KEF, Alm.del - 2024-25 - Bilag 136: Orientering om oversendelse af EU non-papirer om henvholdsvis et ETS for landbruget og finansiering af energiinfrastruktur fra regeringen i forbindelse med tidlig EU interessevaretagelse, fra klima-, energi- og forsyningsministeren

Klima-, Energi- og Forsyningsudvalget 2024-25
KEF Alm.del Bilag 136
Offentligt

Denmark’s position on an EU ETS for

agriculture – incentives for a sustainable,

climate-friendly and competitive

agricultural production in the EU

A green transition of the European Agricultural sector needs to be effective, implementable across the EU

and economically feasible while ensuring food security. Experience from the recent Agreement on a Green

Denmark shows that this can be done by combining a direct price signal on farm level with an enabling

framework, which incentivizes and provides revenue to support the individual farm in implementing green

production methods and technologies while staying competitive. Denmark believes that the Agreement

can serve as an inspiration for the development of an effective ETS for agriculture in the EU. An EU ETS

for agriculture should thus:



Provide a direct price signal on farm level to deliver emission reductions with the lowest economic

costs while minimizing the risk of carbon leakage to third countries.

Facilitate the development and uptake of green technologies and sustainable production methods

on farm level to ensure a sustainable level of food production including to provide food security.

Be manageable, reliable and limit the administrative costs for farmers and government administra-

tions.

Ensure the environmental integrity through an efficient regulatory framework and credible monitor-

ing, reporting, and verification scheme.

Emissions trading: An efficient and cost-effective way of reducing agricultural emissions while

staying competitive

Commission President Von der Leyen has announced in her political guidelines that the Commission intends to

enshrine an EU 2040 greenhouse gas emission-reduction target of 90 % compared to 1990 levels in the European

Climate Law. Achieving this target will require an ambitious climate action across all sectors of the economy. It

will be key to ensure that the efforts are economically feasible and cost-effective in order to be sustainable and a

socially just for all.

Without new policies, the share of emissions from agriculture is expected to account for almost half of the EU´s

total emissions by 2040.

Agriculture will thus become the largest emitting sector in the EU as the rest of the

economy decarbonizes. One of the main tasks in implementing EU´s 2040 climate target will be to facilitate a

strengthened mitigation effort in the agricultural sector, which at the same time secures its long-term competitive-

ness and food security, sustainability and resilience.

Experiences from the EU´s climate efforts show that emissions trading is an efficient and cost-effective way to

incentivize emission reductions. The EU should learn from this and apply the same approach to agriculture as we

have done for the energy, industry and transport sectors. With the right design underpinned by relevant EU-wide

climate regulation and a greener EU common agricultural policy (CAP) the competitiveness of the agricultural

sector can be safeguarded as well as the long-term food security in the EU. By promoting a more efficient and

sustainable food production the European farmers can obtain a competitive advantage internationally.

Stakeholder involvement to ensure common understanding of the challenges and solutions

To find the right solutions, all stakeholders must take joint responsibility and arrive at a common understanding

of the challenges. Experience from Denmark shows that it can be done. In June 2024 the Danish government

together with partners from industry, agricultural, and environmental organizations, trade unions and local author-

ities presented the “Agreement on a Green Denmark”.

The agreement shows that it is possible to bring relevant

I.e. 45 %, by 2040. Own calculations based on data from the 2040 IA, European Commission, 2024. Baseline agricultural emissions as of

section 1.7.3.1 in IA part 3, p. 111, and total EU gross emissions as of stated reduction of 88 pct. in EU COM 2040 Baseline scenario.

Agreement and reactions from the partners involved (in Danish).

KEF, Alm.del - 2024-25 - Bilag 136: Orientering om oversendelse af EU non-papirer om henvholdsvis et ETS for landbruget og finansiering af energiinfrastruktur fra regeringen i forbindelse med tidlig EU interessevaretagelse, fra klima-, energi- og forsyningsministeren

stakeholders on board and agree on how to effectively reduce greenhouse gas emissions in the agricultural sector

in a socially fair and economical sound way while ensuring a sustainable and competitive sector. A political agree-

ment on implementation of the ”Agreement on a Green Denmark” was reached between the government and

several parties from the Danish Parliament on 18 November 2024.

At European level, the Commission has also taken the important initiative to bring together stakeholders through

the “Strategic Dialogue on the future of EU Agriculture” which has recently presented its recommendations for

the future of the sector including that the Commission “should work further with stakeholders and experts to

assess the feasibility and relevance of an ETS for agriculture.” Denmark believes, that the Agreement on a Green

Denmark can serve as inspiration and provide valuable insights on how to develop ambitious and cost-effective

EU policies for reducing emissions for agriculture, notably through the design of an ETS for agriculture on farm

level and a CAP that can support farmers in deploying new, climate-friendly technologies and transitioning to

more sustainable production practices. Pricing emissions where they occur provides the most direct price signal

on emissions as well as incentives for individual farms to reduce emissions e.g. through greenhouse gas (GHG)

efficient technologies and green production methods. This requires a supporting regulatory framework and relia-

ble data on GHG emissions at farm level across the EU.

