New report on agriculture & food in a climate neutral EU recommends Ag-ETS and food taxes

Today, Agora-Agrar published a new report 'Agriculture, forestry and food in a climate neutral EU'. The reports recommends an Agriculture Emission Trading Scheme (Agri-ETS) as the most promising policy instrument to realise the climate goals in the sector, while it also recommends specific food taxes at EU member state level and subsidies to help consumers to switch to more plant based dietary patterns. The recommendations are aligned with the the most important TAPP Coalition policy recommendations.

The report used the CAPRI model for calculations and assumed a tax on GHG emissions of 200 euro per tonne carbon dioxide equivalent (CO2eq) to be set to incentivise the uptake of mitigation measures. This leads to economically efficient changes in production processes. The price is at the lower end of the range for long-term costs of Direct Air Carbon Capture and Storage (DACCS) projected by different studies. 

A reduction of 60 percent of GHG-emissions in the sector is possible, while producing sufficient food and biomass, improving biodiversity, improving animal welfare and strengthening carbon removals in the agricultural landscape and in forests. The assumption is made that prices for meat, dairy and eggs will increase circa 17 percent on average, because of the improved animal welfare standards by 2045. 

The study also concludes that the EU can reduce food imports and increase exports of agricultural products, thereby making a greater contribution to global food security. Since less animal feed is needed, 32 million hectare in the EU can be used in a different way, for instance for new biomass production or for biodiversity goals. 

The new report shows that 60 percent of greenhousegas (GHG) emissions from the agriculture sector can be reduced by 2045 compared to 2020 levels. Rewetting peat soils is an important element for achieving this result. It can reduce circa 70 Mton CO2 eq. per year. More important is how the EU livestock sector can reduce GHG-emissions from 282 Mton CO2 eq. in 2020 to 93 Mton by 2045 (67 percent reduction). This can be achieved partly by technical innovations, but 81% of the total reduction in emissions from livestock has to come from reduced livestock numbers. This can be achieved mainly by a change in consumption patterns of EU citizens, with a huge increase of intake of vegetables, fruit and legumes and a decrease in consumption of 51 percent less meat, 43 percent in dairy and 42 percent in eggs. EU dairy exports can double by 2045, enabled by the reduction of EU consumption of dairy. The production of meat, dairy and eggs will be concentrated in specific regions and countries in the EU. For instance, in the Netherlands, dairy production will stay, but pig and poultry production will almost disappear according to the model. The report also mentions 'taxes on nitrogen surpluses based on farm-level nitrogen balance sheets, or incorporating them into an Emissions Trading System (ETS), could effectively incentivise the reductions in gross nitrogen surplus'.

The policies needed to realise this scenario, are also described in the report. An Agri-ETS is the main policy solution: 'While a well-designed ETS can be the cornerstone of EU climate policy for the land use sectors, complementary measures will be needed to effectively reduce agricultural emissions. This includes food and health policies to enable healthy and plant-rich diets and the CAP to remunerate climate-friendly practices'.

The report recommends 'an ETS for agriculture and agricultural peatlands, holding the potential to incentivise the mitigation of greenhouse gas emissions in the livestock sector. Such a market-based approach can contribute to planning security for farmers by defining a long-term pathway for the caps on the annual emission allowances. This has the potential to accelerate the adoption of more sustainable management practices and the uptake of innovation for emissions reductions. It can also induce a reduction in livestock numbers due to increasing production costs. Furthermore, the prices of animal products would increase, incentivising lower consumption patterns.  However, integrating livestock emissions at the farm level into a trading scheme entails transaction costs, which presents a challenge given the large number of livestock farms in the EU'. Therefor the report also mentions a downstream Agri-ETS option for slaughterhouses and dairy factories: 

'The option of a downstream model puts the emissions trading obligation on downstream actors in the value chain. This option is aligned with recent policy developments, which require greater transparency  from companies on their sustainability performance.
Examples include the recently updated rules under the Corporate Sustainability Reporting Directive ((EU)  2022/2464) and the Corporate Sustainability Due Diligence Directive ((EU) 2024/1760). These legislative acts oblige certain companies to report on their Scope 3 emissions, which also covers agricultural supply chains. While the downstream option would involve fewer actors and could increase political acceptability, this option would still require tracing back emissions to the single farm if changes in management practices at the farm level are to be incentivised'. 

The report further writes about Agri-ETS and  food taxes on food with high climate footprints: "The costs of food production and consumption patterns in the EU are currently largely externalised, for example by burdening the healthcare system and the environment. Policy measures should aim at internalising these external costs, which would help to make healthy and sustainable diets relatively more affordable. Financial instruments such as taxes and subsidies have been shown to have an impact on both the food industry and consumption patterns; they can therefore play a role in designing fair food environments at the national level. At the EU level, the introduction of an ETS for agriculture-related emissions would affect prices for food products with high greenhouse gas emissions (Pérez et al. 2016, Stepanyan et al. 2023). At the same time, social policies and financial instruments are needed to alleviate food poverty in the EU, and constitute a precondition to providing healthy and sustainable diets for all, (...) ensuring that the
financial impact does not disproportionately affect socio-economically vulnerable households". "The European Commission could support member states by conducting an independent evaluation of instruments to tackle food poverty. Based on the outcomes of such an evaluation, the EU Commission could propose a Fair Food Initiative,  potentially integrated into the European Pillar of Social
Rights. This initiative could include an action plan and specific targets to support member states in increasing access to healthy and sustainable diets across the EU'.

The report also recommends new EU Food policy framework, especially for creating fair food environments. 'This requires a combination of diverse instruments and a broad policy mix across different policy areas. While voluntary instruments are an important element, fiscal measures and public regulation are indispensable (European Commission & Group of Chief Scientific Advisors 2020, 2023)'.