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Abstract

To date within Europe, a regulatory approach has been favoured when trying to curtail emissions from agriculture, the Nitrates Directive being a recent example. Economic theory indicates that market based solutions such as tradable emissions permits are the least cost means of achieving desired reductions in emissions. This paper compares the impact on farm incomes of a regulatory approach to emissions abatement with an emissions trading approach. A farm-level linear programming model for the Irish agriculture sector is constructed. A 20 percent reduction in Greenhouse Gas (GHG) emissions is introduced and the impact on farm incomes is measured. The linear programming model is then used to determine each farmer’s shadow value for an emissions permit. These shadow values are then weighted to estimate supply and demand curves and used to simulate a market for emissions permits and the farm incomes are re-estimated. Finally, the implications for farm incomes of both abatement strategies are compared with a scenario where no constraint is placed on GHG emissions.

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