Finance 250 Adopting systems less reliant on inputs 200 150 100

Nitrification inhibitors

50 £ 40 0 -50 -100 -150

Fertility (dairy)

-200

Productivity (dairy)

-250 Improver nitrogen-use plants -3450 Ionophores (beef)

Figure 3: Agricultural marginal abatement cost curve (MACC), optimistic case (2020) Source: Scottish Agricultural College

However, unsustainable practices in parts of the industry have had serious impacts, such as forest clearances that destroy rich natural ecosystems and release huge volumes of GHGs into the atmosphere. There have also been social issues such as native communities being unwillingly dispossessed of their land. Because such problems may entail the risk of financial penalties, client default and reputation risk, many commercial banks have strengthened their risk assessment policies on palm oil loans, and have developed written policy statements on palm oil, noting that a responsible palm oil policy needs to cover the full range of companies involved in the palm oil sector, including upstream companies as the producers of crude palm oil and downstream companies involved in refining, trading and use of palm oil products.

In most OECD countries, the GHGs emitted by the agricultural sector are significant and comprise mainly of methane and nitrous oxide, which interact with soil and microbial processes in ways that are not completely understood (Climate Change Task Force UK 2010).

Also, the actors are many, dispersed and small, so that measuring emissions and enforcing regulations are not easy. Thus, increasing attention is being given to market- based instruments such as tradable emission permits. To that end, the UK has developed a Marginal Abatement Cost Curve (MACC) for UK agriculture (see Figure 3).

This exercise identified a technical potential of 9 MtCO2 -

eq (metric tonnes of carbon dioxide equivalent) that could be abated at negative cost (i.e. this would save money for farmers under the assumptions used in the MACC), with an additional 4 Mt CO2

-eq below £ 40/t CO2 -eq. This

indicates a scenario for GHGs policy, characterised by taxes and subsidies or a cap-and-trade scheme, with up to 6 Mt CO2

-eq potentially available for abatement by 2020

(Climate Change Task Force UK 2010), a market of over € 100 million. Because the biggest reductions may come from the least efficient and least aware operators, linking environmental performance to improved profitability is likely to be effective and should also prove to be an attractive business model for financial institutions.

Crop/soils Livestock AD/manure management

Ionophores (dairy)

Improved mineral nitrogen timing

Improved organic nitrogen timing

CAD poultry 5 MW

5 10 15 Improved drainage MtC02 e

Separating slurry mineral nitrogen application and using composts

Species

introduction (including legumes)

603

£/tCO2

e