To deal with the persistently high carbon footprint of farming, the European Commission is considering the possibility of establishing an EU Emissions Trading System for agriculture. But is such a scheme necessary and how should it be designed? Marlène Ramón Hernández looks for answers.
In consultation with farmers and conservation groups, the Danish government recently agreed to introduce a carbon tax on agricultural emissions that will go into effect in 2030 which experts expect will slash Denmark’s farming emissions by as much as 70%.
This has refocused attention on the stubbornly high carbon footprint of this vital sector whose emissions have yet to be adequately addressed at the EU level. While the Effort Sharing Regulation and the Regulation on land use, land use change, and forestry set relevant national targets, they fail to provide specific agricultural goals and do not incentivise individual farmer action. Most recently, suggested targets for reducing agricultural emissions were dropped from the EU’s proposed 2040 climate target, in a counterproductive attempt to appease striking farmers ahead of last month’s European Parliament elections.
In 2022, the EU’s agricultural sector accounted for 12% of the EU’s total greenhouse gas emissions (380 million tonnes of CO2e) of which around two-thirds come from breeding animals for meat and dairy. The sector’s carbon footprint has remained largely stagnant – between 2005 and 2022, emissions fell by approximately 1 million tonnes of carbon dioxide equivalent per year, amounting to a 5% decrease overall. Clearly, much more is needed if we want to avoid agriculture becoming one of the highest emitting sectors after 2030.
Pricing agricultural emissions
Alert to this bleak reality, the European Commission’s Directorate-General for Climate Action has been looking into possible avenues to lower emissions in the field. One seemingly preferred option is to develop an Emissions Trading System for Agriculture (AgETS). Having already published an initial study on pricing agricultural emissions, Commission consultants are presently preparing for a second report, that will invite stakeholder participation throughout, and is expected to be published in the summer of 2025,
While Carbon Market Watch is still weighing the potential benefits and drawbacks of a potential AgETS, here are some considerations on whether Europe should price farming emissions, what the instrument should be like if the EU decides to launch it, potential alternatives to an AgETS, and how the challenges facing farmers might be approached.
Core principles
Pricing emissions through a fair and just application of the polluter pays principle makes good sense. It renders less polluting alternatives more competitive, raises revenues to fund a just transition, and forces polluters to pay for the damage they cause. However, a potential AgETS must be meaningful: it requires a stringent limit on emissions, no handing out of free pollution permits, and an effective and fair use of revenues.
No offsetting
A first vital point is the exclusion of offsetting schemes, for example voluntary crediting systems that add supply under the cap. Offsetting can happen either through including land sinks or by allowing carbon credits generated along the food value chain to be sold to buyers who use these credits as a means to offset their emissions instead of engaging in actual reductions themselves.
In this vein, a core concern is that loopholes will be introduced between the AgETS and the LULUCF regulation These loopholes risk distracting from the necessary emission reductions and deflating the ETS price signal as cheap, land-based sequestration activities would be used for offsetting instead of engaging in a climate-friendly transition.
Farming out responsibility
This highlights the vital importance of excluding land-based sequestration activities from the AgETS. “Carbon farming” is a confusing term that the European Commission uses to refer to a wide variety of nature-based activities within the land use sector (mainly agriculture and forestry).
Some of these activities could sequester carbon from the atmosphere in soils or living biomass, but with very disparate potential storage durations lumped together. Crucially, the emission reductions related to these activities are temporary and highly sensitive to natural disturbances and human action. As such, treating the results of such activities interchangeably with ongoing climate pollution creates a false equivalence between CO2 emissions that stay in the atmosphere for millennia and sequestered carbon that is merely stored for years or decades. Emissions reductions and carbon sequestration must therefore be addressed in separate instruments.
Moreover, monitoring, reporting, verification and liability (MRVL), as well as the establishment of honest baselines is complex, uncertain, and prohibitively expensive. Farm emissions primarily involve methane, nitrous oxide and carbon dioxide. These have different lifetimes and impacts on the atmosphere. According to the European Advisory Board on Climate Change (ESABCC), causality between land management actions and carbon fluxes is difficult to determine and prove, particularly due to the complexities of the systems involved. In addition, no robust, EU-wide reporting tool exists at the farm level (while directly obliging farmers under the ETS seems unlikely, farm data will be required). Land activities also require constant management, yet ownership or stewardship might change, meaning continuous sustainable practices are unlikely to persist over the long term. This adds to the issue of establishing liability for potential reversals of sequestered carbon.
So-called carbon farming activities which have environmental benefits can still be financed through the AgETS without using their results for problematic offsetting purposes. One way of doing so would be to use revenue generated by the Emissions Trading System to support farmers and invest in carbon sequestration projects on agricultural land.
AgETS can’t do it alone
An AgETS makes little sense in a political vacuum. Policies such as extending the Industrial Emissions Directive to livestock emissions (which are currently excluded from the legislation) and introducing a Sustainable Food Systems Regulation to address demand-side policies and shift consumer behaviour are required.
But an AgETS is truly meaningless without a robust reform of the Common Agricultural Policy (CAP). During the 2014-2020 CAP period, the €100 billion invested in climate action failed to reduce agricultural GHG emissions. Another report found that up to 60% of the CAP funding (€32.1 billion annually) is spent by EU countries on activities that encourage large-scale unsustainable farming. Introducing an AgETS to price emissions while the CAP rewards high-emitting agricultural practices is like carrying water to the sea. It will only lead to a high carbon price, while farming practices remain unchanged from business as usual.
In the current CAP, the CAP Strategic Plans (CSP) – designed to give member states leeway to plan and implement CAP objectives – remain weak and unambitious, while eco-scheme uptake has been poor. To make matters worse, CAP provisions have been watered down, weakening several of its ‘good agricultural and environmental conditions’ and offering even more flexibility to member states in the CSP process.
EU agricultural policy must be revamped. Area-based payments must end, rewarding sustainable land stewardship that enhances soil health, improves water quality, and promotes animal welfare instead. A departure from the efficiency-focused mindset that encourages cheap and intensive overproduction is needed, favouring sustainable food systems that complement the Farm to Fork and Biodiversity Strategies.
Just transition
Last but not least, an AgETS must support a just transition. Small-scale farmers are on the front line: they bear the brunt of the climate crisis, yet, paradoxically, lack the necessary tools to implement more sustainable practices. Moreover, failing to support them risks fuelling even more backlash against “the EU’s green agenda”.
Any climate policy must be fair and equitable, and perceived as such. In the case of AgETS, it also needs to mitigate the risk that larger farms and agribusinesses benefit to the detriment of smaller ones, or those who already take the biodiversity and climate crises seriously. As such, farmers need to be provided with upfront investments for machinery, training, and advice, to which CAP funding, combined with revenues from a potential AgETS, should contribute.
It remains to be seen whether the Commission proposes an ETS for the agricultural sector, and, if so, what detailed design decisions they might make. Questions to keep in mind are: Will an AgETS be meaningful considering the particularities of the sector? Will it raise sufficient ambition to drive down emissions and shift behaviour? How can it serve as a tool to empower farmers?
Farmers are agents of change but business as usual cannot continue. If we want a resilient sector that offers prosperity to farmers, protects the environment, and favours sustainable food systems, it is time to tackle the climate and nature crises cohesively and slash emissions now.
