Imposing a carbon tax on dairy production in nature constrained areas: a SEEA-based analysis

The System of Environmental-Economic Accounting for Agriculture and Social Accounting Matrix multiplier model was applied to analyze the effects of a carbon tax imposed on dairy production and exports. By combining economic and environmental effects, this study evaluates the expediency and effectiveness of carbon taxes as a tool for agricultural emission reduction policy in a European area of natural constraints. In the analysis, industry-specific tax demonstrated greater efficiency in reducing emissions. Furthermore, reductions in cattle numbers, and consequently in animal manure, fertilizer, and plant protectants, would have additional positive effects on water and soil quality. However, the carbon tax resulted in a significant decline in agricultural income and employment, leading to extensive knock-on effects on the downstream and upstream industries. Additionally, implementing a unilateral tax would result in a comparative disadvantage for both agricultural production and trade. Consequently, if policymakers choose not to decrease farm production in Europe, agricultural subsidies tied to environmental performance may be a more viable option for mitigating agricultural emissions. Moreover, among agri-food stakeholders, a reform of agricultural subsidies may be socially more acceptable and, therefore, politically less contentious than a carbon tax.