CO2 Emission and Trade Policy in Agricultural and Food products

Agri-food system is one of the economic sectors most at risk from climate change, but it is also a significant contributor to it, with greenhouse gas emissions (GHG) from the food supply chain equal to one-third of the global anthropogenic total in 2018 (Tubiello et al. 2021). Specifically, crop and livestock production within the farm gate contributes more than 50% of the methane (CH4) and 75% of the nitrous oxide (N2O) emissions from human activity globally (FAO, 2020). This paper relies on the recent work of Shapiro (2021) that firstly analysed the nexus between pollution embodied in traded goods, against the actual structure of trade policy (tariffs or non-tariff measures-NTMs). In our contribution we focus on agricultural and food products, considering three main pollutants (CO2, CH4, N2O), with the aims of answering the following research question: are actual trade policies a tax or a subsidy to total CO2 (equivalent) emissions embedded in agri-food imported goods? Main findings suggest that for all the three pollutants investigated a negative implicit carbon tax is applied, i.e. on average countries applied an implicit subsidy on more pollutant imported goods. This estimated implicit subsidy to CO2 emissions imported in agri-food products tend to be higher when also the ad-valorem equivalent of non-tariff measures (NTMs) is accounted for. By investigating the country-group heterogeneity in the applied tax or subsidy to imported CO2, results show that the larger implicit subsidy is applied by the trade policy structure of European Union countries. Specifically, Western and Northern European countries have among the largest negative environmental biases in trade policy, while more polluting countries, like China, India, Russia, Brazil and Mexico, tend to apply smaller (implicit) subsidies.