EU Green Deal and its impact on Agriculture

Estimated Reading Time: 11 minutes, 36 seconds

Summary

• What you missed at COP 27 (so far)

• EU Green Deal and its impact on Agriculture

• WHAT YOU CAME FOR. A GIF OF A HAPPY COW

What you missed in Agriculture COP 27 (so far)

This week begins COP 27, a UN climate conference where world leaders discuss climate change. Hopefully they don't talk too much and can set up the incentives that help us conquer this challenge. 

• Developing Countries need $1 trillion / year in climate financing: By the end of the decade developing countries need to reach $1 trillion in annual financing from development banks and wealthy countries to meet their climate targets.

• What to expect from COP 27: This World Economic Forum podcast looks at the role of private business in Climate Change mitigation.

• EU Accuses US of violating WTO rules: The EU believes that the US government has incentivised too much investment in green energy and is nervous that the incentives will drive innovation out of Europe.

EEU Green Deal and its impact on Agriculture

The EU Green Deal is Europe’s proposal to become the first climate neutral continent, by the year 2050. Europe will also have to reduce emissions by 55% through 2030. It reassesses every aspect of the bloc's economy, and is a massive piece of legislation.

Debate is ongoing in the european parliament and the bill's passage will take time. Unfortunately, we don’t have time to spare between negotiation and implementation. Much of the precise funding is in progress. This has delayed action on the plan, since member states and private business need regulatory clarity before investing in these sectors.

Legislation Summary

There are 15 separate pieces to this legistlation. These rules touch on land use agriculture and forestry, passenger car regulations, energy policy, and import regulations. If you’re interested in learning more, watch this masterclass.

The legislation divides the economy in two pieces; ETS sectors and ESR sectors. ETS sectors are heavy industry and expected to reduce emissions by 61% by 2030 from 1990 levels. The EU ETS covers these industries, and has proven to be effective as you can see below

EU ETS is an emissions trading scheme you may remember from Carbon Markets (image above shows how the ETS works). ESR is everything else that makes up a local economy; think construction, transport and agriculture. ESR stands for Effort Sharing Reduction, each nation has its own targets determined by GDP and current progress. This allows some economies to continue economic growth while polluting at lower levels. ESR will need to meet 40% reductions compared to 1990 by 2030.

The legislation will get Europe to 55% of its 1990 emissions by 2030. It will reduce ETS emissions by 61% and ESR sectors by 40%. Most importantly, if this succeeds Europe will be the first continent to reach Net 0 emissions.

Notable non Agriculture pieces of the legislation

This is not an Agriculture bill, and addresses many pieces of the EU economy. Here is a high level glance at what other stuff the proposal contains, and gives a high level look at a few of the challenges the bill addresses.

The EU will put in a Carbon Border Tax (Carbon Border Adjustment Mechanism). That means that producers from outside the EU must compensate for their emissions, based on ETS standards. The Border Tax helps protect European businesses from losing business to offshoring.

The EU ETS will continue to tighten its standards. ETS sectors are the only sectors of the economy that are outpacing their climate goals (as we saw in the chart above). Putting a price on Carbon emissions can be an effective strategy for Climate Change mitigation.

Transportation emissions from homes and motor vehicles will not participate in trading schemes. Yet, energy companies will have to take part in emissions trading, which will increase fossil fuel prices. This way the consumer will bend the end cost of emitting. The money generated from those trading schemes will power the Social Climate fund, which helps families living in energy poverty across Europe.

Auto manufacturers have a specific number of CO2 grams / km their fleet must be able to achieve. This number will decrease towards 0 by 2035.

The bill calls for 32% renewable energy, and 32.5% improvements in energy efficiency by 2030. It will also force the maritime, and airline industries to clean up their consumption with sustainable fuels.

The legislation goes deeper into these issues, and I can only recommend diving in. But, we’re focused on agriculture here so let’s get to it!

Land Use Forestry and Agriculture

The bill looks to ensure food security, reduce environmental impact, and build a sustainable food system.

The land use and forestry sectors need to reach net 0 emissions by 2025. This is achievable as this is the business of plants and nature based offsets. By 2030 the land use sector of the European economy should have net removals of 310 million tonnes of CO2. When you add agriculture into the mix, the combination should be carbon neutral by 2035.