Denmark therefore urges the Commission to conduct a thorough analysis on how to design an ETS for agriculture

as swiftly as possible, as one of potentially several instruments for a green transition of the EU agricultural sector.

This should include an analysis of how to ensure the necessary quality of data at farm level across the EU, and

should be done in close coherence with the next CAP as well as in the context of the upcoming “Vision for

Agriculture and Food”.

This work should include an assessment of the possible risk of carbon leakage to third countries in order to

safeguard the competitiveness of the sector internationally as well as exploring the options for mitigating such a

risk, including a possible expansion of the scope of the EU’s Carbon Border Adjustment Mechanism (CBAM) in

full respect of the WTO trade rules. An ambitious, robust, open and sustainable trade policy plays an important

role for the income of the EU's agri-food sector, which had a trade surplus of more than 70 billion euro in 2023.

Insights from Denmark- the case for pricing agricultural GHG emissions at EU level

“The Agreement on a Green Denmark” sets out a holistic and balanced approach on how to effectively price

GHG emissions directly at on-farm production level.

Key elements of the agreement include:



A CO

e tax on GHG emissions from livestock, agricultural lime and drained peatlands in agricultural use at

a level, which ensures cost-effective CO

e reductions while maintaining a continuously competitive agri-

sector.

Earmarked revenue in 2030-31, which is circulated back to farmers to provide substantial financial support

to enable the farmers to invest in new green technologies and sustainable production methods, which in turn

will reduce the total costs to be paid by the individual farmers.

The revenue in 2030-31 can also be used to target support for the most vulnerable farmers in the green

transition. A possible threshold to exclude farms with limited GHG emissions will also be considered to limit

the administrative burden of the tax scheme.

Establishment of a new Green Area Fund to support efforts such as afforestation, rewetting of drained peat-

lands in agricultural use, strategic land acquisitions and additional initiatives related to nitrogen reductions.

The initiatives in the Green area fund will change 15 percent of the existing agricultural area into forest,

rewetted areas etc.

Accelerating investments in new technologies including a subsidy scheme for biochar to facilitate the green

transition on farm.

Strengthened efforts to develop and mature new climate technologies for the use in the agricultural sector,

including targeted initiatives to address regulatory barriers and document GHG emission effects in line with

IPCC guidelines.



Developing an ETS for agriculture on farm level

In the ongoing debate on options for pricing agricultural emissions and rewarding climate action at the EU level

challenges have been expressed with respect to developing an ETS for agriculture on farm level.

Table 1 pre-

sents recommendations on how to approach these concerns based on insights from the Agreement on a Green

Denmark as well as the analytical work behind. Some of the recommendations are elaborated in more details

below in the table. A forthcoming analysis from the Commission on the design for an ETS in agriculture should

look further into the recommendations.

Table 1. Insights from Denmark and recommendatitions for an EU ETS for agriculture

Challenge

Pricing CO

emissions

will limit agricultural

production, increase the

risk of carbon leakage

and make the EUs agri-

cultural sector less com-

petitive.

Objective

The price of CO

should be set at a

level which incentivizes change in

farming methods while taking into

account the sectors ability to stay

competitive.

Insights from the Danish expert

group of a green tax reform

The CO

tax revenue can be redistrib-

uted back in 2030-31 to farmers to

limit the burden of farms.

The level of the CO

tax will be

phased in to allow for the necessary

time to adjust to more sustainable pro-

duction methods, develop and imple-

ment new abatement technologies

etc.

Pricing GHG emissions at on-farm

level ensures a direct price signal

where most emissions occur, and in-

centivize on-farm GHG reductions.

Recommendations for an EU ETS for

agriculture

The ETS allowance revenue can be re-

cycled back to farms, to limit the burden

of farmers, reduce the risk of carbon

leakage and uphold the competitiveness

of the sector.

Allowances can be phased in to allow

the sector to adjust and the system to

function based on experiences from

ETS I and ETS II.

Point of obligation on-farm level ensures

a direct price signal where most emis-

sions occur and incentivizes on-farm

GHG reductions.

Limited economic incen-

tives at the level of farm-

ers to reduce GHG emis-

sions.

Incentivize farmers to improve pro-

duction or management methods,

increase efficiency, and switch to

new solutions and practices with a

lower GHG impact.

Incentivize consumers to change

consumption habits towards more

climate friendly products.

Limited economic incen-

tives at consumption

level to buy more cli-

mate friendly products.

Farmers are expected to be able to

pass on some of their CO

tax-costs,

on to consumers. A CO

tax at con-

sumption level will, most likely, be un-

able to target emissions as precisely

as a tax at production level resulting in

lower cost-effectiveness and less

GHG-reductions.

The revenue from the CO

tax can be

circulated back to farmers. This in-

cludes the earmarking of funds for

support of farms where the transition

is especially challenging and costly.

Farmers are able to pass on some of the

ETS allowances costs on to consumers.

Targeting emissions at production level

ensures cheaper, and a more effective

GHG-reduction effort.

