Working paper title: Climate Accounting and Domestic Incentives for Agricultural GHG Mitigation

By: Shon Ferguson & Richard Gray

Abstract

The current global greenhouse gas (GHG) accounting framework excludes CO₂ removed and stored in harvested crops, as well as CO₂ released when crops are consumed. This omission creates flawed incentives, encouraging deforestation and higher global emissions. Net Ecosystem Emission (NEE) accounting, which explicitly includes these biogenic fluxes, could address this gap. We develop a three-region partial equilibrium model of the world vegetable oil market to examine how GHG accounting regimes and green procurement strategies influence agricultural GHG mitigation policy and global emission outcomes. Holding the policies in the other regions constant, we simulate and compare optimal (welfare maximizing) EU policies where GHG emissions are measured using UNFCCC accounting versus NEE accounting. We then use the model to simulate the effectiveness of prohibiting the imports of high GHG emission vegetable oils on domestic and global GHG emissions. Our simulations show that EU policies designed to optimally mitigate UNFCCC-measured GHG emissions will consistently result in higher world vegetable oil prices and increased global agricultural GHG emissions. In contrast, EU policies designed to optimally mitigate NEE-measured GHG emissions will result in lower world vegetable oil prices and reduced global GHG emissions. Import bans on high-emission oils, however, have little effect on global emissions due to trade diversion. These results highlight the need to reform UNFCCC accounting to enable more effective agricultural GHG mitigation.

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