Subscribe to the Homing Bird for exclusive updates on carbon markets, economic news and sustainable investments that make a difference.
The agriculture sector is not covered by the EU ETS in 2024. However, discussions continue regarding the potential inclusion of the sector in carbon pricing schemes, but no definitive measures have been implemented yet.
Agriculture accounts for 13% of the EU's greenhouse gas emissions - it is a significant contributor to overall emissions. Despite a 15% decline in CO2 volumes between 1990 and 2000, emissions have remained relatively stable since 2005, with only a 2% reduction between 2005 and 2021. Projections indicate a forecasted decrease of 4% in EU emissions from agriculture by 2030 compared to 2005 levels, with potential for an 8% reduction with supplementary measures. To achieve the EU's climate targets, a reduction of approximately 40–60% in agricultural emissions by 2040 is necessary, requiring increased ambition in climate actions within the sector. While the EU's common agricultural policy (CAP) and the regulation on land use, land use change, and forestry (LULUCF) aim to address climate change in agriculture, the sector is not covered by the EU ETS in 2024. However, discussions continue regarding the potential inclusion of agriculture in carbon pricing schemes, but no definitive measures have been implemented yet due to the sector's unique characteristics and challenges.
Agriculture is a very important sector of Europe’s economy, occupying 38% of the EU’s land area. While contributing to 13% of the EU’s greenhouse gas emissions in 2023, there was a decline of 15% of the CO2 volumes released between 1990 and 2000. However, emissions have been relatively stable since 2005, with only a slight 2% reduction between 2005 and 2021.
A decrease of only 4% at the EU level is anticipated by 2030 compared to 2005 levels according to the European Environment Agency. This scenario follows a model where no additional levels to the ones done today are introduced. However, with the implementation of supplementary measures, an 8% reduction can be achieved according to EEA.
While agricultural greenhouse gas emissions have remained relatively stable at the EU level from 2005 to 2021, there has been significant variations in trends among member states. Specifically, emissions increased in 13 states and decreased in 14. Large decreases exceeding 10% were observed in Croatia, Greece, and Slovakia, while increases of more than 10% were noted in Bulgaria, Estonia, Hungary, Ireland, Latvia, and Luxembourg.
The European Union has committed to transition to a climate-neutral economy by 2050, with an interim goal of reducing greenhouse gas (GHG) emissions by at least 55% by 2030. Agricultural GHG emissions fall under the purview of the EU Effort Sharing Regulation (ESR), which establishes yearly targets for each Member State from 2021 to 2030 for that sector. Projections indicate that to achieve these reductions in agricultural emissions, Member States will need to step up their CO2 reductions effort. An impact assessment by the European Commission underscores the delay in diminishing CO2 (and non-CO2) GHG emissions from agriculture. This is why public authorities' involvement to boost decarbonization efforts is crucial.
Meeting the reductions necessary for achieving net zero emissions by 2050 demands a decrease of approximately 40–60% in agricultural emissions by 2040. This calls for heightened ambition in climate actions within the sector. As mentioned above, according to the EEA, existing measures are anticipated to result in a 4% reduction in agricultural emissions, while additional measures could lead to a 8% decrease by 2030 compared to 2005 levels. Thus, accelerating emissions cuts in the agricultural sector is fundamental. At the same time, regulators are determining the appropriate actions to ensure this occurs concurrently with addressing other sustainability concerns such as biodiversity loss, nitrogen pollution, and soil depletion.
Europe is already witnessing significant impacts from climate change on agricultural yields. Spain for example, the world's largest producer of olive oil, experienced a sharp decline in production to approximately 620,000 tonnes in 2023, contrasting with the five-year average of around 1.3 million metric tons in 2022, following Europe's hottest summer on record, ever. Economic losses attributed to extreme weather in EU Member States are on the rise, reaching an estimated €59.4 billion and €52.3 billion in 2021 and 2022, respectively. In Germany, estimated annual agricultural revenue losses due to drought for winter wheat alone exceed €23 million for the period 1995–2019. So, to ensure the preservation of agriculture and food security, it's imperative to decrease emissions globally. Agriculture, being a major emitter of CO2 as discussed above, can drive some part of the necessary change from within.
Making significant and fast changes in agriculture policies is challenging as it directly impacts households and the overall functioning of the economy. Dramatically increasing costs and operations in agriculture overnight is not feasible due to the sector's structure and the fact that it touches upon even the most precarious households. Also, from a political standpoint, discontent within the agricultural sector, as observed in countries like France, Spain, and others recently, further complicates the implementation of reforms and changes in agricultural policies. So, the complexity of enacting major transformations in agriculture are done while balancing economic, social, and political considerations.
The strength of the EU ETS lies in its ability to incentivize individual installations to decarbonize without prescribing specific methods. This approach gives the opportunity to industries to determine their own strategies for reducing emissions, with common environmental standards. However, due to the unique characteristics of agriculture and its sensitivity (as discussed above), it is challenging for it to be treated similarly to industrial or power sectors, particularly within a mechanism like the polluter pays principle. This is why for now, the primary standards for this sector are outlined in the Industrial Emissions Directive (IED) - it focuses on lowering emissions by establishing specific operational conditions to the sectors in question.
Some institutional studies suggest that agricultural GHG reductions should be treated separately for carbon dioxide (CO2), methane (CH4) and nitrous oxide (NO2), unlike in the existing Emission Trading Schemes (ETSs). Also, experts have highlighted the challenge posed by the sector's fragmentation - there are many actors with varying sizes and capabilities.
The EU's common agricultural policy (CAP) “supports farmers, ensures food security, addresses climate change, preserves rural areas, and boosts economic activity in farming and related sectors.” Managed at the European level and funded through the EU budget, CAP 2023-27, follows the European Green Deal to come up with broad strategies for European agriculture.
The regulation on land, land use change, and forestry (LULUCF) was implemented in 2023 to guide the land use sector as a response to the EU's climate objectives until 2030 (Fit for 55). For example, the updated regulation introduces a separate target for land-based net carbon removals, aiming for 310 million tonnes of CO2 equivalent by 2030, to aid in achieving climate neutrality by 2050. This EU-wide target is translated into national targets, determined by averaging greenhouse gas inventory data and the national share of net removals.
As discussed in previous articles, there have been ongoing debated regarding the inclusion of the agriculture sector in a carbon pricing scheme in Europe. Various European-wide surveys, academic research, and institutional studies have been conducted on this matter in the past. Media coverage has also shed light on these discussions. However, as of now, no definitive measures have been implemented.
.webp)
Start your journey
