The one-handed economist

Števo writes*

The European Union is not on the path to carbon neutrality within the Paris Agreement goals, not only because of a lack of sufficient carbon pricing and green investments, but also due to its subsidies for unsustainable sectors with high greenhouse gas emissions. The Dutch, for example, give €40 billion of subsidies for fossil fuels.

While removing subsidies for fossil fuels is crucial for reaching Dutch sustainable goals, there’s a need to focus on subsidies for animal agriculture. In the EU, animal farming, creates more emissions than all cars and vans together. This result is partially due to the Common Agricultural Policy (CAP), which accounts for one-third of the EU budget. More than half of the CAP goes to animal agriculture. The situation is similar in the Netherlands. Ten percent of Dutch GHG emissions come from animal farming, but that sector gets more subsidies than plant-based agriculture.

Support for animal farming is also counterproductive because animal-based foods increase rates of heart disease, diabetes, cancer and obesity. Finally, there is the moral case against slaughtering almost a billion animals per year in the Netherlands, to deliver blood-soaked calories.

Politicians know farmers do not like their sustainability policies after many protests. Action to remove animal agriculture subsidies brings political opposition and risks reviving the flagging popularity of the Dutch farmer’s party (BoerBurgerBeweging), but it’s necessary for achieving sustainability in the Dutch agricultural sector.

An end to subsidies would remove one-third of the animal farmers’ incomes, which could be compensated by increasing prices. Those higher prices would function as a carbon tax by encouraging customers to move towards (relatively) cheaper plant-based products.

Some animal farmers would also be forced to end their operations without subsidies, so the EU should use redirect saved money towards helping them transition to more sustainable plant-based farming.

Bottom line: The EU and the Dutch government are giving almost a billion euros of unsustainable and immoral subsidies (which also promote unhealthy diets) to animal agriculture in the Netherlands every year. If these subsidies were removed, plant-based foods would see an increase in consumption; that higher demand could be met by redirecting animal-farming subsidies to farmers growing more plant crops.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Demir writes*

The EU Emissions Trading System (EU ETS) is a key policy tool designed to combat climate change by capping greenhouse gas (GHG) emissions and creating a market for trading emission allowances. Established in 2005, the system sets a limit on emissions that decreases annually in line with the EU’s climate targets.

The EU ETS operates on a “cap and trade” principle. Companies are allocated or purchase allowances, each representing the right to emit one tonne of CO₂ equivalent. These allowances can be traded, creating financial incentives for emissions reductions. Companies must monitor their emissions annually and surrender allowances equal to their output or face heavy fines. Over its four phases, the EU ETS has expanded its scope, tightened regulations, and lowered emission caps (European Commission).

In January 2024, the EU ETS expanded to include shipping, i.e., large ships (5,000 gross tons or more) entering EU ports, regardless of their flag (European Commission). Although shipping is often seen as an energy-efficient mode of transport when measured per ton-kilometer, it accounts for 2.9% of global emissions and 3–4% of Europe’s CO₂ emissions.

An IMO GHG Study projects shipping emissions could rise by 130% by 2050 compared to 2008 levels. To address this, the EU ETS includes a phased approach for shipping. By 2025, it will cover 40% of emissions reported in 2024, rising to 70% in 2026 and 100% in 2027. Initially, only CO₂ emissions will be regulated, but methane (CH₄) and nitrous oxide (N₂O) will be added in 2026 (European Commission).

Shipping’s inclusion in the EU ETS presents opportunities to decarbonize the sector. It is expected to encourage investments in carbon-neutral technologies, improve fleet energy efficiency, and promote the adoption of alternative fuels (Adamantidis, 2023). Companies that have already reduced their emissions will gain a competitive edge as early adopters of sustainable practices (Christodoulou & Cullinane).

However, challenges remain. One major concern is the potential for cost pass-through, where shipping companies transfer added costs to customers. This could lead to a modal shift from maritime to land-based transport, particularly in short-sea shipping (Christodoulou & Cullinane). Such a shift might conflict with EU climate goals and undermine transport policy.

The industry is also sensitive to volatile market conditions. High fuel prices, low charter rates, or expensive emission allowances could disrupt maritime services and reduce demand (Christodoulou & Cullinane). Another significant risk is carbon leakage, where companies avoid compliance by using ports outside the EU ETS’s jurisdiction or shifting operations to other regions.

Bottom Line: The EU ETS has expanded to decarbonize shipping. While this move might drive innovation and sustainability, policymakers must address risks like cost pass-through, market conditions, and carbon leakage. A balanced approach will be crucial to ensuring the EU ETS reduces emissions meaningfully without unintended consequences.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Lola writes*

The Netherlands’ Climate Act of 2019 called for a reduction of greenhouse gas emissions by 49% by 2030, and 95% by 2050 (Kruit et al., 2022). Consequently, space heating, which is often powered by natural gas, has been getting a lot of attention and disagreement as the Dutch work towards their climate goals (Klimaatwet, 2022).

