Climate mitigation in agriculture: Emission Targets, Trade Policies, and Technological Solutions

Rising global temperature necessitates increased mitigation actions. These actions must also be expanded to emissions from sectors considered hard to abate, such as agriculture. For instance, in Denmark, where agricultural emissions represent a large share of total emissions, agriculture has recently been in focus, with the establishment of a sectoral reduction target and a carbon taxation scheme. However, this is not the case in most other countries, making the future trajectory of global agricultural emissions highly uncertain. This lack of knowledge about the future political landscape of agricultural mitigation efforts creates challenges for understanding the sector’s future development, including the design and implementation of concrete decarbonization pathways.

This forms the starting point of the thesis, which consists of three papers. Each paper focuses on different elements of agricultural mitigation actions. The first paper examines sector-specific emission reduction targets in agriculture at the country and global levels. This paper investigates how different countries have included or will include agriculture in their climate mitigation plans. Currently, only a few countries have agriculture-specific emission targets, making it difficult to create credible global agricultural emission trajectories. It is thus not surprising that most quantitative economic analyses of global agricultural mitigation are based on “assumed” rather than “plausible” trajectories. This paper uses cluster analysis to predict plausible climate ambitions at the country level, considering country characteristics and the ‘common but differentiated responsibility’ principle. This results in agricultural emission trajectories toward 2030 for all countries, which, when combined, still exceed the 1.5°C temperature target, indicating the need for strengthened national and global mitigation ambitions.

Recognizing the concerns about sectoral competitiveness and carbon leakages connected to unilateral climate policies in agriculture, the second paper explores trade policy options ensuring that foreign and domestic producers face the same climate-related costs (such as carbon pricing) in the domestic market when emission reduction targets are established. Building on the trajectories from the first paper and focusing on possible extensions of the EU carbon border adjustment mechanism (CBAM) to the agricultural sector, this second paper explores the design of the CBAM across three dimensions—participating countries, emission intensity, and carbon price—using a recursive dynamic computational general equilibrium model. The results show that CBAM designs involving a broader coalition of countries and based on the actual emission intensity of imported products are more effective in addressing emissions and competitiveness concerns. Furthermore, harmonization of domestic carbon pricing through emission trading between countries imposing agricultural CBAM is preferable to the use of average carbon prices. However, the results also suggest that CBAM designs that are more effective at reducing global emissions tend to harm trade flows more and protect most emission-intensive domestic production more, thus pointing to the downsides of applying such tools in agriculture.

The third paper addresses the endogenous adoption of abatement technologies motivated by climate policy in agriculture. In general, climate change in the agricultural sector is considered hard to abate due to a lack of technological options. This paper first provides an overview on whether and how current models incorporate abatement technologies and the extent to which actual marginal abatement cost estimates are used. Based on this extensive review, this paper develops a new model structure for directly incorporating abatement technologies attached to individual emission drivers and sectors that are triggered by agricultural carbon pricing and consider different technological cost distribution methods. We observe that failure to incorporate technologies leads to overstated mitigation costs and that attributing the cost to producers results in slight additional production reductions, whereas the attachment of cost to society has a minimal impacts on production, which varies across subsectors, slightly increasing the production of some sectors relative to the free technology cost implementation.

In summary, this thesis explores the future of the agricultural sector under heightened pressure to participate in climate mitigation plans. It discusses the need for more knowledge about what countries are doing to limit their climate footprints at the sectoral level and explores policy instruments for addressing two common arguments against sector-specific targets in agriculture (i.e., loss of competitiveness and lack of technological abatement solutions). The thesis highlights the need for broad multilateral actions to constrain agricultural emissions, how trade measures may protect the sector but do not significantly reduce emissions due to low sectoral trade shares, and the importance of technology in current abatement plans. The thesis’ methodological contributions include new model development in modeling trade policy instruments for climate mitigation purposes and the direct inclusion of endogenous abatement technologies at detailed technology and sector levels, represented in marginal abatement cost curves. These new modeling structures can be applied to several related areas of policy studies.