Editing IPCC:AR6/WGIII/Chapter-7 (section)

==== 7.6.2.1 Economic Incentives ====

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'''Emissions Trading/Carbon Taxes.''' While emissions trading programmes have been developed across the globe, forest and agriculture have not been included as part of the cap in any of the existing systems. However, offsets from forestry and agriculture have been included in several of the trading programs. New Zealand has a hybrid programme where carbon storage in forests can be voluntarily entered into the carbon trading program, but once entered, forests are counted both as a sink for carbon if net gains are positive, and a source when harvesting occurs. New Zealand is considering rules to include agricultural GHG emissions under a future cap ( [[#Henderson--2020|Henderson et al. 2020]] ; see: [https://www.agmatters.nz/topics/he-waka-eke-noa/ https://www.agmatters.nz/topics/he- waka-eke-noa/] ).

The state of California has developed a formal cap and trade programme that allows a limited number of forest and agricultural offset credits to be used under the cap. All offsets must meet protocols to account for additionality, permanence and leakage. Forest projects used as offsets in California currently are located in the USA, but the California Air Resources Board adopted a tropical forest carbon standard, allowing for avoided deforestation projects from outside the USA to enter the California market ( [[#CARB--2019|CARB 2019]] ).

Canadian provinces have developed a range of policy options that can include carbon offsets. Quebec has an emissions trading programme that plans to allow forest and agricultural offsets generated within the province to be utilised. Alberta also allows offsets to be utilised by regulated sectors while British Columbia allows offsets to be utilised by the government for its carbon neutrality goals ( [[#Government%20of%20Alberta--2021|Government of Alberta, 2021]] ). Over 20 countries and regions have adopted explicit carbon taxes on carbon emission sources and fossil fuels, however, the charges have not been applied to non-CO 2 agricultural emissions ( [[#OECD--2021a|OECD 2021a]] ). California may implement regulations on methane emissions from cattle, however, regulations if approved, will not go into effect until 2024. Institutional and trade-related barriers (e.g., leakage) likely will limit widespread implementation of taxes on emissions in the food sector globally. Many countries exempt purchases of fuels used in agricultural or fishery production from fuel or carbon taxes, thus lowering the effective tax rate imposed on those sectors ( [[#OECD--2021a|OECD 2021a]] ). Furthermore, bioenergy, produced from agricultural products, agricultural waste, and wood is often exempted from explicit carbon taxes. Colombia recently implemented a carbon tax on liquid fuels but allowed domestically produced forestry credits to offset the tax. Colombia also is in the process of developing an emissions trading scheme ( [[#OECD--2021a|OECD 2021a]] ).

'''REDD+/Payment for Ecosystem Services (PES).''' PES programmes for a variety of ecosystem services have long been utilised for conservation (e.g., [[#Wunder--2007|Wunder 2007]] ) and may now be as large as USD42 billion yr –1 ( [[#Salzman--2018|Salzman et al. 2018]] ). REDD+ emerged in the early 2000s and is a widely recognised example of PES programme focused on conservation of tropical forests (Table 7.4). However, our summation of actually paid funds in Table 7.4 is much smaller than what is portrayed by [[#Salzman--2018|Salzman et al. (2018)]] . REDD+ may operate at the country level, or for specific programmes or forests within a country. As with other PES programs, REDD+ has evolved towards a results-based programme that involves payments that are conditioned on meeting certain successes or milestones, such as rates of deforestation ( [[#Angelsen--2017|Angelsen 2017]] ).

A large literature has investigated whether PES programmes have successfully protected habitats. Studies in the USA found limited additionality for programmes that encouraged conservation tillage practices, but stronger additionality for programmes that encouraged set-asides for grasslands or forests ( [[#Woodward--2016|Woodward et al. 2016]] ; [[#Claassen--2018|Claassen et al. 2018]] ), although the set-asides led to estimated leakage of 20 up to 100% ( [[#Pfaff--2017|Pfaff and Robalino 2017]] ; Kallio et al. 2018; [[#Wu--2000|Wu 2000]] ). Evidence from the EU similarly suggests that payments for some agroenvironmental practices may be additional, while others are not ( [[#Chabé-Ferret--2013|Chabé-Ferret and Subervie 2013]] ). Other studies, in particular in Latin America where many PES programmes have been implemented, have found a wide range of estimates of effectiveness (e.g., Honey-Rosés et al. 2011; [[#Robalino--2013|Robalino and Pfaff 2013]] ; [[#Alix-Garcia--2015|Alix-Garcia et al. 2015]] ; [[#Robalino--2015|Robalino et al. 2015]] ; [[#Mohebalian--2016|Mohebalian and Aguilar 2016]] ; [[#Jayachandran--2017|Jayachandran et al. 2017]] ; [[#Börner--2017|Börner et al. 2017]] ; [[#Burivalova--2019|Burivalova et al. 2019]] ). Despite concerns, the many lessons learned from PES programme implementation provide critical information that will help policymakers refine future PES programmes to increase their effectiveness ( ''medi'' ''um confidence'' ).

