Climate Change and Agriculture Policies: Managing Potential Risks to Agriculture Trade Liberalization

Abstract

Governments and businesses worldwide are preparing for a carbon-constrained future and evaluating different policy instruments to combat climate change. Agricultural production is an important source of greenhouse gas (GHG) emissions and practices that reduce or offset these emissions can increase farmer income, enhance wildlife habitat and improve soil productivity.The relationship between agriculture and climate change is a complex one: agriculture contributes to climate change, is part of the solution, and also a victim due to its vulnerability to extreme weather events. This complex relationship calls for a re-evaluation of the policy instruments implemented to date to support the agriculture sector; it also challenges their ability to properly address all aspects of this relationship. Agriculture policy has a well-documented impact on farmers’ production decisions (land, water, and agricultural chemical use), which in turn may affect the environment and distort trade.Ethanol, as a renewable fuel, plays a central role in the energy, agriculture and climate change policy debate. Policies to boost renewable energy from agriculture feed stocks are widespread, despite the uncertainties concerning their impacts on commodity demand, trade flows, water use and mitigation of greenhouse gas emissions. The paper reviews the main policy instruments adopted by the United States (U.S.) to stimulate production and consumption of ethanol, and their impacts on Brazilian producers and exporters. The main goal of the paper is to evaluate the effectiveness of World Trade Organization (WTO) rules to regulate these measures. It presents practical suggestions to improve monitoring, transparency and, possibly compliance with international trade rules.U.S. and Brazil are the two largest producers and exporters of ethanol. The trade and environmental concerns with domestic policies adopted to develop the industry position the topic at the center of the “north/south” debate, which has long characterized the history of agriculture trade liberalization.