Abstract
AbstractWe quantitatively assess the impacts of re‐allocating budgetary resources within Pillar 1 of the EU's Common Agricultural Policy (CAP) from direct income support to a direct greenhouse gas (GHG) reduction subsidy for EU farmers. The analysis is motivated by the discussion on the future CAP, with calls for both an increased ambition on climate action from the agricultural sector and for a more incentive‐based delivery system of direct payments under strict budgetary restrictions. By conducting a simulation experiment with an agricultural partial equilibrium model (CAPRI), we are able to factor in farmers’ supply and technology‐adjusting responses to the policy change and to estimate the potential uptake of the GHG‐reduction subsidy in EU regions. We find that a budget‐neutral re‐allocation of financial resources towards subsidised emission savings can reduce EU agricultural non‐CO2 emissions by 21% by 2030, compared to a business‐as‐usual baseline. Two‐thirds of the emission savings are due to changes in production levels and composition, implying that a significant part of the achieved GHG reduction is offset globally by emission leakage. At the aggregated level, the emission‐saving subsidy and increased producer prices compensate farmers for the foregone direct income support, but differences in regional impacts indicate accelerated structural change and heterogeneous income effects in the farm population. We conclude that the assumed regional budget‐neutrality condition introduces inefficiencies in the incentive system, and the full potential of the EU farming sector for GHG emissions reduction is not reached, leaving ample room for the design of more efficient agricultural policies for climate action.
Highlights
In November 2017 the European Commission published a communication on the Future of Food and Farming (COM(2017)713), reflecting on its vision on the future of the Common Agricultural Policy (CAP)
In this paper we conduct a simulation experiment to quantitatively assess the impacts of reallocating budgetary resources within Pillar 1 of the Common Agricultural Policy (CAP) from direct income support to a direct greenhouse gas (GHG) reduction subsidy for EU farmers
The policy concept of the communication must be evaluated in the wider context of the Multiannual Financial Framework (MFF), which is negotiated in parallel with the review and modernization of EU agricultural policie s, and which will determine the financial resources allocated to the CAP (European Commission 2017a)
Summary
In November 2017 the European Commission published a communication on the Future of Food and Farming (COM(2017)713), reflecting on its vision on the future of the Common Agricultural Policy (CAP). We investigate the possible economic and environmental impacts of shifting financial resources under Pillar I from direct income support to subsidizing emission savings in EU agriculture. In line with the new delivery system sketched in the Commission proposal, the emission saving subsidy we investigateis incentive-based by design, rewarding farmers for reducing their current level of GHG emissions. One of the main empirical contributions of the paper is to set up a methodological approach for calculating the budget-neutral level of the GHG-saving subsidy, building on standard profit maximizing behaviour of farmers. The optimal unit subsidies for GHG-savings, defined for each EU NUTS2 region separately, are plugged in the complete CAPRI modelling system to factor in the price feedback from the agri-food markets. That way we implement a fully budget-neutral version of the GHG-saving subsidy system in the EU, with direct links to global agri-food markets. We discuss the regional differences in the environmental performance of the hypothetical emission-saving subsidy system by comparing results to an alternative scenario with uniform EU-wide subsidy rates
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