Policy instruments for mitigation

Managing emissions is a new challenge for farming in all OECD countries and the level of awareness of regulatory requirements among farmers and producers is progressing slowly. As national obligations become more stringent, there is an increasing likelihood that agricultural emissions will be scrutinised for regulation. To date, there is in most countries a general presumption in favour of a voluntary approach to the adoption of best-management practices, which coincidentally deliver both water and greenhouse gas benefits. But several governments, including the UK, New Zealand and Canada, have progressed in the exploration of the potential for introducing domestic market-based approach to agricultural emissions reductions. The Canadian Offset system is open to a range of agricultural/land-based proposals including afforestation, soil management and biodigesters, and does not have a minimum project size. It is currently a voluntary system (Environment Canada, 2008). In the United Kingdom, Nera (2007) explored the feasibility of alternative cap and trade and project-based emissions pricing approaches. A basic problem revealed by this research is the implicit transaction costs associated with regulating many small emissions sources. This inherent structure of agriculture contrasts with other industries characterised by fewer larger emissions sources. Partly in response to the same barrier, New Zealand appears to be more advanced in plans to introduce emissions trading regime by 2013 (see Box 5.1).

In the New Zealand case, the main question relates to the feasibility of moving the point of obligation for holding emissions permits from farmers onto other parts of the food chain that are more easily monitored. In this case fertilizer manufacturers appear to be the prime target for inclusion in a trading scheme. It is currently unclear how acceptable this suggestion is to the industry or how effective this approach will prove. In the UK exploratory work funded by Defra is considering the relative merits of alternative trading schemes for livestock producers and fertilizer merchants. Alternative approaches include the introduction of specific emissions obligations under forms of cross compliance, or a specific agricultural climate change agreement that would entail a climate change levy on producers with rebates for those signing-up and complying with good practice agreements.

In considering the development of carbon credit instruments, it is important to consider how these might develop on a global basis to provide the incentive for developing country agriculture, which is estimated to account for about 74% of total emissions from the sector. Developing-country production is also thought to offer large abatement potential at low cost and so the policy challenge is to unlock this, along with large co-benefits for sustainable development (food security, poverty reduction among the 70% of the poor living in rural areas, environmental services) and for climate change adaptation (improving agro-ecosystem resilience). Tubiello et al. (2009) highlight that significantly larger financial flows than are possible under the current carbon market could be created by adding a range of land-based activities within post-2012 climate mitigation and adaptation mechanisms. They point specifically to reduced deforestation and degradation, agricultural land restoration and soil carbon sequestration, agro-forestry, and many land-conservation practices.

Box 5.1. The New Zealand Emissions Trading Scheme

The proposed Emissions Trading Scheme (ETS) (which, following a change in government, is under review) involves all significant GHGs and all sectors, including agriculture. Forestry will be the first sector to be involved in the ETS. Agriculture is due to be included (as the last sector) in January 2013.

The agricultural sector includes GHGs from pastoral agriculture, horticulture and arable production — methane from livestock emissions and nitrous oxide from animal urine and dung and synthetic fertilizer.

Participants can voluntarily report their emissions in 2011 and are required to report their emissions in 2012, but they are not required to pay for their emissions in these years until 2013. The Act sets the point of obligation for agriculture emissions at processor level. This means meat and dairy processors and fertilizer companies will be responsible for the emissions that occur on farms. The Act allows the government to change this to farm-level before a cut-off date of 30 June 2010. Applying the point of obligation on processors may remove incentives for emission reduction at the farm level; however, imposing individual obligations on each emitter would entail significant transactions and regulatory costs.

Concerns around the ETS as a whole focus on liquidity in and access to international carbon markets, leakage of production and emissions from trade-exposed emissions-intensive sectors, and the likely overall economic impact of the system (Kerr and Sweet, 2008).

For more information on the NZ ETS, refer to Kerr and Sweet (2008) and New Zealand government documents, available at: www.climatechange.govt.nz/nz-solutions/reducing-our-footprint.shtml._

FAO (2009) sets out the hurdles before this potential (much of it from smallholder agriculture) may be realised under a future global climate change agreement. It addresses quantifying mitigation and dealing with uncertainty issues associated with soil carbon sequestration, enabling institutional and policy environments required to link carbon finance to mitigation from smallholder agricultural sector and modalities/mechanisms needed to effectively link carbon finance to agricultural sources of mitigation, including financing options for agriculture, including smallholder agriculture. The focus is on soil carbon sequestration in view of its high mitigation potential, relevance to smallholders, and its current exclusion from the Clean Development Mechanism. Tubiello et al. (2009) point to the barriers that exist between the rural poor and access to financial mechanisms, including governance issues, technical capacity, high transaction costs and a lack of appropriate baseline and monitoring methodologies.

While there is scope to overcome many of the identified hurdles, there is a need to create enabling conditions for further work on mitigation from agriculture in the next climate agreement. At country level, pilot activities are needed to test measurement, reporting and verification methodologies and incentive/payment schemes, supported by capacity building, technology transfer and institutional mechanisms. Beyond the Conferences of the Parties to the Kyoto Protocol in Copenhagen in December 2009, in the transitional period leading up to 2012, ways of realising terrestrial carbon sequestration from all land-uses may need to be explored to enable better management of synergies and trade-offs across different land-uses and land-use changes. Highlighting the ancillary benefits of mitigation (and indeed adaptation) actions, such as any impacts on water pollution, biodiversity and other public goods, as well as possible cost savings, may be a mechanism for encouraging mitigation action.

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