 I was asked to talk a little bit about incentivizing climate smart agriculture and everybody knows this is now three elements. It's to do with trying to increase production sustainably. It's to try to build resilience and to help the sector adapt to climate change. And it's also to do with mitigating carbon emissions. Now, for those of you who are here hoping that I might say something about adaptation today, I'm afraid you'll be disappointed. It's an important issue, but we simply don't have time. So I really want to focus on the first and the third and the potential contradiction or conflict there may be, particularly for us in Ireland between these two objectives. Increasing food production and at the same time trying to reduce carbon emissions. And I think it's a very complex issue. Not sure I have any easy answers, but hopefully at least as we think through it, we can try to come up with a sort of a framing of the problem. I have a little slide there with a picture of a cow. She's very happy because she's doing what she does best, which is producing nutritious food, milk and meat for the human population. The only difficulty is that she's also producing as a joint product greenhouse gas emissions. And this is something which farmers for millennia never really thought about, but which is now increasingly brought home to us because of the growing concern about the social and environmental costs of the human contribution to climate change. And the thing about these greenhouse gas emissions in economic terms, they're an externality, a negative externality. That means they're not priced, but they have particular characteristics which make them I think very unusual. First of all, it's an invisible externality. We don't really see it. We produce the milk, we produce the meat, but we don't really see these greenhouse gases. Secondly, it's a long-term externality. We don't see any immediate change in our environment as we continue with our milking and our meat production. It's something which happens over a long period of time. The effects are not necessarily local. The main effects may indeed be far away, particularly let's say in developing countries. We in Ireland may be relatively unaffected. And it's a global problem which gives rise to a collective action issue. In other words, Ireland on its own to take action on this issue is going to have a minuscule effect on the overall outcome. And yet if we all sit back and take that attitude, nothing happens. So contrast those four characteristics of this particular externality with another externality, very familiar to those of you working in agriculture, which is water pollution. Totally different. If a farmer pollutes a stream at the end of his field, it's local. He sees the problem. It's immediate. And his neighbors kick up about it. So we're dealing with a fundamentally different type of externality, both in scale and in design or character. And that makes it very difficult, I think, to get our heads around it. Pat Bogue did a very interesting report for the National Rural Network a year or two ago where he interviewed farmers. They didn't really understand what the problem was. And I must say that doesn't surprise me. So we are dealing with an issue which is complex, which is new, and to which I think there are no easy answers. But I want to stress that these emissions are a real cost. It's not just a sort of a bookkeeping exercise. They are a real cost. And therefore placing, this would be the sort of fundamental sort of message that I would have, is that placing a value on this emitted carbon, a cost, a price, whatever you want to call it, is important to ensure that effective incentives are in place in order to tackle climate change. Now where does that price that cost come from? We can think of it as, let's say, what's sometimes called the social cost of carbon. That is to say we can think of it as the damages caused, the value of the damages caused by emitting one extra unit, one extra ton of carbon dioxide into the atmosphere. And you can have very complex models with lots of assumptions to try to come up with that particular figure. Perhaps more concretely, you can think of it simply as the carbon price, or what Convry and Clinch some years ago called the avoided cost of compliance. In other words, it's simply the cost to the state of avoiding the last unit of emissions in order to meet with its compliance targets, in our case with our international commitments. And of course those commitments come because of our membership of the European Union. And essentially the EU has two sets of targets, that is targets, everybody knows this for the emissions trading system sector, which is essentially energy and large industry. And then it has individual national targets, the ETS target is now a unified EU-wide target. It has national targets then for the so-called non-ETS sectors. Now these are largely agriculture, transport, housing, waste, small industry and so on. As I say, the important thing here is that these are national targets. So effectively just there alone we have 29 different targets, we have 28 national ones and one for the EU as a whole. And of course the more constraints that you have, the more individual targets you have to meet, the more likely it is that you're not going to hit the efficient, the least cost way of reducing emissions. Because in a sense you're probably likely to find that one country is finding it more expensive to meet its emission reductions than another. Because the targets have not been set in a way which equalizes that marginal abatement cost across countries. At this point in time 2015 we're faced with two sets of targets. We have a set of targets for 2020 where the Irish target is a 20% reduction in these non-ETS emissions compared to 2005. This is relatively much higher than for the European Union as a whole where the target reduction was 10%. And