How now polluting cow?

Hi,

Hope these lines find you well. I’m relishing some relative solitude in southwestern Germany, where I’ve mostly been reading, writing, and hiking in the woods all day. 

Today’s newsletter covers new agricultural emissions management policy out of Germany’s northern neighbor, Denmark. Building off our recent coverage of the EPA’s waste emissions charge in the U.S., Denmark’s new policy is one of multiple emissions tax-equivalents percolating globally.

DEEP DIVE

Last month, Denmark became the first country to institute a 'tax' on greenhouse gas emissions from its agricultural sector. Starting in 2030, Danish farmers will be taxed roughly $43 per ton of CO2-equivalent gas (including methane) they emit. In 2035, that tax will more than double.

How this will reshape Denmark's agricultural sector will have significant implications for other policymakers globally as well as for the types of solutions and approaches to reducing emissions from agriculture that commercialize globally. It's possible some animal agriculture producers in Denmark, especially those with significant methane emissions, could close up shop. Even over a more 'generous' 100-year timeframe, each ton of methane emissions that a hypothetical dairy farmer is accountable for equates to ~30 tons of CO2-equivalent gas. In 2030, that will cost a Danish farmer more than $1,000.

That could be an insurmountable cost for some, if not many. Many farmers, especially in the dairy industry, operate with razor-thin margins and face a wholly different economic calculus than, say, oil and gas producers do. While farmers could pass costs along to other stakeholders in the value chain, there's no guarantee those stakeholders (whether larger food processors, retailers, or consumers) would bear them. There are some 600,000+ dairy cows registered in Denmark. That isn't that many; there are more than 300 million cows in India, for comparison. Still, it's quite possible these new taxes raise beef and dairy prices, reducing demand and, therefore, production.

Demand reduction is the simplest way to reduce emissions from agriculture. But based on the past 5-10 years, it'd be difficult to bet the house on demand reduction as a cure-all; even as dairy alternatives like oat and almond milk have become commonplace, dairy consumption in the U.S., for instance, is up, not down (driven in no small part by cheese consumption). Hence, technologies that reduce methane emissions at the level of animals are likely a necessary 'hedge' as well.

Such technologies will also offer lifelines to Danish farmers who want to stay in business. By 2030, farmers will ideally have access to cost-effective solutions to reduce methane emissions from cattle. For instance, Bovaer, a methane-inhibitive product developed by the Dutch nutritional bioscience company Royal DSM, has been tested extensively for a decade across 45 on-farm trials in 13 countries and is approved for commercial use in Brazil, Chile, and more recently, in the U.S. 

Many other competitive (and potentially complementary) feed additives are being tested as we speak, including by companies we’ve covered previously, like Alga Biosciences. Nor are feed additives the only options coming to market; companies like ArkeaBio are working on vaccines to reduce methane generation in cattle. Further, potential ways to reduce methane emissions from cattle extend well beyond feed additives and even vaccines. As I explored in May, the suite of potential solutions also includes everything from selective breeding to CRISPR-based approaches. That said, some solutions also won’t lend themselves well to all situations or phases of cows’ lifecycles; feed additives, for instance, are much more easily applied when cows are on feedlots as opposed to when they graze on pasture and interact with humans infrequently.

Mind the border

If solutions like feed additives or vaccines are available in Denmark by 2030 to reduce methane emissions from cows, perhaps Denmark will become a ground zero for their adoption, given the direct economic incentives the new taxes will represent. That said, another policy concern that will require attention includes the need for border adjustment mechanisms. Absent robust import controls, Danish companies could start importing beef and dairy from other jurisdictions where there aren't penalties on emissions. That's a real risk to the overarching success of its program. It's one thing to reduce greenhouse gas emissions in your (small) country by penalizing producers. It's another to ensure greenhouse gas emissions don't 'leak' elsewhere. If you don't have tight border control and carbon adjustment mechanisms that penalize emissions-intensive imports from other global jurisdictions, demand may 'shift' to places like Brazil, where beef is produced in a highly emissions-intensive manner due in part to the deforestation it drives.

Europe already has a Carbon Border Adjustment Mechanism, but so far, it covers products like steel and concrete, not beef or dairy. To be sure, Denmark isn’t just establishing a ‘stick’-type policy to reduce emissions from agriculture. It is also trying to accelerate research and development for plant-based foods and has allocated $100M in capital to a fund designed to support that goal. Still, a lot more supportive policy (and capital) will be needed in Denmark over the coming 5 to 6 years to prepare for the point where its new agricultural tax actually goes into effect.

Growing teeth

Methane emissions are a predominant challenge in agriculture; cows, their ruminant digestive systems, and the methane produced by bacteria in the rumen as they consume hydrogen and carbon dioxide are major contributors to agriculture’s total emissions footprint. Many countries and companies have pledged, via voluntary commitment, to reduce their methane emissions, including from agricultural sectors. 

But how meaningful are these commitments? Take, for instance, the Global Methane Pledge, which some 150+ countries have signed, targets a 30% reduction in methane emissions by 2030 from 2020 levels by 2030. The countries that have collectively signed on to the pledge represent more than half of all anthropogenic methane emissions. 

The thing is, we’re already closing in on the midpoint of the time period in question, during which the signatories of the Global Methane Pledge are supposed to reduce their methane emissions by 30%. Unfortunately, there’s little evidence any country has made the type of progress that would indicate they’ll make good on this pledge. At least linearly, signatory countries should have reduced methane emissions by some 10%+ so far. As far as I know, no one country really has. For a modal beef producer, 2030 is now only five “calving” seasons away.

That’s discouraging. It calls into question how valuable voluntary commitments are. On the other hand, it underscores the urgency of bringing viable and measurable solutions to market that countries – and all the stakeholders across their industries that produce meaningful amounts of methane emissions – can use to reduce emissions and report on reductions in a credible fashion. Further, it also underscores the need for more binding policy that comes with actual levers and incentives (or disincentives). Like what Denmark is advancing here. Absent more policies like Denmark’s, and the commercialization of more solutions, many if not most global and country-level commitments will remain toothless.

The net-net

Setting larger complexities aside, Denmark’s new agricultural emissions reduction policies and measures should be seen for what they are, namely a critical first step in catalyzing markets for methane reduction technologies and measures as well as an overt recognition that emissions from agriculture are a significant source of both long-term warming (carbon dioxide and nitrous oxide emissions) and short-term warming (methane emissions). Those emissions, whether in Denmark or around the world, currently continue in a relatively unabated fashion. Compared to the power sector and transportation, agriculture is a no less significant source of atmospheric and ecosystem-level pollution while representing a much less substantial area of investment and collective focus.

Ideally, buoyed by policy considerations like those discussed today, the next decade will see climate and energy transition practitioners, as well as policymakers, continue to open their apertures to build a more comprehensive scope of the work needed to achieve holistic societal sustainability.

Here’s a pic from one of my recent afternoon walks in Germany. Go touch grass!!

Ciao,

— Nick