The power and pain of market-based carbon policies: a global application to greenhouse gases from ruminant livestock production

Abstract

The objectives of this research are to assess the greenhouse gas mitigation potential of carbon policies applied to the ruminant livestock sector [inclusive of the major ruminant species-cattle (Bos Taurus and Bos indicus), sheep (Ovis aries), and goats (Capra hircus)]-with particular emphasis on understanding the adjustment challenges posed by such policies. We show that market-based mitigation policies can greatly amplify the mitigation potential identified in marginal abatement cost studies by harnessing powerful market forces such as product substitution and trade. We estimate that a carbon tax of US$20 per metric ton of carbon dioxide (CO₂) equivalent emissions could mitigate 626 metric megatons of CO₂ equivalent ruminant emissions per year (MtCO₂-eq year⁻¹). This policy would also incentivize a restructuring of cattle production, increasing the share of cattle meat coming from the multiproduct dairy sector compared to more emission intensive, single purpose beef sector. The mitigation potential from this simple policy represents an upper bound because it causes ruminant-based food production to fall and is therefore likely to be politically unpopular. In the spirit of the Paris Agreement (UNFCCC 2015), which expresses the ambition of reducing agricultural emissions while protecting food production, we assess a carbon policy that applies both a carbon tax and a subsidy to producers to manage the tradeoff between food production and mitigation. The policy maintains ruminant production and consumption levels in all regions, but for a much lower global emission reduction of 185 MtCO₂-eq year⁻¹. This research provides policymakers with a quantitative basis for designing policies that attempt to trade off mitigation effectiveness with producer and consumer welfare.