Agriculture and forestry: window-dressing in the EU ETS

The EU ETS’ stock image shows a huge industrial plant that emits a large amount of greenhouse gas, and gives the impression of an allowance market that does not concern so-called “diffuse” sectors like agriculture and forestry. Like any stock image, it is broadly accurate and partially false.

Firstly, it is partially false for agriculture. Considered as an industry, which includes input producers upstream and the food processing industry downstream, agriculture represents around 870 installations that are subject to allowances, i.e. 8% of the total. However, the size of these installations – plants that produce fertilisers, plant health products, starch and sugar refineries, etc. – is relatively small: on average, they emit 35,000 tCO2eq per year, ranging from less than 2,000 tCO2eq for knacker’s yards to 140,000 tCO2eq for plants that produce nitrogen-based fertilisers.

Like all sectors, excluding power generation, the farming and food processing industries ended the period between 2008 and 2012 with a significant allowance surplus, which amounted to 21% of their allocation. However, the reason for this surplus is different from other industries, as these industries’ output level has remained stable since 2007, although output in the other industrial sectors has contracted by an average of 25%. The 7% fall in emissions recorded in the farming and food-processing industries over the period between 2005 and 2007 actually corresponds to a genuine improvement in the carbon intensity of their products, primarily due to the introduction of new fertiliser manufacturing processes. As is the case of the other sectors, part of the surplus is also due to a generous allocation that will not be repeated over the period between 2013 and 2020. A full report on these industries has been drawn up by Foucherot and Bellassen (2013).[1]

Secondly, it is partially false for the forestry and wood products sector. Firstly because over 900 paper manufacturing plants are covered by the EU ETS, but more importantly because the emission factor for biomass and therefore wood has been set at zero within the EU ETS. This means that the EU ETS provides a strong incentive to burn wood instead of coal. This incentive is made even stronger by the fact that substituting wood for coal does not require the burner to be adapted, at least up to the point where the amount of biomass is equal to the amount of coal.

The contribution of the forestry and wood products industry to mitigating climate change is therefore indirectly but tightly controlled by the EU ETS, and more generally by the Climate & Energy Package. Biomass already accounts for 10% of the power generated in Europe. It is central to the Member States’ strategy to comply with the European directive that sets renewable energy targets, which involves a doubling of biomass consumption – 70% of which comes from forests – to generate power. In fact, Baron et al. (2013)[2] have produced an overview of European policies that directly or indirectly affect the sector’s contribution to mitigating climate change. The overview concludes that these policies are consistent in encouraging the use of biomass from forests for power generation purposes.

Contrary to popular belief, the agriculture and forestry sectors are hence already involved in the EU ETS, and more broadly in the Climate & Energy Package. This is due partly to the fact that the upstream and downstream areas of these industries are already covered by these policies, and partly to the fact that the Climate & Energy Package creates strong demand for biomass, which is produced by both sectors. Does this mean that they ought to play a more explicit role in the 2030 Climate & Energy Package? At the very least, this observation raises the question of the consistency between energy policy and agriculture and forestry policies, where the Common Agricultural Policy is at the forefront.

Valentin Bellassen November 2013

[1] CDC Climat Research, Climate Study No. 39 “Over 800 installations in the forming and food-processing sectors are concerned by the EU ETS.”

[2] CDC Climat Research, Climate Study No. 40 “Forestry and climate change mitigation in European policies: priority to fuel-wood.”




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