissions from agriculture has to contribute to this bigger aim to achieve a global food transition.

These are some of the legal and governance issues that need to be dealt with in the development of a regulatory framework to address greenhouse gas emissions from agriculture. For a full overview of all issues that need to be considered by law and policy makers, the FAO just published this comprehensive legislative study ‘Agriculture and climate change. Law and governance in support of climate smart agriculture and international climate change goals’. In our project, we will be focusing on the EU ETS as a vehicle for reducing agricultural GHG emissions. We will keep you updated here!

[1] This project has received funding from the Netherlands Research Council NWO under grant number 406.18.RB.004.

[2] European Commission, Communication ‘Stepping up Europe’s 2030 climate ambition. Investing in a climate-neutral future for the benefit of our people’, COM(2020) 562, p. 17.

[3] European Commission, Communication ‘Farm to Fork Strategy for a fair, healthy and environmentally-friendly food system’, COM(2020) 381, p. 5.