1. Institutional aspects of policies for climate change mitigation in agriculture – reflections on experience with agri-environment schemes Ian Hodge Department of Land Economy University of Cambridge Workshop on mitigation of CO2 emissions by the agricultural sector Bergen, 3 rd -4 th October 2011 1 UNIVERSITY OF CAMBRIDGE Department of Land Economy

2. 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 2 Department of Land Economy

3. Emissions of GHG from agriculture Globally: –14% GHG emissions from agriculture 47% of global CH 4 (esp. enteric fermentation in livestock digestion) 84% of global N 2 O (esp. from N and manure application to soils) –17% GHG emissions from land use change Land use change (esp. deforestation) 3 Proportion of global carbon emission from various sources, 2004 (Intergovernmental Panel on Climate Change, 2007) Department of Land Economy

4. Main sources of GHG emissions in agriculture 4 Source: Smith et al. 2007 Department of Land Economy

5. GHG emissions from agriculture (Sample of farms in England) 5 Cereals Dairy General Hortic. LFA Lowland Mixed Nature Cropping Grazing Grazing Reserve Natural England. (2008). Carbon Baseline Survey Project Department of Land Economy

6. 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 6 Department of Land Economy

7. GHG mitigation in agriculture N 2 O –Crop management –Fertiliser efficiency –Manure management –Reducing manure-N Methane –Reduced enteric fermentation –On-farm / centralised anaerobic digestion 7 Department of Land Economy

8. 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. 2011 8

9. Indicative mitigation options in agriculture: some low hanging fruit? 9

10. Carbon sequestration Land 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 10 Department of Land Economy

11. 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? 11 Department of Land Economy

12. 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 Department of Land Economy 12

13. 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 Department of Land Economy 13

14. 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 Department of Land Economy 14

15. Defining property rights Public goods and environmental damage 15 Public goods Landscape BiodiversityExternal benefits:Provider gets principle Ecosystem functions Community support _____________________ Reference level for environmental quality _____ Environmental damage Soil erosion Water pollutionExternal costs:Polluter pays principle Pesticides in the environment Atmospheric emissions Department of Land Economy

16. Policy approaches 16 Social optimum Environmental quality Private optimum Reference level Provider Gets Principle Polluter Pays Principle Department of Land Economy

17. 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 Department of Land Economy 17

18. 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? 18 Department of Land Economy

19. 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 sites 19 Department of Land Economy

20. 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 Department of Land Economy 20

21. 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 21 Department of Land Economy

22. 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 Department of Land Economy 22

23. 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) Department of Land Economy 23

24. 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 Department of Land Economy 24

25. 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 Department of Land Economy 25

26. 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 Department of Land Economy 26

27. 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 Department of Land Economy 27

28. Policy options for carbon sequestration in land RegulationCarbon MarketEnvironmental contracts PrecisionLowHigh Transactions costs LowHigh Long term security HighMediumLow Dynamic incentives LowMedium Co-benefitsLow High Equity/ fairnessLow??High 28 Department of Land Economy

29. 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 29