Impact of Input and Output Taxes on Agriculture in the UK: FAPRI Report 2012

Introduction

Growing concerns about the threats posed by climate change have resulted in ambitious targets to reduce greenhouse gas emissions. In 2008 the UK Climate Change Act set binding targets to reduce greenhouse gas emissions compared to 1990 levels by at least 34 per cent by 2020 and 80 per cent by 2050.

Initiatives are being pursued to reduce greenhouse gas emissions from agriculture through mitigation strategies that reduce emissions per unit of output, e.g. the farming industry Greenhouse Gas Action Plan.

An alternative approach is the implementation of taxation policies designed to reduce greenhouse gas emissions. Livestock emit considerable methane emissions and proposals to tax methane emissions of cows and other livestock have been mooted in Ireland and Denmark in response to EU reduction targets .In addition, input taxes (e.g. fertiliser and feed taxes) could potentially be imposed to reduce greenhouse gas emissions from agriculture. It is important to stress that the analysis in this report is hypothetical.

We understand that the input-output policies analysed in this report are not under consideration and it is the government’s objective to reduce emissions per unit of output. The analysis is undertaken to explore the potential implications of the input-output policies.

In this study, the FAPRI-UK modelling system is simulated to determine the sectoral impact of input and output taxes on agriculture in the UK. UK agricultural markets are integrated with EU markets and linked to world markets; and so measures enacted in the UK will produce offsetting reactions elsewhere and vice versa. In order to identify potential differential impacts the modelling system is simulated with:

(i) taxation policies implemented in only the UK and

(ii) across the EU.