Abstract
Methane emissions from livestock enteric fermentation and manure management represent about 40% of total anthropogenic greenhouse gas emissions from the agriculture sector and are projected to increase substantially in the coming decades, with most of the growth occurring in non-Annex 1 countries. To mitigate livestock methane, incentive policies based on producer-level emissions are generally not feasible because of high administrative costs and producer transaction costs. In contrast, incentive policies based on sectoral emissions are likely administratively feasible, even in developing countries. This study uses an economic model of global agriculture to estimate the effects of two sectoral mitigation policies: a carbon tax and an emissions trading scheme based on average national methane emissions per unit of commodity. The analysis shows how the composition and location of livestock production and emissions change in response to the policies. Results illustrate the importance of global mitigation efforts: when policies are limited to Annex 1 countries, increased methane emissions in non-Annex 1 countries offset approximately two-thirds of Annex 1 emissions reductions. While non-Annex 1 countries face substantial disincentives to enacting domestic carbon taxes, developing countries could benefit from participating in a global sectoral emissions trading scheme. We illustrate one scheme in which non-Annex 1 countries collectively earn USD 2.4 billion annually from methane emission permit sales when methane is priced at USD 30/t CO2-eq.
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Notes
Annex I countries (including the subset of Annex I countries who are also in Annex II) are parties to the UNFCCC that include members of the OECD, the Russian Federation, the Baltic States and several Central and Eastern European States. Most Annex 1 countries have ratified the Kyoto Protocol and thus committed to reduce their emissions of greenhouse gases. Non-Annex 1 countries consist mostly of developing countries that are not legally required to reduce emission levels under the Kyoto Protocol.
Attribution is important because the policy analyzed is a commodity tax based on embodied emissions. Incorrectly attributing emissions would distort the price signal given by the tax, resulting in an inefficient production response. For example, if all N2O emissions from manure were attributed to livestock and none to non-feed crops, then livestock products would be over-taxed and non-feed crops that use manure as an input would be under-taxed. This would result in the under-production of livestock products and the over-production of non-feed crops, relative to a social optimum.
Other potential methods for reducing methane emissions from manure include altering feeding practices, compositing manure, covering manure heaps, covering lagoons with permeable barriers such as straw. However, research on these methods indicates uncertainties in terms of effectiveness and the potential for tradeoffs in terms of greater N2O emissions (IPCC 2007).
Of course, this considers only methane emissions, and a consideration of total GHG emissions would yield somewhat different estimates. This is discussed in greater detail later in the text.
In some countries, standards designed to reduce water pollution from nitrogen run-off and leaching, such as the EU nitrates directive, may have indirectly caused substantial CH4 and N2O emissions reductions (EC 2009).
Before 2030, participants will be allocated a number of free emission permits based on historical emissions levels. The portion of free permits allocated will decline between 2019 and 2030.
The government of a country that “opts out” of a SCM would not be able to earn revenue from selling emission reduction credits. However, that country’s domestic producers would be able to take advantage of higher import and export prices. Global product prices would likely increase in response to the mitigation efforts in countries participating in the SCM.
Some distinctions between goods are made in the model according to country of origin to reflect existing trade rules regarding the sanitary status of livestock. In particular, beef and swine markets are segmented according to foot-and-mouth disease free and endemic regions.
Sheep wool is not included in the analysis because it is not included in the AGLINK-COSIMO model.
A more detailed analyses of emissions (Tier 2 or Tier 3) require country-level data that were not available. Tier 1 estimates were also derived for Annex 1 countries for comparison. The Tier 1 estimates of total methane emissions for the selected Annex 1 countries (those displayed in the following tables) was 19.5% lower than the values reported by the Annex 1 countries. This suggests that using Tier 2 or Tier 3 methods to estimate non-Annex 1 emissions would produce somewhat higher values, implying higher tax rates for the non-Annex 1 countries.
The tax also has an effect through input markets. The reduction in production of carbon-intensive goods (especially beef and to a lesser extent sheep) causes a decline in the demand for feed and pasture, which lowers feed prices. This benefits producers of other livestock commodities depending on how much they compete for feed and pasture with beef and sheep producers.
Tax rates depend on methane emissions per dollar of output, which in turn depends on local methods of production, livestock productivity, and prices.The tax rate on beef in Canada is close to the average for Annex 1 countries, but it is about 50% higher than the US tax rate. Since most of Canada’s trade in beef is with the US, the tax results in a relatively large decline in net exports and beef production.
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Acknowledgments
This research was partly supported by the Food and Agriculture Organization of the United Nations. The authors would like to thank Theun Vellinga, Pierre Gerber, Carolyn Opio, Henning Steinfeld, and Merritt Cluff for helpful insights and assistance. We would also like to thank three anonymous reviewers for their valuable comments. The views expressed are the authors’ and do not necessarily reflect those of the Economic Research Service, USDA or the OECD.
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Key, N., Tallard, G. Mitigating methane emissions from livestock: a global analysis of sectoral policies. Climatic Change 112, 387–414 (2012). https://doi.org/10.1007/s10584-011-0206-6
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DOI: https://doi.org/10.1007/s10584-011-0206-6