Carbon taxes and agriculture: the benefit of a multilateral agreement

Reducing greenhouse gas emissions from agriculture is crucial to reach global and regional climate targets. However, the efficiency of unilateral climate policies aimed at taxing emissions might be hampered by carbon leakage. One way to eliminate leakage is to implement a global carbon tax. In this article, we study the effects of a carbon tax in agriculture on GHG emissions by simulating five policy scenarios using the CAPRI model; (i) an EU tax, (ii) an EU tax complemented with a border carbon adjustment mechanism (BCA), (iii) a global tax, (iv) a global tax scaled by GDP per capita, and (v) a low global tax at 1/10 of the tax level in the other scenarios. For the global scenarios, we also analyse the impact on food consumption and nutrient intake. We find that a global tax of EUR 120 per ton CO₂-eq could reduce global agricultural emissions by 19%, but also jeopardizes food security in some parts of the world. A global tax at 1/10 of that rate (EUR 12) achieves a 3.2% reduction. In contrast, a unilateral EU tax of EUR 120 per ton CO₂-eq, accompanied with a BCA, reduces global agricultural emissions by only 0.15%. A unilateral carbon tax in the EU causes significant emission leakage. This result depends strongly on differences in emission intensities between regions and on consumer preferences.A EUR 12 global carbon tax achieves a considerably larger global emission reduction than a EUR 120 unilateral EU carbon tax accompanied with a border carbon adjustment.A global carbon tax differentiated by GDP per capita is less effective than a uniform global carbon tax, as producers with higher emission intensities tend to get lower tax rates. Other ways of taking equity into account should be sought when designing climate policies in the agricultural sector. A unilateral carbon tax in the EU causes significant emission leakage. This result depends strongly on differences in emission intensities between regions and on consumer preferences. A EUR 12 global carbon tax achieves a considerably larger global emission reduction than a EUR 120 unilateral EU carbon tax accompanied with a border carbon adjustment. A global carbon tax differentiated by GDP per capita is less effective than a uniform global carbon tax, as producers with higher emission intensities tend to get lower tax rates. Other ways of taking equity into account should be sought when designing climate policies in the agricultural sector.