Taxing livestock to reduce nitrogen and GHG emissions

A recent report provides three concrete proposals on how livestock could be taxed to reduce ammonia and greenhouse gas emissions, while generating funds for reforms.

In Germany, as in large parts of Europe, emissions of ammonia and greenhouse gases from agriculture have remained, with small fluctuations, constant in recent decades. The German environment organisation Deutsche Umwelthilfe (DUH) has in a recent report examined different possibilities to introduce taxes to reduce emissions from livestock production.

The report is based on an existing proposal from the Bochert Commission to introduce an excise duty on animal products to finance efforts to improve animal welfare in agriculture. In principle, the duty would be 40 cents per kg of meat and processed meat products, 2 cents per kg of milk, fresh milk products and eggs, and 15 cents per kg of cheese, butter and milk powder.

In contrast to the original proposal, DUH proposes that the tax could be related to the magnitude of ammonia emissions that different animal species give rise to, and instead of a consumer tax it should be a tax on production. To generate as much tax revenue as the original proposal, 28 euro per cow, 4 euro per pig and 0.30 euro per chicken would have to be charged in the first year.

In another proposal, which focuses on reducing German agricultural emissions of ammonia by 30 percent (in order meet German commitments under the NEC directive by 2030), DUH introduces a limit value for livestock density. With an agricultural area of 16.7 million hectares by 2030, a maximum of 0.025 tonnes of ammonia per hectare should be released. Assuming typical emissions for different species, this corresponds to approximately 1.05 cows, 5.5 pigs or 89 chickens per hectare. The proposal is to impose a progressive tax on the number that exceeds the acceptable limit. With a farm of 100 hectares, it is possible to have 105 cows without paying the tax. But after that, you must pay more tax for each additional animal.

Keeping significantly more cows than indicated by the limit value quickly becomes uneconomical. Especially as many forms of animal husbandry already have low profit margins. A reduction in the number of animals is then inevitable. Farms with little space and lots of animals would need to undergo a major transformation. The report therefore proposes that the funds generated be used for investments in agriculture that drive this conversion process forward. It may also be a good idea for this type of tax to be introduced gradually, so that farmers have time to adjust.

The authors of the report believe that the tax would only contribute to a marginal cost increase for animal products, as most farms would choose an animal density that is close to the set limit value for the tax. It may not be that simple. A transition to more extensive animal husbandry can have a number of effects on farmers’ finances and the price of the end product. Certainly, the production of animal products will decrease, which opens up for increased imports and that ammonia emissions will increase elsewhere in the world.

Reduced ammonia emissions in Germany would, however, be of great social benefit. A reduction from current emissions by 184,000 tonnes would mean savings of almost 4 billion euro in lost costs for ill health.

A third proposal is based on the polluter pays principle and the climate impact that animal husbandry gives rise to. Instead of using tax as a means of adjusting animal density to a specific level, taxation should be set according to the climate costs that production gives rise to, a so-called Pigouvian tax. The most accurate would of course be to measure the emissions for each individual animal, but this would take up too much resources. Instead, you have to make generalisations for different animal groups, life expectancy before slaughter, etc.

According to the report’s calculations, for example, the price of a litre of milk would increase by 6 cents. This in turn would reduce the demand for milk by 1–10% and one can assume a similar reduction in emissions.

The report also advocates that the tax incomes should go back to agriculture. Farmers who, for example, reduce their herds and instead restore wetlands, reforest areas, maintain permanent grassland or otherwise contribute to CO₂ reductions could receive financial resources that compensate for their loss of income and reward the environmental system service provided.

As with the production tax on ammonia there is an obvious risk of leakage, i.e. imports would increase and emissions move abroad. Unlike ammonia, there are not even any local environmental benefits. The problem of leakage could to some extent be avoided if the whole of the EU adopted a similar tax system. Otherwise, a system would be needed where a tax is levied on imported products as well.

It is certain, however, that more tools are needed to reduce emissions from agriculture. In this search environmental taxes on livestock or animal products should not be overlooked. These examples show that there is a variety of options, depending on what you want to achieve.

Kajsa Pira

Source: Ökonomische Instrumente für eine umwelt- und klimafreundliche sowie artgerechte Tierhaltung by Forum Ökologisch-Soziale Marktwirtschaft on behalf of Deutche Umwelt Hilfe, August 2021 Link: https://www.clean-air-farming.eu/downloads-und-links