Carbon farming: A transition path for agriculture & forestry

The agriculture and forestry sectors are at the frontline of climate change. Research shows that in the last 50 years, severe heatwaves and droughts have already caused crop losses to triple in the EU. With an increasing risk of extreme weather conditions and drought, by 2050, climate change could further drag down corn yields by up to -22% across the region, and wheat yields by up to -49% in southern Europe. This highlights the vulnerability of our food system to climate change, and why adaptation is needed to make it more resilient. The two sectors are also both significant sources and sinks of greenhouse gas (GHG) emissions. In 2019, agriculture and forestry accounted for 1.5% of EU GDP. However, agriculture alone was responsible for around 11% of total GHG emissions in the EU, amounting to 386Mt CO2-eq2 of non-CO2 emissions such as methane and nitrous oxide, mostly from livestock and mineral fertilizer use, respectively. In fact, the agriculture industry was the largest sectoral source of these emissions. In addition, forestry and land use change was responsible for another 118Mt CO2-eq of GHG emissions. At the same   time, agriculture and forestry also have a significant role as carbon sinks: forests can remove CO2 from the atmosphere and store it as biomass. In 2019, land use and land use change and forestry (LULUCF) removed about 368 Mt of CO2, resulting in a net emission of 137Mt CO2-eq for the whole sector. 

 

The EU seeks to strengthen its terrestrial carbon sink and boost adaptive farming practices to make both sectors more resilient. The EU’s proposed Fit for 55 package outlines two key objectives for the land-use sector: The annual net removal should reach 310 Mt CO2 by 2030 and, by 2035, agriculture, forestry and land use combined should achieve complete climate neutrality. To support these objectives, at least 10 EU strategies exist with their own sub-targets, which propose various adaptive farming and forestry practices to build sustainability in the sectors, including cover cropping, crop rotation, precision farming, organic farming, agroforestry, integrated pest management, the use of adapted crops, climate-smart silviculture, low/no tillage and polyculture.  

To comply with the 1.5°C goal, the EU needs total investments of EUR185bn and an annual investment gap of EUR8.3bn needs to be filled. Projected investment until 2030 ranges around EUR240mn per year, but it needs to be increased by another EUR30mn per year to achieve the 1.5°C ambition. This is still low compared to the 2030-50 period. After 2030, investments need to see a massive increase to EUR760mn to meet the basic ambition of the EU’s Ff55 proposal. Assessing the necessary increase to enhance the ambition to 1.5°C in the 2030-50 period suggests that an average of EUR9.1bn per year should be invested; this gives us the whopping shortfall of EUR8.3bn per year.  

Looking ahead, a new results-based approach proposed with carbon farming is expected to take off in the next decade, boosting the carbon sink and incentivizing land managers. The EU plans to propose a regulatory framework for the certification of carbon removal by the end of 2022, which could essentially lead to the creation of an EU-regulated carbon market and further incentivize land managers to adopt more resilient practices. The objective is for each land manager to have access to verified emission and removal data by 2028, with the potential for carbon farming initiatives to remove at least 42 Mt of CO2-eq by 2030 (contributing to the overall net removal target of 310 Mt CO2-eq). 

Contact

Markus Zimmer
Allianz SE
Arne Holzhausen
Allianz SE