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Carbon leakage and limited efficiency of greenhouse gas taxes on food products

Zech, Konstantin M., Schneider, Uwe A.
Journal of cleaner production 2019 v.213 pp. 99-103
European Union, agricultural industry, carbon, carbon markets, foods, forests, greenhouse gas emissions, greenhouse gases, international trade, models, quantitative analysis, taxes
Greenhouse gas emission (GHGE) taxes on food products have recently been proposed as means to help reduce agricultural emissions. Numerous authors have calculated potential GHGE reductions in case such a tax was implemented in certain countries or regions. They did however assume a reduced production of GHGE-intense foods equal to the decline in demand induced by the tax. This omits however possible increases of net-exports that might offset such a demand reduction. Herein, the market dynamic behind this so-called “emission leakage” is explained and its effect quantified for a greenhouse gas tax in the European Union. We use the European Forest and Agricultural Sector Optimization Model for the quantitative analysis and simulate a greenhouse gas tax on all food products, based on their individual emission levels. The partial equilibrium model covers all world regions and hence the tax's effects on international trade of agricultural commodities can be examined. It was found that 43% of the greenhouse gas reduction indicted by a domestic consumption reduction is lost through emission leakage. This already includes the mitigating effects of a production shift from inefficient to efficient producers that is another consequence of increased exports from the European Union. A greenhouse gas emission tax on food products is hence much less efficient than previously proposed, if it is not introduced globally or trade is not restricted.