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Introduction: Commissioned by the Commission’s Directorate General for Climate Action, this study, conducted by Trinomics, IEEP, Ecologic, the Austrian Environment Agency, and Carbon Counts, responds to a 2021 European Court of Auditors report. It aims to assess applying the polluter-pays principle to agricultural emissions, aligning with EU climate goals.
Current Situation: Agricultural emissions account for approximately 13.2% of the EU27’s total net GHGs. Current projections suggest stagnation in emissions, posing a challenge to meet the EU's net zero emissions target by 2050.
Rationale for Polluter Pays Principle: GHG emissions in agriculture impose social and environmental costs not reflected in market prices. Implementing polluter pays policies can internalize these costs, promoting more sustainable practices. Implementing a polluter pays policy in agriculture faces challenges such as administrative complexity, lack of consistent MRV tools, potential carbon leakage, and resistance from stakeholders due to economic insecurity and cost concerns.
Policy Options: The study incorporates five objectives into the design of polluter pays policies, including minimizing implementation burden, providing effective MRV, safeguarding against carbon leakage, fostering innovation, and ensuring fairness. Five ETS options are analyzed, each with unique strengths and weaknesses. These options range from on-farm ETS to upstream and downstream approaches, aiming to incentivize emission reductions while balancing administrative feasibility and economic impact.
Recommendations: Combinations of different design aspects from the analyzed options could be considered. Preliminary actions include establishing harmonized GHG reporting tools, providing transitional aid, and aligning CAP funds with ETS revenues.
Open Questions: The study identifies areas for further research, including the feasibility of a Carbon Border Adjustment Mechanism, implications of tariff rate quotas, impacts of marketing strategies on consumer behavior, and distributional impacts across Member States.
