Opt-in of the agricultural sector to the European trading scheme for greenhouse gas emissions – a proposal and its possible effects

Abstract

In light of international discussions on a possible opt-in of the agricultural sector to the current European emission trading system for greenhouse gases, the objective of this article is to present a feasible implementation strategy for a market of emission permits in European agriculture and to simulate its economic effects within the regionalised agricultural sector model CAPRI. With this purpose, we compare the effects of a 15% reduction of greenhouse gas emissions from European agriculture with and without a trading scheme. Our findings suggest that if significant emission abatement is to be achieved in the agricultural sector, efficiency gains from expanding the current emission trading scheme to this sector can be appreciable. An additional finding of this paper is that under the current protective measures in the CAP and in the absence of a successful WTO reform round, emission reduction does not result in a net income loss for the agricultural sector due to the ‘quota effect’ caused by the isolation of European agricultural markets from world markets.