While the district heating approach has become a cornerstone of the Dutch sustainability strategy (Klimaatakkoord, 2019), private companies are hesitant to agree. In April, energy supplier ENCO refused to supply energy for this transition in the municipality of Utrecht. (Eneco, 2024). The company prefers hybrid heat pumps (HPs) for low-rise homes that are too far apart for a district heating grid (DHG). ENCO says hybrid HPs are a more cost-effective solution. (Ground.news, 2024).

Utrecht reported in September that 20,000 households are getting heat from the largest heat pump in the Netherlands rather than from the long awaited DHG (NLtimes, 2024). HPs are efficient, but they depend on fossil fuels (this dependence should fall over time).

The 2019 Dutch Climate Act means that action is imperative, especially concerning  spatial-planning and infrastructure decisions (Rli, 2024). DHGs cost more to install but they can be heated with renewable energy from biogas and geothermal heating, for example (Lund, 2010).

Should the Netherlands adjust its sustainability goals for the sake of affordability?

This dilemma is typical of the green transition, where the public needs to accept personal costs in the short run for collective gains in the long run. Their willingness-to-pay has significant implications for any analysis of projects like the one in Utrecht. More attention must be given to the benefits of flexible options and long-term costs and impacts.

Bottom line: Any analysis of a sustainable heating transition must compare the public’s interests in the short- and long-term.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Felix writes*

In 2019, the Canadian government established a carbon tax of C$20/tonne of CO2e. This tax increased by $10 per year to 50$/t in 2022, and it is now increasing by $15 per year towards a target of $170/t in 2030.

The tax aims to change consumer behavior, thus 90% of the money collected is returned, as a “rebate”, to Canadian households, with the remaining 10% going to companies, farmers, and Indigenous groups (Canada, How Carbon Pricing works). The rebate means that around 80% of Canadian households get more money back than they pay with the tax; only the 20% of households pay more than they receive.

This tax has proven its efficiency in lowering carbon emissions and the previsions made by the Environment and Climate Change Canada (ECCC) in a report from the the Parliamentary Budget Officer (PBO) states that in 2030, Canada will have reduced its emissions by 62 Mt, compared to a scenario without carbon pricing. However, this reduction comes with a decline of 0.9% of the GDP (PBO report).

That decline fuels criticism by opposition politician Pierre Poilievre (head of the Conservative Party of Canada), who claims the carbon tax “takes money out of people’s pockets” (National Observer).

Using the same rhetoric, the Fraser institute — accused of misleading Canadian voters by Doug Aldlamont — claims that the 170$/tonne tax in 2030 will lower GDP by 1.8%, permanently destroy 185,000 jobs, andcost the average employed Canadian $1,540 per year, even after the rebate (Fraser Institute and Fraser report). The Frazer reports have not been peer-reviewed.

The Fraser Institute is a registered charity, but 9 of its 47 directors and many of its donors are linked to the oil, gas, and coal industries (Desmog).

In response to this skeptical discourse, Aaron Cosbey, senior economist with the International Institute for Sustainable Development, says the PBO report is misleading because it focuses on costs and omits the benefits of carbon pricing. Cosbey says Poilievre misrepresents climate policy by presenting it uniquely through immediate costs, such as fuel or heating bills. Cosbey argues that Canadian dependence on fossil fuels will lead to financial struggles in the long term, so the carbon tax is helpful in incentivizing them to shift to electric vehicles, heat pumps, and induction stoves that are more affordable in the long run (National Observer).

A 2024 Abacus Data survey of 2,199 Canadian adults found that 41% of respondents believed that the rebate did not compensate the carbon tax for the majority of people, 43% doubted the efficacy of the policy in reducing greenhouse gas emissions, and 47% thought that broad price increases were caused by the carbon tax. These perceptions come from unjustified political claims (Abacus Data).

Bottom line: The carbon tax has proven its effectiveness while helping 80% of Canadian households, but its political opponents have succeeded in casting doubt on its success.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Sara writes*

Before 2018, China was the largest global waste importer in the world, importing approximately 95% of Europe’s plastic waste (Sommer, 2024; Katz, 2019). In 2018, China’s “Operation National Sword” banned the import of 24 different kinds of waste, including plastics (Sommer, 2024; Tamma, 2018). The aim of the ban was to alleviate detrimental environmental and health effects in China’s domestic environment (Sommer, 2024). By January 2018, waste imports plummeted, and the ban has already exhibited some success, seen by the decline of air pollution that is seen to be in correlation with the policy (Sommer, 2024). The question that therefore remains is whether the European response to the ban can promote similarly equitable and sustainable practices in the management of waste?

China’s ban confronts Europe’s “out of sight out of mind” strategy toward waste management, and has grave consequences for the global waste trade (Tamma, 2018). Until 2017, the European model for dealing with plastic waste was based on, for example, 40% incineration, 30% landfilling and 12% exports to the Global South and countries such as China (Rosa, 2018). As a key player in manufacturing, with low wages, China was a favorite destination for waste (Sommer, 2024). In 2016 alone, approximately 14% of European paper waste (8 million tons) ended up in China (Tamma, 2018).

