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Setting climate action as the priority for the Common Agricultural Policy: a simulation experiment

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  • Himics, Mihaly
  • Fellmann, Thomas
  • Barreiro-Hurle, Jesus

Abstract

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. Although such a budgetary shift is not foreseen in the current political discussions on the future CAP post 2020, the analysis is motivated by calls for both an increased contribution from the agricultural sector to combat global warming, and a more incentive-based delivery system for direct payments. For the analysis, we apply a partial equilibrium model for the agricultural sector (CAPRI) covering both the EU farming sector with high geographical detail as well as global food commodity markets. An integrated emission accounting for EU agriculture and global agri-food products, as well as optional technological GHG mitigation options for EU farmers make CAPRI specifically suitable for the impact assessment. For the scenario we assess a policy that removes the basic direct payments under Pillar 1 of the current CAP and provides farmers a GHG-saving subsidy instead, without increasing the total budget for direct payments. A major empirical contribution of the paper is the calculation of budget-neutral subsidy rates for the hypothetical GHG-reduction subsidy, factoring in farmers' supply and technology-adjusting responses to the policy change. The subsidy rates are derived by combining the regional representative farm models of CAPRI with a Newton-Raphson numerical approximation method that guarantees budget-neutrality. We find that a budget-neutral re-allocation of financial resources towards subsidized emission savings can reduce agricultural non-CO2 emissions by 21% in the EU by 2030, compared to a business-as-usual baseline. Almost two-thirds of the EU emission savings are due to production decreases, and, therefore, part of this GHG reduction is threaten to be offset globally by emission leakage effects. At the aggregated level, the emission-saving subsidy and increased producer prices compensate farmers for the foregone direct income support, but the significant regional differences indicate both an 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 in the scenario; leaving ample room for the design of more efficient agricultural policies to combat global warming.

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  • Himics, Mihaly & Fellmann, Thomas & Barreiro-Hurle, Jesus, 2018. "Setting climate action as the priority for the Common Agricultural Policy: a simulation experiment," 162nd Seminar, April 26-27, 2018, Budapest, Hungary 271966, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaa162:271966
    DOI: 10.22004/ag.econ.271966
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    1. Alison Burrell & Mihaly Himics & Benjamin Van Doorslaer & Pavel Ciaian & Shailesh Shrestha, 2014. "EU sugar policy: A sweet transition after 2015 ?," JRC Research Reports JRC76619, Joint Research Centre.
    2. Heckelei, Thomas & Britz, Wolfgang & Zhang, Yinan, 2012. "Positive Mathematical Programming Approaches – Recent Developments in Literature and Applied Modelling," Bio-based and Applied Economics Journal, Italian Association of Agricultural and Applied Economics (AIEAA), vol. 1(1), pages 1-16, April.
    3. Alexander Gocht & Pavel Ciaian & Maria Bielza & Jean-Michel Terres & Norbert Röder & Mihaly Himics & Guna Salputra, 2017. "EU-wide Economic and Environmental Impacts of CAP Greening with High Spatial and Farm-type Detail," Journal of Agricultural Economics, Wiley Blackwell, vol. 68(3), pages 651-681, September.
    4. Himics, Mihaly & Fellmann, Thomas & Barreiro-Hurlé, Jesús & Witzke, Heinz-Peter & Pérez Domínguez, Ignacio & Jansson, Torbjörn & Weiss, Franz, 2018. "Does the current trade liberalization agenda contribute to greenhouse gas emission mitigation in agriculture?," Food Policy, Elsevier, vol. 76(C), pages 120-129.
    5. Alison Burrell & Emanuele Ferrari & Aida González Mellado & Mihaly Himics & Jerzy Michalek & Shailesh Shrestha & Benjamin Van Doorslaer, 2011. "Potential EU-Mercosur Free Trade Agreement: Impact Assessment, Volume 1: Main results," JRC Research Reports JRC67394, Joint Research Centre.
    6. Thomas Fellmann & Peter Witzke & Franz Weiss & Benjamin Van Doorslaer & Dusan Drabik & Ingo Huck & Guna Salputra & Torbjörn Jansson & Adrian Leip, 2018. "Major challenges of integrating agriculture into climate change mitigation policy frameworks," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 23(3), pages 451-468, March.
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    2. Klaus Mittenzwei, 2020. "Greenhouse Gas Emissions in Norwegian Agriculture: The Regional and Structural Dimension," Sustainability, MDPI, vol. 12(6), pages 1-13, March.
    3. Wawrzyniec Czubak & Krzysztof Piotr Pawłowski, 2020. "Sustainable Economic Development of Farms in Central and Eastern European Countries Driven by Pro-investment Mechanisms of the Common Agricultural Policy," Agriculture, MDPI, vol. 10(4), pages 1-19, March.
    4. Dumortier, Jerome & Elobeid, Amani, 2021. "Effects of a carbon tax in the United States on agricultural markets and carbon emissions from land-use change," Land Use Policy, Elsevier, vol. 103(C).
    5. Rafiee, Zohreh & Breen, James & Kilcline, Kevin, 2023. "Policies to reduce GHG emissions from agriculture, their implications for agricultural activity levels and land use decisions in Ireland," 97th Annual Conference, March 27-29, 2023, Warwick University, Coventry, UK 334507, Agricultural Economics Society - AES.
    6. Adam Wąs & Vitaliy Krupin & Paweł Kobus & Jan Witajewski-Baltvilks & Robert Jeszke & Krystian Szczepański, 2021. "Towards Climate Neutrality in Poland by 2050: Assessment of Policy Implications in the Farm Sector," Energies, MDPI, vol. 14(22), pages 1-25, November.

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    Agricultural and Food Policy;

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