Agriculture and Land leave implementation up to individual nations. The EU provides general recommendations, to reach ESR goals. These include; reducing non CO2 emissions from livestock and fertiliser, improving carbon soil storage capacity, shifting towards an organic circular economy, fostering sustainable forest management and enhancing multifunctionality, and forest ecosystem preservation.

CAP Reform

The EUs most critical tool for Agriculture is the Common Agricultural Policy (CAP). It establishes subsidies and policy around Agriculture in Europe. One benefit is the cheap produce Europeans enjoy year round. The EU Green Deal uses CAP as a major tool to influence the agriculture industry.

Each EU country designs a strategic CAP plan, which funds income support, rural development, and market measures. The reformed CAP’s must contribute to the goals of the European Green Deal. These include; higher green ambitions, improved eco schemes, and rural development.

First is the Soil Strategy for 2030. Right now, 60-70% of European soils are unhealthy. The Soil Strategy is a set of concrete measures to protect and achieve healthy soils by 2050. It will restore degraded ecosystems and protect against desertification. It emphasises soils with the most potential to capture and store carbon. This will include making technology, like soil testing and data, more available to land stewards.

The updated CAP is will incentivise innovation. It allocates a larger percentage of its budget to work with young farmers than ever before. It supports eco-schemes, which will be 25% of direct payments. Ecoschemes can include Carbon Farming, Agro-forestry and other climate positive farming methodologies

Next, are Green Direct Payments. Farmers receive these payments when they reach goals in three areas. Crop Diversity; a greater variety of crops makes soil and ecosystems more resilient. Maintaining permanent grassland; grassland supports carbon sequestration and protects biodiversity. Dedicating 5% of arable land to areas beneficial for biodiversity will receive improved payments. Green Direct Payments incentivise farmers to invest in the sustainability of their land, particularly their grasslands.

Finally, comes the rural development plan, CAP’s initiative to strengthen sustainability in rural areas. This will foster the competitiveness of agriculture and forestry. It encourages the balanced development of rural economies and communities, through sustainable action.

Farm to Fork initiative

Farm to Fork is the heart of the Agriculture reforms in the EU Green Deal. It will build a sustainable food system with; a positive climate impact, that reverses loss of biodiversity, and ensures a secure affordable food system. It's seen by many as game changing and the first step towards food governance.

The initiative looks to ensure sustainable food production. The CAP or private markets will award foresters and farmers for Carbon Sequestration. New EU carbon farming initiatives will support this business model for farmers.

To continue building a sustainable food economy, the EU will focus on the infrastructure around food. That means new fertilisers, protein and biochemicals that help move towards climate neutrality. Advances in AI could help advance protein discovery for these use cases even more quickly. They also encourage farmers to reduce methane production in livestock. This could include usage of Seaweed with ruminants, and more.

Ecoschemes will see major streams of funding to boost sustainable practices. This includes; precision agriculture, agro-ecology (including organic farming), carbon farming and agroforestry. Each individual nation should create a plan to ensure these are adequately resourced.

The EU will build advisory services that help farmers understand their farms even better. The Farm Sustainability Data Network will collect farm level data to create sustainability indicators. Farmers can benchmark themselves, and make sustainable agriculture more competitive. Along with a series of advisory services that provide feedback and guidance on best practice to achieve the best outcomes.

Organic Action Plan

The Organic Action Plan is a plan to help the EU convert 25% of its agricultural land to organic by 2030. That’s 3x growth from todays level, doubling the current rate of adoption. The plan includes; improved distribution schemes for organic foods, best practice sharing, and improved eco-schemes.

You'll recognize much of the Organic Action Plan (here, is the actual plan), as we’ve seen most of it in the Farm to Fork initiative. The execution of this plan will make organic competitive and allow it to reach its full potential with funding from two laws.

Organic farmed lands have about 30% more biodiversity than conventionally farmed land. Biodiversity creates healthier soils. Organic farming also offers the most robust certification method. It should lead with more sustainable farming practices, better renewable resource use, higher animal welfare standards and increased incomes for farmers.