But can the upside of this waste crisis be realised? While the outsourcing of waste management is easy, there are concerns regarding how the waste is handled abroad and whether it’s really recycled (Rosa, 2018). The Chinese ban therefore presents Europe with the opportunity to better align waste management with European standards, but in turn, we are faced with the dilemma of having to find new partners for waste management (Rosa, 2018).

On the one hand, Europe has hopes for tackling the issue at its source by producing more recyclable materials and improving recycling capacity to reduce the need for waste disposal (Tamma, 2018; Rosa, 2018). Indeed, between 2019 and 2020, Europe’s plastic recycling capacity increased by 13% (Joltreau, 2022). Dealing with the influx of waste domestically might also mean better alignment of environmental and social conditions with European standards, as such conditions stand to question with the outsourcing of management to China (Rosa, 2018).

On the other hand, Europe lacks the recycling capacity to process waste that used to go to China (European Parliament, 2018). China’s import ban has thus strengthened a “waste haven” dynamic in which high-cost countries export plastic waste to low-cost countries like Turkey, India and Bulgaria, thereby redistributing the negative externalities from waste and pollution (Sommer, 2024; Tamma, 2018; Joltreau, 2022). However, the desirability of these locations is parallel to the desirability of China, being their low cost of waste processing. Bulgaria for example, imposes minimal taxes on landfilling waste (Tamma, 2018).

Bottom line: Europe lacks the institutional and structural capacity to  contribute to a circular global economy through this Chinese import ban, and hence, that the benefits of sustainable and equitable waste processing are yet to be realised.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).

Thadine writes*

Do you know how much ‘embedded soy’ you consume each day?

Your breakfast egg from the Albert Heijn, the margarine in your birthday cake, the chicken salad you ate for lunch may be directly linked to deforestation in the Amazon. This is largely due to soy, which is the leading source of animal protein feed and the second-largest vegetable oil source globally. In 2022, the Netherlands was the 8th largest importer of soybeans, contributing to its position as one of the biggest consumers of illegally sourced deforestation products.

From 2017 to 2021, the Netherlands imported an average of 8.1 million tons of soy annually in various forms, including soybeans, meal, oil, and soy ‘embedded’ in animal products like poultry, pork, and eggs. Around 88% of this soy is used as animal feed, and 85% of the imported soy is re-exported, primarily as processed soy meal, biodiesel, and poultry feed.

As much land as two-thirds of the Netherlands (2.7 million hectares) is required to produce the soy supplied to the Netherlands every year, with Brazil (42%), the USA (28%), and Argentina (6%) being primary suppliers. The greenhouse gas emissions linked to land-use change from imports between 2017 and 2021 totaled an estimated 21.9 million tons of CO2-equivalent per year, equal to about 12% of the Netherlands’ domestic emissions in 2019.

A mere eight companies brought over 80% of soy from the Cerrado (Brazil) to the Netherlands in 2018, among others global traders like Cargill (USA), Bunge (USA), and Louis Dreyfus (French/Dutch), along with Brazilian producers and traders such as Amaggi. The Cerrado, a highly biodiverse and globally important ecosystem in Brazil, faces significant threats due to deforestation and land conversion. The Netherlands is a major contributor to this as in 2018 45% of Dutch imports came from the Cerrado.

Alarmingly, only half of these imports were subject to corporate zero-deforestation commitments. Even more concerning, one-third of the imported soy linked to deforestation and land conversion was connected with corporate pledges to combat deforestation.

Global supply chains disconnect production and consumption, allowing high-income countries to “virtually” use land in producing countries.

In June 2023, the European Union passed the European Union Deforestation Regulation (EUDR) to ensure that the supply chains of various commodities and derived products (beef, soy, timber, coffee, cocoa, etc.) do not contribute to deforestation. The EUDR aims to guarantee that the imported commodities and products were not produced on lands that have undergone deforestation or degradation after December 31, 2020. Moreover, it establishes strict traceability requirements linking commodities to their production sites.

This law was set to come into effect in December 2024 for micro-and small enterprises. However, the European Commission proposed last month an “extra 12 months of phasing-in time, responding to calls by global partners”.

The EUDR has been criticized for its failure to provide adequate legal protection for the Cerrado. According to Mighty Earth, an environmental organization, the EUDR falls short in safeguarding three-quarters of this critical biome in Brazil, leaving it vulnerable to further pressure and degradation.

Bottom Line: The Netherlands, as one of the largest importers of soy, plays a significant role in driving deforestation in the Amazon and other vital ecosystems like the Cerrado, despite the introduction of the European Union’s Deforestation Regulation aimed at curbing these impacts.

* Please help my Environmental Economics students by commenting on unclear analysis, alternative perspectives, better data sources, or maybe just saying something nice :).