Options for Implementing the Polluter Pays Principle in Agriculture

Agriculture provides the raw materials needed to feed and clothe a global population of 8.3 billion people, as well as the basic materials for numerous other uses. However, this comes at the cost of pollution to the air, soil, water, natural habitats and biodiversity. The costs of this damage are not adequately reflected in the price of agricultural products. As the negative externalities mentioned above are not visible to market participants, too many agricultural goods are produced using technologies that cause damage. This general finding also applies to agriculture in the EU. In order to mitigate the negative effects of agriculture, the EU is currently focusing primarily on regulatory intervention and promoting more environmentally friendly behaviour within the framework of the Common Agricultural Policy (CAP). However, this approach falls short, as it does not sufficiently curb the impact on the climate, the environment and natural habitats, administrative hurdles render many efforts futile, and competition between countries is distorted. This report proposes a fundamental change in the EU's approach to agricultural and environmental policy that could eliminate these problems. To this end, agriculture should be included in the European greenhouse gas emissions trading system. The same instrument should also be extended to other pollutants such as nitrogen fertilisers and plant protection products. To prevent environmentally harmful production methods from increasing elsewhere in the world, a border adjustment mechanism is proposed. This combination will promote innovation in more environmentally friendly production methods, reduce administrative burdens, minimise food price increases and reduce environmentally harmful pollutants in a predictable manner.