Institutional aspects of policies for climate change mitigation in agriculture – reflections on experience

with agri-environment schemesIan Hodge

Department of Land EconomyUniversity of Cambridge

Workshop on mitigation of CO2 emissions by the agricultural sector

Bergen, 3rd-4th October 2011

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UNIVERSITY OFCAMBRIDGEDepartment of Land Economy

Institutional aspects of policies for climate change mitigation in agriculture – reflections

on experience with agri-environment schemes

• GHG emissions and mitigation options• Comparison with agri-environment policy• Reference level and policy approaches• Possible mechanism design for GHG

mitigation• Conclusions

2Department of Land Economy

Emissions of GHG from agriculture• Globally:

– 14% GHG emissions from agriculture• 47% of global CH4 (esp.

enteric fermentation in livestock digestion)

• 84% of global N2O (esp. from N and manure application to soils)

– 17% GHG emissions from land use change• Land use change (esp.

deforestation)

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Proportion of global carbon emission from various sources, 2004 (Intergovernmental Panel on Climate Change, 2007)

Department of Land Economy

Main sources of GHG emissions in agriculture

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Source: Smith et al. 2007

Western Europe Global

N2O soils

CH4 enteric

CH4 rice

CH4/N2O manure

CH4/N2O burning

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GHG emissions from agriculture(Sample of farms in England)

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Mean GHG emissions per ha

-2

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Cereals Dairy General Hortic. LFA Lowland Mixed Nature Cropping Grazing Grazing Reserve

Average GHG emissions per hectare by farm type (CO2-eq/ha)

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GH

G e

mis

sio

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(t/h

a)

mean CO2

mean N2O

mean CH4

Natural England. (2008). Carbon Baseline Survey Project

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GHG mitigation options in agriculture

• Reducing GHG emissions– Changes to agricultural production systems

• Enhancing removals– Carbon sequestration

• Displacing emissions outside agriculture– Biomass (direct combustion) and biofuels

(esp for transport)• Changes to demand and supply chain

– Reduced meat consumption, reduced transport and packaging, more seasonal, reduced waste

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GHG mitigation in agriculture

• N2O– Crop management– Fertiliser efficiency– Manure management– Reducing manure-N

• Methane– Reduced enteric fermentation– On-farm / centralised anaerobic

digestion

7Department of Land Economy

Short-listed crops/ soils abatement measures

• Using biological fixation to provide nitrogen inputs (clover)• Reduce nitrogen fertiliser• Improving land drainage• Avoiding nitrogen excess• Full allowance of manure nitrogen supply• Species introduction (including legumes)• Improved timing of mineral fertiliser nitrogen application• Controlled release fertilisers• Nitrification inhibitors• Improved timing of slurry and poultry manure applications• Systems less reliant on inputs (nutrients, pesticides, etc)• Plant varieties with improved nitrogen use efficiency• Separate slurry applications from fertiliser applications• Reduced tillage/ no-till• Use composts, straw-based manures in preference to slurry

Moran et al. 20118

Indicative mitigation options in agriculture: some low hanging fruit?

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Carbon sequestrationLand as longer term store of carbon

• >90% terrestrial carbon in soils (rather than vegetation)

• Land use change is major source of GHG emissions– Preventing change (esp deforestation)– Promoting change (esp afforestation, nature

reserve)• Land management practices to

increase soil organic carbon, eg– Zero tillage– Reduced erosion and leaching– Biochar

10Department of Land Economy

Policies for reducing emissions

• Policy focus on carbon to date• Complexity:

– Multiple potential approaches to different GHGs to be implemented across substantial proportion of sector

– Farm specific cost-effective changes for mitigation– Mitigation externalities (side effects on GHG

emissions and impacts on other ecosystem services)• Implies many possible marginal changes to

agricultural systems:– Manure management and applications– Animal diets– Anaerobic digestion

• What policy mechanisms to influence systems and management practices at micro level?

11Department of Land Economy

Issues in the evolution of agri-environment policy

• Defining the reference level• Developing contracts (inputs and outputs)• Addressing asymmetric information (or not)• Intensive and extensive margins• Targeted and deep v. Broad and shallow (optimal

transactions costs)• Policy evaluation• Other issues

– Co-ordinating actions– Long term security

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Comparison with agri-environment policy

• Public policy objectives to deliver public goods• Environmental objectives:

– Threats to conservation from land use intensification: but uncertainty as to precise outcomes wanted

– Clear objective for GHG mitigation

• Political economy:– Agri-environment context of CAP surpluses:

• Exchequer savings from reduced production• Redirection of existing farm budget

– International pressures to deliver GHG mitigation

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Possible approach to voluntary climate mitigation contracts

