Co-effects of climate policy and agricultural policy on regional agricultural viability in Finland

Abstract

The agricultural sector has potentially a significant role in reducing greenhouse gases (GHGs). Besides providing public goods, GHG reduction offers farmers new alternatives for income generation. This is especially interesting in marginal agricultural areas, e.g., in less-favoured areas (LFA) of the European Union (EU), where significant GHG reduction potential coincides with low productivity in the production of agricultural commodities. In this study, the effects of peatland cultivation restrictions were evaluated, where the objective was to decrease GHG fluxes deriving from agricultural production. The regional role of peatlands in GHG reduction and agricultural production is also evaluated. Ceasing the agricultural use of peatlands altogether could decrease Finnish agricultural sector carbon effluents by up to 10% according to a dynamic regional sector model of the Finnish agriculture (DREMFIA). Accompanying decreases in national and even in regional agricultural incomes do not appear drastic, but locally, in some municipalities and on individual farms they may be devastating. In an alternative scenario, where perennial grass production is allowed to continue and only cultivation of annual crops is forbidden, the (negative) income effects are very low. The most notable result is that significant GHG reductions can be reached with little decrease in national agricultural incomes. The two forms of restrictions were tested in two alternative agricultural policy settings: Agenda 2000 and the EU Common Agricultural Policy (CAP) reform agreed in Luxembourg on 26th June 2003. These two agricultural policy alternatives are connected with both of the aforementioned climate policy alternatives and resulting scenarios are evaluated in the simulation. The simulation provides the second main result, which says that it is not so much the climate policy which determines aggregate agricultural production and income, but rather it is the general agricultural policy framework setting the stage.