To improve the distribution of organic foods, the EU will encourage local and national strategies to make organic food more available. This will include the EU school scheme, which distributes fruits vegetables and milk to children as well as in canteens. With organic food more available at local and national levels, the EU believes it can spark an increase in demand of these products.

The action plan also outlines how it wants the private sector to contribute. It will optimise the organic supply chain, improve transparency for consumers, and incentivise partnership between retailers and organic farmers.

To improve the organic land usage, the EU has decided to share best practice. They’ve begun building knowledge sharing systems that give farmers access to technical help. Educational institutions are encouraged to teach about organic farming and its innovative solutions. Demonstration farms become as teaching tools and for information dissemination. They give growers more benefits, like improved participation and ecosystem specific informatiion. This plan also includes more sector reports, better data reporting and sharing.

Finally, the plan improves agriculture schemes. This is the advancement of farming to improve the climate footprint of the agricultural sector. It calls for improved biodiversity, and closing the yield gap between organic and conventionally grown crops. This means better resource usage, like water and nutrient distribution. To get to this, the lan calls for investigations into alternative farming methodologies. It also looks to reduce waste in the sector through addressing the use of plastic and other chemicals. Even organic farms produce massive plastic and chemical waste.

All in All

The EU Green Deal focuses on many areas of the economy, and has promise to make an impact on global climate change. The deal brings to bear some great policies, but implementation is what matters.

This policy is still begin debated, and we have little more than 7 years until the first deadlines. To achieve those goals, implementation must happen quickly. EU Member State Governments are dragging their feet on making the expensive investments that should power the economy, because of the lack of clarity from the EU. So far, policy hasn’t front loaded action that will be required to achieve our climate goals. The Economist even ran a cover story saying that 1.5 is dead (Great read if you want to see how we've lolly gagged).

The EU Green Deal allows less developed countries to adopt sustainable technology at a slower pace within the Effort Sharing Reduction (ESR) sectors. While this is a smaller percentage of the Unions emissions, it does still contribute. ESR sectors, like transportation and agriculture have regulations set on a nation by nation basis. While this configuration can allow for wealthier nations to invest more into research, it does little to help less wealthy nations sustainable development in the long run. The delayed transfer to sustainable infrastructure doesn't actually solve the growth inequality problem the ESR strategy is meant to solve.

The green deal focuses heavily on the energy sector, which as we’ve seen is vital to Europe’s economy. It should accelerate the development of clean energy and efficient building. These two sectors power everything else. The Carbon Border Adjustment Mechanism is a statement to the world on trade. Anyone who wants to trade with the EU, must be working towards improving sustainability.

The biggest issue with these policies is that they do little to address the pricing of Carbon. Pricing carbon emissions is difficult to do well. Currently, carbon markets trade at a 50% discount for what the Whitehouse estimates as the cost per ton. This means that the unsustainable growth, which has gotten us into this situation is still of good value. Once the economy pursues sustainable growth over growth for growth’s sake, this policy will become more powerful.

Overall, these policies take a long time to debate and enact. In their current form they don’t seem to offer enough guidance, particularly in ESR sectors. This lack of guidance gives an out to nations that may not be able to reach their climate goals, and thus hold the whole world back.

Although the policy lacks in a few areas, it is a step in the right direction. The investments in the sector are being derisked with policies like the EU Green Deal and the Inflation Reduction Act. The IRA, so much so that the EU has identified it as a trade threat to European exports.

The Green Deal will affect Europe’s GDP, but this issue requires the sacrifice of short term growth for long term survival. As Europe has shown in the past (Greece 2015), it is susceptible to knock on effects affecting the entire zone’s economy. This must be taken into consideration when looking at economic effects of the legislation.

Climate Change is the issue of our time. World leaders have aligned on it, and the EU Green Deal is a step in the right direction. Similar to FDR’s New Deal, the EU Green Deal could cause economic havoc in the short term, but will lead to long term prosperity. We see that this is considered the "decade of implementation." These policies lay out the ground work, but as Al Gore said in his COP 27 speech "we need the private sector." None of this works without private individuals looking to make a change and innovate in this space.

GIF - HAPPY COW