Will taxing ag emissions actually work?

Earlier this year, the Danish Climate Council, an independent advisor to the Danish Government, recommended the introduction of a tax on agricultural emissions to help the country hit its emissions reductions targets. 

A similar proposal was put forward to the New Zealand Government last year, which proposed taxing biogenic methane and nitrous oxide emissions at the farm-level.

These types of initiatives are increasingly in the spotlight, especially as we close in on the 2030 and 2050 timelines to achieve climate targets that have been set by countries and companies around the world.

But, implementation in systems as complex as agriculture, and specifically in livestock sectors which are the focus of these policy measures, will be very challenging. It will be even harder if different policy levers are pursued in different countries. This impacts the actual climate outcomes that we are able to achieve as a planet.

Good intentions, but unintended consequences? 

From a climate action perspective, putting a price on emissions is of course a strategy that has been applied in other sectors of the economy–and can be a sensible approach. 

But we see a risk arising if these levies are disproportionately applied in markets where there is already relatively high efficiency: if the economics change, will production and/or procurement shift to lower cost, but less efficient, geographies? 

This might not happen for products where provenance is part of the value proposition (e.g., if consumers believe that the happiest cows that produce the healthiest milk come from Country X, then switching to Country Y won’t happen easily). But, for true commodity products, this seems at least plausible. 

Climate action cannot be an every-country-for-itself approach

We absolutely need to reduce emissions in countries like New Zealand and Denmark. But if we are doing it at the expense of outsourcing production to markets that are less efficient and result in more emissions per unit of production– we will be no better off as a planet. This “every country for its own” approach could have severe consequences not only for farmers but also for us as habitants of Earth. 

The increasing momentum for climate action, including in agriculture, is much-needed and promising. And even in high-efficiency countries, there’s still plenty of room to do better- and we must. We also need to carefully consider the potential implications of how we take action to ensure that we mitigate unintended consequences and prevent emissions “leakage.” 

There’s plenty more to dig into here (and we will be doing so!). If you have thoughts- agree? disagree? - we’d love to hear from you. 

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Key takeaways

  • New Zealand and Denmark are both considering proposals to tax agricultural emissions
  • Taxation on agricultural emissions in high-efficiency production systems could result in increased production in lower efficiency markets, increasing total global emissions as a result
  • We need to take a systems-approach to addressing climate challenges in ag to mitigate impact of unintended consequences

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