• Define reference level• Identify farm-level actions• Calculate GHG reductions from units of action• Offer and allocate contracts to undertake

identified actions• Monitor and enforce• Evaluate

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Defining property rightsPublic goods and environmental damage

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Public goods

LandscapeBiodiversity External benefits: Provider gets principleEcosystem functionsCommunity support_____________________Reference level for environmental quality_____

 Environmental damage

Soil erosionWater pollution External costs: Polluter pays principlePesticides in the environmentAtmospheric emissions

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Policy approaches

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Social optimumEnvironmental quality

Private optimum

Reference level

Provider Gets Principle

Polluter Pays Principle

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Defining a reference level for GHG emissions

• Regulatory baseline• Cross-compliance for standard policy

subsidy?• Code of good agricultural practice• Property rights in carbon in land

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Property rights in carbon• Reference level of carbon in soil

and on land?• Carbon retention depends on land

management • What duties to protect existing

carbon? (eg upland moorland soils)• Incentives and land management

for carbon sequestration?

18Department of Land Economy

Defining the reference level for carbon in soils

• Possible standards:– Current status– Average for region– Expected level under ‘good’ land

management• Payments to exceed level and

penalties for falling below it• Measurement of carbon levels in

practice on particular sites19Department of Land Economy

Hierarchy of approaches in agri-environment policy

Conservation ownership

Regulation

Cross-compliance: SMR & GAEC

Entry Level Stewardship

Higher Level Stewardship

Designated sites

Land Area

Conservation intensity

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Criteria for designing a policy mechanism

• Precision: achieving desired objectives at least cost

• Transactions costs: costs of introducing, implementing, monitoring and enforcing

• Dynamic incentives: capacity to responding to changing information and circumstances

• Co-benefits: impacts of other policy objectives• Equity/ fairness: treatment of stakeholders

affected by policy and its general acceptability

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Environmental contracts for GHG mitigation

• Limited information on GHG impacts and limits to measurement and monitoring

• Multiplicity of options within different agricultural systems– Asymmetric information – principal cannot know costs or cost-

effective options– Limited differentiation by location – no basis for spatial

targeting• Identifiable target outcomes (GHG mitigation) of equal value in all

cases• Correlated with delivery of other ecosystem service outputs• Subject to changing technology and prices over time – flexibility

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Potential mechanism design• Payments for changes in farm activities (inputs rather than

outputs)• Degree of information asymmetry: use of competitive

allocation• Ecosystems approach: integrate with delivery of other

services• Coverage across large proportion of farmed land: availability

to all farmers?• Low transactions costs per farmer enrolled• Alternative models:

– Ranking bids: environmental benefits index (CRP)– Fixed payment for combination of measures (ELS)

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Ranking bids: environmental benefits index(Conservation Reserve Program model)

• Menu of options for management changes offered to appeal to range of different farm circumstances

• Farmers invited to offer to implement options and the price for which they would be adopted

• Bids assessed in terms of predicted GHG mitigation, other ecosystem service co-benefits and price against environmental benefits index

• Bids ranked and accepted within available budget• Monitoring and enforcement

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Fixed payment for combination of measures(Entry Level Stewardship model)

• Menu of options for management changes offered to appeal to range of different farm circumstances

• Points associated with individual options• Farmers required to adopt options so as to attain a

total number of points dependent on holding area• Farmers meeting requirement can enter scheme• Monitor and enforce

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Implications of alternative models

• CRP approach promotes efficiency and constrains public expenditure

• ELS establishes right to payment irrespective of counterfactual or individual cost. Flexibility promotes cost effective solutions (st generating equal GHG mitigation). Transfers surplus to participants

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Further policy extensions

• Promotion of co-ordination amongst farms (eg anaerobic digestion)– Policy framework and institutional

arrangements for internal decision-making (eg environmental co-ops)

• Long term security for carbon sequestration– Use of covenants/ easements and alternative

landownership– Potential markets via offsetting

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Policy options for carbon sequestration in land

Regulation

Carbon Market

Environmental contracts

Precision Low High High

Transactions costs

Low High High

Long term security

High Medium Low

Dynamic incentives

Low Medium Medium

Co-benefits Low Low High

Equity/ fairness Low?? High High

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Conclusions• Wide variety of (often minor) changes required but

also some fundamental, long term changes in land use

• Uncertainty as to least cost technology and options

• Asymmetric information and need for an adaptive approach

• Need for explicit reference level

• Policy should cover large proportion of farm sector

• Low transactions costs per entrant

• Competitive tendering to address information problem

• CRP and ELS illustrate the sort of approach implied

• Further consideration for co-ordinated action and long term security

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