there are certain flexibilities built in. So we don't have to meet that reduction entirely through domestic reductions. We can use international offsets, we can purchase or transfer emission allowances from other member states. And an important point that the so-called land use change in forestry sector is not taken into account in this particular period. Turning then to the 2030 targets which I think we need to start to focus on at this stage. So this is page two if you like, if you look at the bottom if you're looking for the handout. Here we have the conclusions of the European Council meeting at 30% overall reduction in non-ETS sector emissions. National targets yet to be decided but will range between 0%, no reduction to minus 40% which will essentially be linked to your relative GDP with some qualifications. So Ireland as a high GDP per capita country might expect on that basis to have an emissions reduction target greater than 30%. On the other hand, in the European Council conclusions due not least to very effective negotiations by the Irish delegation, there is a recognition that the question of food security and agriculture needs to be given careful consideration and should be taken into account in setting whatever targets come about. So there is on that basis given that of all member states we by far have the highest dependence on agricultural emissions as part of our non-ETS total that could mean a somewhat lower reduction commitment than 30%. But that all remains to be decided. There will again be some flexibilities. All of that reduction has to come about this time from domestic reductions as no possibility of international purchases but there will be maybe enhanced possibilities to exchange or transfer allowances between member states. There is an interesting sort of possibility just mooted that there may be some link between the non-ETS and the ETS sector and there is a commitment to look at how the land use change in forestry sector can be integrated into the target process. I just note that in addition to these climate targets there is a parallel process going on under the clean air program which is going to revise the national emissions ceilings for other gases and pollutants. In particular of concern of interest to agriculture are the ammonia ceilings and the possibility that methane there could be a separate target for methane gas which of course is a large part of our agricultural emissions under the clean air act quite separate from any implicit target on methane that might be there from our non-ETS ceiling. However that legislation is still going through the legislative process in Europe so we don't yet know what the outcome will be. If we look at estimates of the sort of social cost of carbon, how damaging really is it? And there are in the international literature many attempts at trying to estimate it. The United States has just come up with a huge report where it has done it. But I've just quoted here the UK guidelines they suggest to take into account in sort of policy analysis for 2010. For the ETS sector it's £14 sterling per tonne of carbon dioxide. So the non-ETS sector even at the moment they reckon that carbon is costing £52 per tonne. And they expect, so that's an indication of the fact that you have different marginal abatement costs in the two sectors with different ceilings. But they expect these to converge and by 2050 they expect the cost of carbon to be equivalent to £200 sterling per tonne. Now in the latest EPA projections they are using as an assumption a cost of carbon of €20 per tonne in 2020 rising to €57 per tonne in 2035 which is the end year. So not only are we jointly producing carbon gases with our meat and our milk but the cost of that externality is going to rise according to these forecasts quite significantly over time and that's the challenge that we face. In the next slide and you can't really see the figures I'm afraid but I try to do a back of the envelope calculation in terms of if we attribute the carbon emissions to a litre of milk or to a kilogram of meat and use these EPA estimates what would it mean in terms of the charge that a farmer might face? And in the case of milk with the €20 per tonne carbon cost it would lead to an extra charge of about six and a half percent on the current price of milk in other words about two cents compared to a milk price of let's say 31 cents. And in the case of meat it would be a higher charge it would be over 10% so you'd be talking about almost half a euro compared to a meat price of €420 per kilo. Of course if we move forward to 2035 which is only 20 years ahead the cost of those emissions rises significantly up to about 18% of the milk price assuming no change in milk prices over the period and up to 30% of the cost of meat. So that's the scale of the challenge I'm not saying that that's the level of carbon cost which necessarily there may be arguments for ameliorating that reducing it or whatever but that is if we were to fully cost these carbon emissions that is the implications that we face. Now of course the agriculture industry makes some good arguments and that they that this should not in a sense come about they argue that Ireland relatively is a deficient producer of meat and milk in carbon terms which is true but that doesn't necessarily make us a low carbon agriculture where we're a high carbon agriculture in fact the highest in Europe after the Netherlands and Belgium. If we were to restrict Irish production this obviously flies in face of the the other imperative that we should be increasing production in the face of increasing world food demand and if we restrict Irish production the argument is that it would simply lead to production moving to to other countries which are less likely to be less carbon efficient than we are meaning that there would be an overall increase in global emissions which is certainly not