Paying for Environmental Results is WTO Compliant

Abstract

SummaryResults‐based payments can be compatible with WTO and CAP rules. They could accordingly replace some of the present agri‐environmental payment schemes based on complying with conditions about management practices. Value‐based payments are permitted by the WTO but not by the CAP, at least not if the payments exceed the additional costs of producing the environmental service, including income foregone. If the payment exceeds the extra cost or loss of income the scheme is not exempt on WTO green box grounds but the sum of such schemes is likely to fit below the EU ceiling on non‐exempt support. The EU has large margins below its amber box ceiling. Value‐based payments can be differentiated according to the quantity or quality of delivered environmental services: the higher the environmental value, the higher the payment. The present agri‐environmental payments of the CAP are cost based and the EU classifies them as meeting the WTO green box of minimally trade and production distorting support. They are therefore not subject to the EU's WTO ceiling on non‐exempt support. The reason to convert to results‐based or value‐based payments is that they are potentially significantly more efficient than the existing management‐based and cost‐based payments.