Limited funding availa-

ble to support farmer´s

investments in the green

transition.

Generate revenue that can be uti-

lized to fund environmentally or so-

cially beneficial behavior, pro-

cesses and investments to support

a sustainable transition of the sec-

tor, while preserving competitive-

ness.

The Common Agricultural Policy must

have a strong focus on supporting the

green transition through investments

and changed agricultural practices by in-

centivizing delivering eco-system ser-

vices. The revenue from auctioning of

allowances could be circulated back to

facilitate the sustainable transition on

farm level via a reformed Common Agri-

cultural Policy. Thus, it is important that

the budgetary structure in the next Com-

mon Agricultural Policy (CAP) allows for

the inflow of ETS revenue.

Improve the availability of reliable data

on an EU level to calculate the correct

climate emission factors and to docu-

ment the climate effect of abatement ef-

forts on farm level.

There is a lack of green

technologies and farm-

ing methods available

with

documented

emission reduction ef-

fect.

Provide documentation for the cli-

mate effect of new green technolo-

gies to incentivize the uptake of

these technologies to reduce emis-

sions and thereby reduce the num-

ber of allowances needed for farm

production.

Introduce reliable and cost-effective

MRV on EU level.

A national CO

tax is feasible based

on Denmark’s national emissions in-

ventory. The process of approving

new technologies and farming meth-

ods will be accelerated and clarified.

GHG Monitoring, Re-

porting and Verification

(MRV) tools are not yet

commonly used by farm-

ers in the EU.

Applications of the Pol-

luter pays principle may

face social barriers to

implementation.

Much of the needed data on livestock

and fertilizer is already available on a

Danish level. Other data on soils

needs to be developed further.

Transparent economic analysis in-

creases acceptance.

The availability of data at the EU and

member state level should be assessed

and improved where needed to develop

a reliable and cost effective MRV.

Model economic impacts and involve

stakeholders across the wide spectrum

of the agri-sector, the environment, cli-

mate and consumers.

Design in an inclusive and fair

manner so that no stakeholders or

vulnerable groups feel left behind.

Among others the consultancy Trinomics has set out five spcific problem drivers and objectives beyond economic efficiency (Trinomics,

Pricing agricultural emissions and rewarding climate action in the agri-food chain, 2023.

Facilitating the green transition- documenting the climate impact of green technologies

European farmers play a significant role in driving forward the green transition of agriculture and food production

through innovation and deployment of new, green technologies and production methods. A number of already

known on-farm measures and technologies can contribute to reduce emissions. However, the climate effect of

most of these solutions remains to be documented through the development of accurate emission factors.

By having accurate and updated emission factors, reduced emissions from the implementation of new green

technologies will be reflected in a reduced tax payment, which in turn increases the incentive for farmers to tran-

sitioning to more sustainable production methods on farm. Work on developing emission factors at EU level

needs therefore to be initiated well before the implementation of an EU ETS. The development of emission factors

is an important element in the implementation of the Danish national CO

e tax and could thus inspire the work on

EU level when finalized.

Financing a sustainable agricultural transition

To ensure the availability and uptake of new innovative green techologies the revenue generated from auctioning

of allowances could be circulated back to the farmers through the Common Agricultural Policy (CAP). A reformed

CAP could support for instance the uptake of new productions methods, investments in afforestation, the utiliza-

tion of green technologies as well supporting the development of new on farm technologies. This could include

the earmarking of funds for the development and improvement of green technologies through large-scale tests,

such as biochar, which have a large carbon storage potential. It should also be considered that some of the

revenue would be targeted to farmers who are especially facing challenges as a result of an ETS for agriculture.

This requires a reform of the CAP with an increased focus on climate, environment and biodiversity that incentiv-

izes farmers to deliver eco-system services. Coherence between the CAP and climate regulation is therefore of

great importance to ensure that the agricultural support creates the right incentives for a green transition.

Monitoring, Reporting and Verification of on farm GHG emissions (MRV)

An on-farm model needs to be manageable for the individual farmer as well as the public authorities. It will not

least require that the necessary activity data can be retrieved on farm level. Findings from the analytical work on

developing the Danish CO

e tax indicate that relevant activity data to calculate the emissions from agriculture in

Denmark to some extend is available. This is particularly the case for livestock, due to reporting obligations from

farms to national public authorities under the CAP, the Animal Health Law and/or other EU environmental legis-

lation. Since data on livestock seems easiest to retrieve an EU ETS as a first step include emissions from live-

stock. At a later stage, once robust data is available, the ETS could be extended to green-house gas emissions

from agricultural soils and fertilizers also to ensure the most cost-effective solution. A joint regulation of GHG

emissions and net removals in agricultural soils allows for a more coherent regulation of the agricultural sector

when feasible.

Limiting the administrative burdens for both farms and authorities

The agricultural sector has in recent decades gone through a substantial industrialization, where the average size

of farms has increased. At the same time, the sector is very diverse across the EU including many small farms.

It is important that an ETS for agriculture is implementable and avoids imposing unnecessary high administrative

burdens and costs for both farms, especially in relation to small farms, and public authorities.