what the policy is intended to produce and it's also argued that abatement with respect to biological emissions is difficult which it is and therefore we should really focus on a target such as reducing emissions intensity rather than an absolute target of reducing absolute emissions. Now I think that there are some of these arguments are stronger than others but there's certainly a lot in them and I think they're very important arguments to be made around the table when we are deciding on what the overall level of this what the overall ceiling for our non ETS sector is going to be in 2030. In the words if it is more difficult to reduce biological emissions and if we have a high share of those emissions then obviously our ceiling should be more lenient than in the case of a country whose emissions are largely in the energy sector or whatever. But I would argue that once that ceiling is set once we have a national ceiling which implies that if we exceed it there is a cost a real cost not a bookkeeping cost not something that's theoretical or artificial is a real cost to the economy of meeting that ceiling because we have to go out and use these flexibility mechanisms to purchase sufficient allowances to bring ourselves into compliance. And you know if in 2035 these these allowances are costing 57 euro per tonne and that's going to add up to a lot of a lot of revenue leaving leaving the country. So I would argue that once the once the target is established we then have to ask how what is the best way that we as a country meet that particular target. Now it is true that agricultural emissions have been trending down that's what the next chart shows you and if you turn the page to page three you'll see that that's largely because over the past quarter century we have seen no increase in agricultural output in Ireland. That in itself is an interesting story. It's been a huge amount of money put into research into support for the sector yet in 2015 we produced exactly the same amount as we produced in 1990. But from a greenhouse gas emissions perspective that was very good because of course we did have productivity improvement. So we were producing that with less cows, less nitrogen and therefore less emissions. But we now have a food harvest 2020 which suggests that we are going to increase production quite significantly in the coming years. And there's another group food harvest 2025 which I think is going to set further targets beyond 2020. And there is a reason why we would expect in production to increase because for the first time since 1984 mill quarters will have gone this year and we know that daring is by far the most dynamic sector within the within the agricultural sector. So there is indeed potential to grow but that of course does create the dilemma that it also means increased emissions. So if you look at the EPA projections to 2035 agriculture today is about 45%. They expect agriculture to remain about 45%. So we're at half of the emissions in the non ETS sector. The next slide then shows the EPA's projection as to what emissions in that sector are going to be. And you can see that they're basically going to stay flat without additional interventions. The EPA expects that we will be producing roughly the same level of emissions in 2035 as we are today. But remember we are going to face a reduction target. We don't know what that reduction target is going to be yet but let's assume that it's around 30%. So in other words what the average of the European Union as a whole. And I show what that would mean in the dotted line there and you can see that the overall non ETS sector would have to reduce emissions quite considerably. And as I say agriculture is half of that. So if you say that we're going to in a sense, I'm not suggesting that agriculture isn't going to make a contribution. It is of course but the question is do we need to ask it to do or incentivise it to do more. And that's really what the rest of the talk is. How am I doing? I'm going on for a little bit of time. So just in responses essentially there are three sort of groups of responses. We can of course try to reduce emissions by reducing emissions intensity or by shifting output to less intensive products. We can try to increase the sequestration of carbon in the soil or in forests or we can try to produce bioenergy which helps to avoid emissions elsewhere. And the way in which we tend to look at this is by constructing a sort of marginal abatement cost curve. In other words ranking the various options according to their cost effectiveness. And Chagas have done this focusing mainly on sort of agricultural abatement options. In other words not land use change in forestry options. And at the bottom of that page three I sort of illustrate what this map curve looks like. So this is sort of a hypothetical example but as you can see at the bottom left these are abatement options which are win-win. Essentially they help us both to reduce emissions but also to increase profit and productivity at farm level. So these are highly desirable options to pursue. You then have options which are sort of cost-neutral. You then have options which are cost-effective meaning that they do cost the sector something to implement them but nonetheless that cost is less than this carbon price which we have set. And then there are those options which clearly are uneconomic to pursue where the cost of reducing emissions is just simply too high. And the Chagas curve for agriculture is shown at the top of page four and you can see that there seems to be a large potential for these win-win options and they come about through extended grazing, through improved breeding. And you know we could abate emissions by five to seven percent if all of those options were taken up. But of course it just raises the question given that they would also increase farm profit at the moment why is it that isn't