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VII. Achieving mitigation

Cost-effectiveness

34. Although there are many different potential ways for agriculture to mitigate GHG emissions, not all of them are equally attractive. Whilst some are technically feasible now, others are not yet proven and require further research. Of those that are currently feasible from a technical perspective, some are more expensive to implement than others and, all other things being equal, lower cost options should be pursued before higher cost options.

35. Moreover, to justify adoption, the costs of any given mitigation option have to be less than the benefits it conveys. The latter include the value of damage avoided by reducing GHG emissions, referred to as the social cost or the shadow price of carbon. The impacts of these options on associated multifunctional ecosystem services also need to be taken into account (see Table 22 for an example).

36. Although subject to on-going academic debate and contingent on the atmospheric concentration of GHGs (which varies across the different emission scenarios referred to earlier), the shadow price of carbon is currently cited as around £25/t CO ₂e. The relationship between costs and benefits can be represented diagrammatically by a Marginal Abatement Cost Curve ( MAC), as shown below. The curve slopes up from left to right and gains in steepness, showing that the costs of additional mitigation become progressively higher the greater the level of total mitigation that is sought.

37. The MAC also divides into three segments with a lower segment (lower left) relating to measures that have negative costs and actually increase farm profitability, a middle segment that imposes private cost to farmers but overall positive net benefits to society, and an upper segment (upper right) that actually costs more to implement than the benefits delivered to society.

Stylised Marginal Abatement Cost Curve for CO 2e

38. The economically justifiable level of agricultural mitigation thus depends jointly on the shape of the MAC and on the shadow price of carbon, with the economically justifiable level often being significantly less than the technically feasible level. In the absence of detailed cost data for Scottish or even UK implementation of many mitigation techniques, it is difficult to confidently identify unambiguously cost-effective options. Nevertheless, the example options presented in Table 22 can be viewed alongside the stylised MAC to draw some general conclusions.

39. First, available information does strongly suggest that best management practices offer "win-win" solutions (lower left segment of the MAC). That is, for example, gradual on-farm adoption (and regular maintenance) of modern machinery and buildings when they are due to be replaced delivers improved energy efficiency whilst enhanced nutrient budgeting and manure management can also result in both lower farm expenditure and lower emissions. The private and social cost-effectiveness of altering livestock diets or rearing systems is less clear given possible implications for GHG emissions elsewhere and the current marketing image of extensive Scottish livestock.

40. Second, available information also suggests that currently socially cost-effective mitigation (middle segment of MAC) probably includes the restoration of degraded soil, accelerated woodland creation and the use of biomass for energy. All three impose costs on farmers and will require public assistance to either offset private losses and/or support capital infrastructure investments.

41. Third, other options, such as bioethanol or biogas from anaerobic digesters appear to currently require even higher levels of public support (upper right segment of MAC) and to have less certain net effects on GHG emissions. Hence, at present, even when technically feasible, the cost of reducing emissions by one tonne exceeds £25 for some options - which are therefore not currently worth adopting from society's perspective. However, the shadow price is expected to rise over time and new technologies and greater familiarity with current technologies may lower costs such that more options become viable in the future

42. Such calculations are hindered further by the need to account for net emission effects elsewhere in the supply chain or in other locations. For example, reducing Scottish livestock production would lower domestic emissions - but not necessarily global emissions if similarly polluting overseas production increased as a result, a phenomenon referred to as `leakage`. Equally, encouraging cereal production for intensive livestock rearing or bioethanol production may have a relatively small, or even negative, net effect on emissions whilst also distorting commodity markets for grain.

43. In addition, due to the multi-functional nature of farming, efforts to reduce agricultural GHG emissions may have positive or negative effects on other public good or externality aspects of agricultural production, such as biodiversity, water quality or rural community vitality. Accounting for such co-benefits may affect the relative cost-effectiveness of different mitigation options. All other things being equal, apparently low-cost mitigation may be less attractive if it damages other co-benefits; high-cost mitigation may be more attractive if it also delivers other co-benefits. There are clear overlaps here with the principles and systems perspective of sustainable agriculture, including (but not restricted to) organic farming, and with wider debates about sustainable production and consumption.

Table 22: Selected examples of Scottish agricultural mitigation options

Source: Pareto report www.scotland.gov.uk/topics/agriculture/agricultural-policy/17289/change, derived from a number of different sources, each using very different assumptions, scenarios and reporting styles and relating to different countries, currencies, timeframes and policy contexts - few of the which relate to the UK, let-alone Scotland. Hence the above table is an attempt to collate and present results in a common, qualitative format but inevitably requires some interpretative licence and additional assumptions for extrapolation to the Scottish context. Further research in a Scottish-specific context is needed to provide the necessary accuracy for policy decisions. As a rough guide: for "Technical feasibility", "High" signals an existing technology that may be adopted relatively easily; "Medium" signals either an emerging technology and/or an existing one with some barriers to adoption. For "Potential emission reductions", "Medium" equates to 10% to 50%; and "Low" to less than 10% - all relative to total agricultural emissions rather than the specific targeted source, and thus reflecting both the relative size of the specifically targeted source and the efficacy of the measure on that source. For "Approximate MAC segment" see section VII above. "Lower left" indicates a positive impact on profitability, "Middle" indicates some doubt over private profitability and/or capital investment requirements, but still overall social net benefits, "upper right" indicates not only a private loss but also a social loss - with all three taken relative to a shadow price of £25/t CO ₂e and all highly dependent on prevailing market conditions and policy incentives. A "(* )" signals dependency on uncertain producer or consumer behaviour. Specifically, the apparent current fragile viability of some livestock operations and the possibility of domestic emission savings simply being offset by increased emissions from imported meat products. For "co-benefits", "+" signals positive effects, "-" negative and "+/-" either possibility depending on context.

