Reducing greenhouse gas emissions from agriculture remains a major challenge for the European Union. While emissions across the wider economy have declined, progress in the agricultural sector, particularly for non-CO₂ gases such as methane and nitrous oxide, has been limited. 

This report by Ecologic Institute researchers Hugh McDonald and Jonathan Gardiner, commissioned by the German Environment Agency, examines how market-based policy instruments – such as an emissions trading scheme for agriculture – could help close this gap.

Exploring new approaches to agricultural emissions

The report analyses three market-based policy options that would oblige the agri-food value chain to reduce their emissions. The policies, which were under discussion at the EU level in a series of EU Commission-funded workshops, all place the point of regulation downstream in the agri-food value chain:

• a Mandatory Climate Standard (MCS) applied to processors, 
• an MCS applied to retailers, and 
• an Agricultural Emissions Trading Scheme (AgETS) applied to processors. 

These approaches aim to incentivise emissions reductions at farm level indirectly, by requiring companies handling agricultural products to account for and reduce the emissions embedded in their supply chains.

Trade-offs between effectiveness and feasibility

The analysis highlights important trade-offs between the different policy designs. A retailer-level standard could cover a broad share of emissions, but would face significant challenges related to monitoring, reporting and verification. By contrast, a processor-level approach is simpler to implement, though potentially more limited in scope.
An emissions trading system could offer greater cost-efficiency through flexibility and trading, but would require more complex institutional design. 

Informing future EU policy design

The report shows that each policy option has strengths and weaknesses, with policymakers forced to weigh up administrative complexity, environmental coverage and economic efficiency. However, it concludes that a processor-based policy could be implemented relatively swiftly, and scaled up in phases towards a fully operational agricultural ETS. 
As the European Commission continues to explore carbon pricing and other market-based instruments for agriculture, the findings provide a structured basis for assessing how different approaches could contribute to emissions reductions in the sector.