happening. The next set of options are essentially bioenergy options which come in showing sort of roughly cost-neutral terms and really there isn't much much much else. And just to say a little word about the bioenergy because of course here it depends on the use of that bioenergy. If you're simply substituting for electricity for example through co-firing in the peat power station then you're not actually reducing agricultural emissions you're simply reducing the demand for allowances in the ETS system. So actually it doesn't help you in meeting your non ETS target. However if you are supplying your biomass say for home heating or to a hospital for a heating scheme and as a result they're reducing their fossil fuel use then okay you don't benefit agriculture directly but you are reducing demand for if you like emission credits within the non ETS sector. So that certainly helps agriculture because it provides more scope for agricultural emissions if households, if hospitals and so on are burning bioenergy. But there are problems or arguments around this about is it right to use agricultural resources for energy instead of food? Are they really reducing emissions if we take the indirect land use chains into effect and so on? Then carbon sequestration again in terms of soils potentially this would seem a very possible source but huge issues in terms of measurement and verifying the uptake of carbon. So I'm not sure I see soils coming in but certainly forestry is something which potentially could contribute to helping us meet our targets and we have to wait and see what the commission is going to propose as to how they're going to integrate those into the targets. But if you look at the McKinsey Mach Curve which was looking at land use and carbon sinks they do suggest that we could reduce emissions at a cost effective rate through a forest station. So the question is how to incentivize these changes? There are obviously some possibilities for reducing emissions but how to actually incentivize them. And here the Climate Action and Low Carbon Development Bill emphasizes that measures should be cost effective and at the least cost in the national economy. So that's if you like the perspective that I'm addressing. If you look internationally what are other countries doing? Obviously all countries are trying to pursue the voluntary route. I mean all countries have these win-win options. So if you could only get farmers to adopt measures which improve their own productivity at the same time you can reduce emissions. Some countries have gone further where they have a compliance scheme in operation they have linked agriculture to that. Agriculture is not part of it but they have allowed a sort of domestic offsetting system. So in other words in Australia, in Canada, in California power companies if they find it cheaper to pay farmers to sequester carbon in their soil mainly tillage farmers. If it's cheaper to do that than to actually change your own system you're allowed to use those offsets. Only one country that's New Zealand has actually gone further and actually at least considered putting a price on carbon. This is the top of page five. So they had decided to include agriculture in their cap and trade emissions trading scheme but two years ago they backed away from that arguing that other countries weren't doing it was going to put their agriculture at a disadvantage so they would simply wait. Now that might suggest that we would be well advised to do the same thing but I would point out that in Ireland we do have a real binding commitment, a financial commitment. If we don't meet our targets we have to buy those emission units somewhere else that's a real cost to the economy. New Zealand can make commitments but if it doesn't meet them there's really no sanction. So in a sense it has more freedom from turnover than we do. Now clearly there are some possibilities under the recent cap. The changes many of you will be familiar with pillar one and pillar two the greening payment and pillar one the new rural development program in pillar two and there are a number of measures in that which may help to reduce agricultural emissions. Frankly I would be a little bit disappointed at the scale of these measures and I'm not sure that they're really going to have any really major impact but we can discuss that. What I want to focus on just and this is the final point Chair who would be pleased to hear is the competing incentives affecting land use because essentially returns to agriculture, to forestry and to bioenergy are all in Ireland very influenced by public policy interventions and they don't always work in the same direction. In fact very often they have contradicted and competed with each other. So we clearly have huge transfers into the use of land for agriculture. The single farm payment now the basic farm payment, the less favored area payments, agri-environment schemes and so on. So clearly that in a sense incentivizes it gives a preferential treatment to using land for agriculture rather than for example for forestry. Now when Europe decoupled the farm payments there was a huge boost for forestry because again good skillful negotiation by the Irish department got the idea of the stacking of entitlements. In other words it allowed farmers who wanted to a forest essentially to hold on to their single farm payment and that has been continued under the new basic farm payment scheme. So in a sense forestry is now from that point of view on a level playing field. It's still some discrimination against forestry in the new less favored area scheme and so on but much smaller. So in fact there was a huge switch if you like to support forestry as a result of that possibility that what was previously purely an agricultural payment could now also be received by people who wanted to forest their land. Of course this incentive structure could change nobody