A project-based system for including farmers in the EU ETS

Area of Science:

• Environmental Economics
• Agricultural Policy
• Climate Change Mitigation

Background:

• Agriculture is a major source of greenhouse gas (GHG) emissions in the European Union (EU).
• Farmers currently do not participate in GHG trading under the EU Emission Trading System (ETS).
• Land-use practices have been identified as crucial for climate negotiations.

Purpose of the Study:

• To address the empirical puzzle of why EU farmers do not trade greenhouse gases.
• To propose a system for incorporating agricultural practices into the EU ETS.
• To incentivize GHG reduction in the EU agricultural sector.

Main Methods:

• Economic analysis of farmers' marginal reduction costs.
• Modeling the impact of agricultural GHG reduction on the EU ETS.
• Designing a project-based system for emission reduction measurement and verification.

Main Results:

• Farmers likely have low marginal costs for GHG reduction.
• Including agriculture in the EU ETS is projected to have positive effects on permit prices and technology adoption.
• A project-based system can reduce uncertainty in measuring emission reductions from farming.

Conclusions:

• Integrating agricultural practices into the EU ETS via a project-based system is feasible and beneficial.
• Such a system would incentivize farmers to adopt GHG-reducing practices.
• Farmers could gain economic benefits through the trade of GHG permits.