Integrating agriculture into carbon pricing

In this working paper we examine whether it would be possible and reasonable to integrate the agricultural sector into CO₂ pricing. CO₂ pricing has been practiced in Europe for years. The EU Emissions Trading System (ETS) regulates emissions from approximately 12,000 large-scale plants in the energy and energy-intensive industries, as well as emissions from intra-European aviation. The ETS thus comprises almost half of Europe's greenhouse gas emissions. The politically defined mitigation targets are achieved in the ETS area (albeit with the participation of various other climate policy instruments), whereas they have so far been missed in the non-ETS area. In Autumn 2019, the German federal government presented a climate protection law that provides a comprehensive set of measures. One of the most important measures here is the inclusion of fossil heating and fuel in emissions trading. Initially, only a nationally-based trading system is planned for these sectors, and CO₂ prices are to be kept low in the initial phase. The long-term effect of this system change can, however, be considerable: approximately 85 percent of Germany's greenhouse gas emissions will soon be included in emission trading. This means that emissions can be gradually reduced along an initially agreed upon reduction path without the policymakers constantly having to fight for new decisions. Besides certain emissions from industrial processes, emission trading then only misses the areas of agriculture and land use. Against this background, it is the aim of this working paper to comprehensively examine whether these areas could also be integrated...