Analysis: Financial incentives needed to make climate change aspirations a reality


Prof Alan Matthews
Prof Alan Matthews

Alan Matthews

Last week Teagasc published an updated version of its Marginal Abatement Cost (MAC), showing the scale of possible greenhouse gas (GHG) emissions abatement using different technologies, land uses and farm practices at different costs.

This evidence base is an essential input in designing a roadmap to reduce agricultural GHG emissions in the years ahead.

Climate policy in agriculture is complex. If emissions are reduced by limiting production in a country with a relatively low carbon-intensity of production (the case for dairy production in Ireland), there is a danger that this will leave room for expansion in countries with a higher carbon-intensity of production, leading to an overall increase in global emissions.

This suggests it would be better to target the consumption of emissions-intensive production. However, emissions in agriculture are counted where production takes place, whereas emissions from fossil fuel use are attributed to the countries where they are consumed.

Emissions from agriculture consist almost entirely of methane and nitrous oxide, and the most appropriate way to compare these emissions to carbon dioxide is debated.

Agriculture and the land use sector exceptionally has the possibility to sequester carbon and to act as carbon sink. But, outside of forestry, measuring these sinks remains difficult. There are also questions about the permanence and additionality of some sinks which makes it difficult to include them in accounting frameworks.

Measurement issues are also important when it comes to abatement measures. Agriculture cannot be credited with changes in farm practices that may reduce emissions unless these are measurable, reportable and verifiable.

What the Teagasc researchers found was that the options with the greatest cost-effective abatement potential included afforestation, changes in fertiliser formulation and improved genetics through animal breeding.

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Putting numbers on this, the full adoption of the cost-effective abatement measures in agriculture identified in the Teagasc MAC curve (including afforestation at the rate of 7,000 ha per year) would result in an emissions reduction (compared to business as usual) of 3.07 Mt CO2e in 2030 (where CO2e stands for carbon dioxide equivalent which aggregates the different greenhouse gases using weights agreed by the International Panel on Climate Change). This compares to total agricultural emissions of 18.69 Mt CO2e in 2005.

However, emissions have been increasing since 2011 and are projected to increase further with the expanded cow and cattle numbers under Food Wise 2025 to reach 20.45 Mt CO2e in 2030. If all mitigation options were fully employed, then agricultural emissions in 2030 could be reduced by 3.07 Mt CO2e to 17.39 Mt CO2e.

As a benchmark, Ireland will be required to reduce emissions in sectors covered by the EU Emissions Sharing Regulation (of which agriculture makes up almost half) by 30pc in 2030 compared to 2005. If agriculture were given a pro-rata target, this would imply its emissions should be reduced to 13.82 Mt CO2e by 2030.

This would leave a distance to target in 2030 of 4.31 Mt CO2e. In its MAC curve report, Teagasc assumes that land use, forestry and bioenergy offsets would be effectively credited pro rata to agriculture, transport and other sectors covered by the Emissions Sharing Regulation.

But if we treat the agriculture, forestry and land use sectors as a unit, then carbon sinks in the forestry and land-use sectors would offset some of this distance to target from agricultural emissions alone. The report suggests a sink potential of 3.50 Mt CO2e in 2030, although under current EU rules only an annual equivalent of 2.68 Mt CO2e can be credited as offsets.

The report also suggests a further 1.31 Mt CO2e from fossil fuel emissions could be displaced in 2030 by bioenergy from forest thinnings, biomass crops, biofuels and anaerobic digestion. In the GHG accounts, these savings are attributed to the energy sector rather than agriculture.

The Teagasc roadmap points out one way in which the sector could move towards its pro-rata target, taking into account uncertainty over how cow and cattle numbers might change up to 2030 compared to the baseline projections.

All of this depends on one crucial assumption, that farmers fully adopt the measures identified in the Teagasc MAC curve to reduce emissions.

Many of the measures are cost-beneficial, meaning that they would save farmers money as well as reduce emissions. Yet we observe a slow uptake of these measures.

Other measures, including afforestation, imply a net cost to farmers, up to €50 per tonne of abated CO2e. There may be some financial support for these measures in the new CAP measures post-2020 under the Commission's recent proposals.

However, relying only on subsidy to incentivise farmers to adopt these measures would be costly to the Exchequer. As GHG emissions are bad, nudges as well as carrots are needed to encourage the uptake of these measures.

This is why I favour the introduction of a levy on GHG emissions, the proceeds of which would be recycled back to farming in the form of support for abatement measures.

Using a market mechanism in this way not only incentivises farmers to reduce their carbon footprint. It also gives other actors, including in particular the dairy and meat processors, an incentive to invest in research and knowledge transfer activities to help their farmer suppliers to do this.

Without putting such incentives in place, the Teagasc MAC curve will remain aspirational, and agricultural emissions will continue to increase.

Alan Matthews is Professor Emeritus of European Agricultural Policy at Trinity College Dublin.

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