Carbon tax on northern dairy production
Nina Hyytiä, University of Helsinki | 7 October 2024
Agriculture in Finland and especially in North Ostrobothnia region is constrained by northern location, North Ostrobothnia region lies between 64th and 66th parallels. In there, dairy production combined with grasslands and feed crop production are economically reasonable choices for farmers. Yet, especially in Northern Europe public concern on the climate and environmental effects of animal production is growing.
By means of economic modelling carbon tax was imposed on dairy production and dairy exports. The results showed decreases in climate emissions and the use of nutrients and pesticides. However, these positive effects had a flip side to the farmers and to the regional economy. Emission based carbon tax decreased agricultural production, the incomes of farmers and had negative knock-on effect on the regional industries. Environmental effects were neither unquestionably positive, since if the area of grasslands and fallows decreases, their animal and plant habitats will be lost if farming will be replaced by forests or settlements. Accordingly, the impacts on biodiversity can be detrimental.
In the remote area, livelihood of rural areas diminishes and decreases in milk production have negative knock-on effects on local food industry and employment. Finally, part of the local production will be replaced by imports that are exposed on carbon leakages. In terms of emission mitigation, tax on agricultural industry proved to be clearly more efficient in comparison with the tax on dairy exports.
Judging against this complicated set of economic, environmental and social linkages, just and perhaps also effective policy implication instead of imposing a carbon tax, may be the reformulation of the EU Common Agricultural Policy. This denotes a transition towards climate and environmental performance-based support at the expense of the hectare and animal-based support. The concrete measures in Finland may be, for example, environmental and climate protection measures in peat lands, carbon farming in mineral lands, animal welfare measures, use of low- emission feeds and precision farming. This transition would also prepare the Common Agricultural Policy for the future EU enlargements.
Nina Hyytiä is lecturer and agricultural economist at the University of Helsinki