Encouraging mitigation

44. Any mitigation option requires some adjustment to agricultural practices. In some cases, for best management practices not currently adopted widely, farm profitability may increase. Indeed, estimated reductions of around 6% in annual sectoral emissions since 1990 and forecast further savings of a similar level by 2025 are largely attributable to individual farmers autonomously pursuing more profitable operations. However, for many mitigation options, on-farm costs will be incurred in the form of income forgone or extra effort expended. In these cases, the private cost will be borne by individual farmers whilst the benefit will accrue to society.

45. Hence, as with other examples of public goods and externalities associated with agriculture, whilst some farmers may have altruistic motives and/or be swayed by social pressures, most will require active encouragement to adopt additional mitigation options.

46. Essentially, the policy choice is between either incentivising or obliging (via regulatory controls) farmers to engage in significant mitigation activity. In this respect, climate change may pose some fresh challenges, but the types of issues arising are relatively familiar from recent trends in the evolution of the expectations placed upon agriculture by society. That is, increasingly, agriculture and land use more generally are viewed not only as providing commodities such as wheat and beef, but also non-market benefits (public goods and externalities) such as ecosystem services and, as with GHG emissions, pollution reduction. Climate change offers yet another compelling argument for better co-ordination across different aspects of land use policy.

Regulatory and Incentive mechanisms

47. Although their relative efficacy is yet to be determined, the new Scotland Rural Development Plan does include a number of climate change incentive packages to encourage mitigation activities. Amendments to application criteria, to prioritise climate change, could encourage the uptake of such measures. However, the level of funding available for Rural Development Contract measures is constrained, and thus the aggregate effect on emissions may be limited unless additional funding is offered. Moreover, the ability of SRDP measures to deliver significant emission savings (and other desired co-benefits of land use) is also restricted by the payment levels being constrained to compensation for income forgone and costs incurred, rather than the value of emission savings. This inevitably lowers the relative attractiveness of SDRP measures given other policy and market influences, such as high grain prices.

48. As an alternative, regulatory approaches are already used to address other diffuse pollution problems associated with land use, notably nitrates and sedimentation in watercourses. Hence measures similar to those applied under the Water Framework Directive ( WFD) or Nitrate Vulnerable Zones ( NVZs) could be extended to address climate change issues. Equally, cross-compliance aspects of the Single Farm Payment ( SFP) under Pillar I of the CAP could be extended to include measures expressly related to reducing GHG emissions. The latter "greening of Pillar I" could avoid some of the funding and administrative issues associated with Pillar II measures.

49. More imaginatively, the value of emissions could perhaps be better reflected through market mechanisms based on carbon trading, if measurement accuracy could be improved and monitoring costs reduced. Whilst the current EU Emission Trading Scheme ( ETS) would be administratively too costly to apply to agriculture, there may be scope to use supply-chain or industry codes of practice or quality assurance schemes to underpin some form of trading or voluntary carbon off-set scheme. In this context, the stated intention of the New Zealand Government to include their agricultural sector in an ETS by 2013 is extremely relevant and interesting.

Achievable mitigation

50. With current technologies, the level of technically achievable agricultural mitigation is clearly significant but constrained by biological realities. For example, methane production from enteric fermentation can be reduced but not eliminated completely whilst sequestration into organic soil carbon has an upper bound, a saturation point. Equally, there is a finite limit to the volume of biofuels or biomass that can be grown in Scotland.

51. However, the technical limits to mitigation are generally less binding than the constraints imposed by economic trade-offs, whether expressed quantitatively in terms of shadow carbon prices or more qualitatively in terms of political/social acceptability and priorities. The latter include consideration of co-benefits such as landscapes and biodiversity but also strategic issues such as food and energy security.

52. As a specific example, significant reductions in emissions from Scottish agriculture could be achieved through radically lowering the volume of production and/or by changing the composition of output to reduce the number of ruminant livestock. Technically, this is relatively straightforward. However, it might have serious implications for a number of co-benefits, including maintenance of semi-natural habitats and for the economic structure of not only rural areas but also the wider food manufacturing sector. Moreover, unless matched by changes in consumption patterns (i.e. consumer diets), any apparent GHG emission savings might be illusionary due to "leakage" to production abroad. Whilst debates about sustainable consumption and production are highly relevant to tackling climate change and are related to comments about the need to join-up across government, they are outwith the remit of ACCSG: an intentional policy of dramatically reducing the size of the agricultural sector is not recommended here.

53. However, it is recognised that the decoupling of CAP support and current market conditions will by themselves lead to some reduction in livestock production and therefore GHG emissions. Indeed, most of the reported reduction in emissions since 1990 and some of the anticipated further reductions by 2025 are attributable to lower livestock numbers. Wider adoption of best management practices - possibly requiring enhanced information and advisory services - will also contribute to total anticipated savings by 2025 of around 12%-15%, achieved autonomously through the actions of individual farmers seeking to improve farm profitability.

54. However, achieving mitigation beyond this autonomous level will require active public intervention in the form of additional regulatory and incentive measures. Whilst definitive figures do not exist, the technical potential and apparent cost-effectiveness of soil restoration and appropriate woodland creation seem to offer the most likely route to further savings in the short-run, perhaps of the order of a further 6%-10%. A higher shadow price of carbon and/or technical advances would offer higher net savings through additional mitigation effort. Given the reversibility risk of sequestration, measures may also be required to protect existing stores of organic carbon - such as peat soils and standing timber - from adverse management. This may become increasingly important if commodity market conditions continue to favour an expansion of arable production.

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