While expectations that carbon-centred REDD+ would be a simple and efficient mechanism for climate mitigation have not been met ( [[#Turnhout--2017|Turnhout et al. 2017]] ; [[#Arts--2019|Arts et al. 2019]] ), progress has nonetheless occurred. Measuring, monitoring and verification systems have been developed and deployed, REDD readiness programmes have improved capacity to implement REDD+ on the ground in over 50 countries, and a number of countries now have received results-based payments.

Empirical evidence that REDD+ funding has slowed deforestation is starting to emerge. [[#Simonet--2019|Simonet et al. (2019)]] showed that a REDD+ project in Brazil reduced deforestation certainly until 2018, while [[#Roopsind--2019|Roopsind et al. (2019)]] showed that country-level REDD+ payments to Guyana encouraged reduced deforestation and increased carbon storage. Although more impact evaluation (IE) analysis needs to be conducted on REDD+ payments, these studies support the country-level estimates of carbon benefits from REDD+ shown in Table 7.4. Nearly all of the analysis of PES and REDD+ to date has focused on the presence or absence of forest cover, with little to no analysis having been conducted on forest degradation, conservation, or enhancement of forest stocks.

'''Agroenvironmental Subsidy Programs/PES.''' Climate policy for agriculture has developed more slowly than in other sectors due to concerns with food security and livelihoods, political interests, and difficulties in coordinating diffuse and diverse activities and stakeholders (e.g., nutritional health, rural development, and biodiversity conservation) ( [[#Leahy--2020|Leahy et al. 2020]] ). However, a review of the National Adaptation Programme of Action (NAPAs), National Adaptation Plans (NAPs), NAMAs, and NDCs in the Paris Agreement suggest an increasing focus of policy makers on agriculture and food security. The vast majority of parties to the Paris Agreement recognise the significant role of agriculture in supporting a secure sustainable development pathway ( [[#Richards--2015|Richards and VanWey 2015]] ) with the inclusion of agriculture mitigation in 103 NDCs from a total of 160 NDC submissions. Livestock is the most frequently cited specific agricultural sub-sector, with mitigation activities generally focusing on increasing efficiency and productivity.

Agriculture is one of the most subsidised industries globally, especially in the European Union and the USA. While subsidy payments over the last 20 years have shifted modestly to programmes designed to reduce the environmental impact of the agricultural sector, only 15–20% of the more than USD700 billion spent globally on subsidies are green payments ( [[#OECD--2021b|OECD 2021b]] ). Under the Common Agricultural Policy in the EU, up to 30% of the direct payments to farmers (Pillar 1) have been green payments ( [[#Henderson--2020|Henderson et al. 2020]] ), including some actions that could increase carbon storage or reduce emissions. Similarly, at least 30% of the rural development payments (Pillar 2) are used for measures that reduce environmental impact, including reduction of GHG emissions and carbon storage. There is limited evidence that these policies contributed to the 20% reduction in GHG emissions from the agricultural sector in the EU between 1990 and 2018 ( [[#Baudrier--2015|Baudrier et al. 2015]] ; [[#Eurostat--2020|Eurostat 2020]] ).

The USA spends USD4 billion yr –1 on conservation programs, or 12% of net farm income ( [[#Department%20of%20Agriculture--2020|Department of Agriculture 2020]] ). In real terms, this expenditure has remained constant for 15 years, supporting 12 Mha of permanent grass or woodland cover in the Conservation Reserve Program (CRP), which has increased soil carbon sequestration by 3 tCO 2 ha –1 yr –1 ( [[#Conant--2017|Conant et al. 2017]] ; [[#Paustian--2019|Paustian et al. 2019]] ), as well as other practices that could lower net emissions. Gross GHG emissions from the agricultural sector in the US, however, have increased since 1990 ( [[#USEPA--2020|USEPA 2020]] ) due to reductions in the area of land in the US CRP programme and changes in crop rotations, both of which caused soil carbon stocks to decline ( [[#USEPA--2020|USEPA 2020]] ). When combined with increased non-CO 2 gas emissions, the emission intensity of US agriculture increased from 1.5 to 1.7 tCO 2 ha –1 between 2005 and 2018 ( ''hi'' ''gh confidence'' ).

China has implemented large conservation programmes that have influenced carbon stocks. For example, the Sloping Land Conversion Program, combined with other programs, has increased forest cover and carbon stocks, reduced erosion and increased other ecosystem services in China in recent years ( [[#Ouyang--2016|Ouyang et al. 2016]] ). As part of Brazil’s national strategy, numerous practices to reduce GHG emissions from agriculture, and in particular from the animal agriculture industry, have been subsidised. Estimates by Manzatto et al. (2020) suggest that the programme may have reduced agricultural emissions by 169 MtCO 2 between 2010 and 2020. Given the large technical and economic potential for agroforestry to be deployed in Africa, subsidy approaches could be deployed along with other polices to enhance carbon through innovative practices such as regreening (Box 7.10).

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