Options for Implementing the Polluter Pays Principle in Agriculture. A New Approach for the EU's Common Agricultural Policy

Agriculture provides the raw materials needed to feed and clothe a global population of 8.3 billion, as well as the basic materials required for many other purposes. However, this comes at the cost of polluting the air, soil, water and natural habitats, and damaging biodiversity. The costs of this damage are not adequately reflected in the price of agricultural goods. As these negative externalities are invisible to market participants, too many agricultural goods are produced using harmful technologies. This general finding also applies to agriculture in the EU. To mitigate the negative effects of agriculture, the EU is currently focusing primarily on regulatory intervention and the promotion of environmentally friendly behaviour within the framework of the Common Agricultural Policy (CAP). However, this approach is insufficient, as it does not sufficiently curb the impact on the climate, the environment, and natural habitats. Furthermore, administrative hurdles cause many efforts to be ineffective and distort competition between countries. This report therefore proposes a fundamental change to the EU's agricultural and environmental policy to eliminate these problems. To this end, agriculture should be included in the European greenhouse gas emissions trading system. The same instrument should also be extended to cover other pollutants, such as nitrogen fertilisers and plant protection products. To prevent environmentally harmful production methods from increasing elsewhere in the world, a border adjustment mechanism is proposed. This combination will stimulate innovation in more environmentally friendly production methods, reduce the administrative burden, keep food price increases to a minimum, and reduce environmentally harmful pollutants in a predictable manner.