Reducing greenhouse gas emissions from agriculture is important in order to reach global and regional climate targets. However, the efficiency of unilateral climate policies aimed at reducing emissions might be hampered by emission leakage. One way to eliminate leakage is to implement a global emission tax. In this study, we compare unilateral and global taxation of greenhouse gas emissions from agriculture through simulations using the CAPRI model.

Key policy insights:

• A unilateral emission tax in the EU causes significant emission leakage. This result depends strongly on differences in emission intensities between regions.
• A “watered down” global emission tax achieves a considerably larger global emission reduction than an EU tax accompanied with a border carbon adjustment, while putting less strain on regional food security than a global tax at full carbon price level.
• Tax rebates for poorer countries reduce the effectiveness of the global tax because producers with higher emission intensities tend to get lower tax rates, and so other ways of taking equity into account should be sought when designing climate policies in the agricultural sector.

This working paper is published as Carbon taxes and agriculture: the benefit of a multilateral agreement

För en populärvetenskaplig version på svenska se AgriFood Policy Brief 2022:3