really knows what will happen to the cap budget or to the design of cap payments after 2020 and so on. But the importance of these payments is really highlighted and I've picked the two cattle systems to show this which is really just to indicate how these payments are underpinning the continuation of agricultural production. Let's just look at one of them which is the single suckling enterprise the first of the two slides where the chuggles figures they break this down between the most profitable third, the average profitable and the least profitable third. And if you look at the net margin figure for the single suckling enterprise as a whole this is negative. The most profitable group have a small positive net margin but the least profitable essentially are losing 250 euro per hectare and you know it's not on every animal it's per hectare but simply by being in that enterprise. And the only reason of course that they can continue is because they have this this direct payment which if you add them all up together in that enterprise works out at around 400 euro per hectare. So we see here subsidies in a sense maintaining a sector which if you were to add in the additional costs of the greenhouse gases of course those net margins would be even more negative. So it really makes you wonder is that not a sort of a cheap abatement option at low cost. If you look at the forestry figures the last slide in that table the work that has been done suggests that there is a positive return if farmers switch land out of dry stock and other agricultural enterprises into forestry. And yet if you turn the page to page six you'll see that actually forestry planting has been falling even despite as I say what should have been a significant boost after 2005 we see planting rates coming down now partly of course it was the Celtic tiger period people expected land values to go up there's all kinds of explanations but the fact of the matter is that we aren't seeing the rates of a forestation which might be necessary which are necessary to help us meet our targets. And that's not because forestry doesn't receive very significant subsidies so the next slide I've just tried to look at the cost of sequestering a ton of CO2 through forestry and if we assume that all of the the current grants the establishment grant the maintenance grant and the premium are actually justified because of the carbon sequestration element and it depends on the discount rate you use because obviously forestry is a long-term enterprise but if you use a discount rate of 2 percent which is which is perhaps a lowest rate and you can see that we can sequester a ton of carbon in forestry by about 28 euro per ton a little bit more than the sort of 20 euro but given the uncertainties around this figure I wouldn't like to to to stand over so it does seem to me that the forestry incentive is about right but of course it has to compete against the fact that the competition for that land use namely the dry stock sector is not being fully charged the full cost of of of its production and so so so so there is a there is an imbalance there and that's my conclusion Tom that I'm certainly not arguing and it's sort of facile to say that because agricultural output also produces agricultural greenhouse gas emissions we should somehow stop producing I mean that's not the that's not the argument but it's rather that any sector if it has an external cost those costs should also be taken into account in the decision whether to stay in or to increase output in that sector other the other sectors in this non ETS sector the home heating the fuel transport already pay a carbon tax as I say the the sequestration sector forestry already receives what I think is an adequate maybe more than adequate subsidy for its carbon contribution but essentially the livestock sector isn't facing those those those charges and and that in a sense is going to make meeting our target not only more difficult but also in a sense more costly because it's going to either put a greater pressure on the other sectors the transport home heating sectors and so on in the non ETS sector or we're going to have to go out and and buy those which is a cost to the national exchequer even though in a sense the beneficiaries are just one group of course there are valid arguments what about jobs what about carbon leakage I think the jobs argument is is is is not a convincing one because essentially a carbon tax what we're doing is we are reallocating resources between sectors within our economy and if we if we don't do that we're actually paying money out of the country to buy these emissions so I think we're we I don't think you could make a case that we would be worse off on a jobs front with with extending the carbon tax the carbon leakage argument I think is a much more difficult one to address because clearly if Irish agriculture is the only agriculture not only in Europe but in the world which is being asked to bear the full cost of its carbon emissions and nobody else's that's a very on-level playing field but it seems to me that if we were to as a country we were to agree that that's the right way forward that ultimately consumers should pay the full cost of the food they produce and that means paying for the for the for this carbon cost embodied in it if we were to decide that's the right way to go it seems to me our negotiating strategy in Brussels would be different we would now be trying to get all the other to get this generalized across Europe so that we weren't out on our own so that we weren't an outlier and facing this on-level playing field so it seems to me that in a sense by putting ourselves in a frame of mind as to the right direction to go we could actually try to and maybe successfully try to mitigate some of the more obvious disadvantages in terms of competitiveness so let me stop here apologize for going on far too long