This report was prepared by Dr Anita Wreford and Dr Dominic Moran (Scottish Agricultural College, United Kingdom) with the assistance of Professor Neil Adger (The Tyndall Centre, University of East Anglia, United Kingdom) for the Joint Working Party on Agriculture and the Environment. The aim of the report is to help guide policy makers in the design of policy measures to address climate change issues in the agricultural sector.

This report considers some of the salient issues that underpin the economics of addressing climate change impacts in the agricultural sector; specifically, projected impacts of climate change on agricultural systems, adaptation responses to these scenarios, and the mitigation of sector greenhouse gas emissions. The report first describes current knowledge on the impacts of climate change on agriculture and related resources. It then examines the limits of the knowledge on the mechanisms that translate climate change into potentially serious impacts on food production, water stress, and ultimately food security. The report highlights remaining uncertainties in relation to impact categories and in terms of unequal global coverage of existing information.

Agriculture is essentially a man-made adjunct to natural ecosystems and is weather and climate dependent. It is also a significant source of anthropogenic emissions of greenhouse gases, which are coming under increasing scrutiny as countries seek to meet binding mitigation targets. New challenges are emerging in terms of how we interpret the impacts of warming, how farming systems adapt or are adapted to these changes, and how near-term emissions mitigation requirements can take place in ways that are consistent with longer-term adaptation plans. These increasingly urgent challenges coincide with a process of sector reform in many OECD countries, which is focussed on ways to rebalance the economic, social and environmental objectives for the sector. This process offers a window of opportunity for accommodating mitigation and adaptation options within new agri-environmental arrangements. But all these reforms will affect and be affected by a global agricultural trading system, which is increasingly being required to deliver on ancillary policy objectives (e.g. energy and food security, and poverty alleviation), but which itself is vulnerable to climate shocks.

The impacts of climate change are likely to be greater on those countries more dependent on primary sector economic activities, primarily because of the increase in uncertainty on productivity on these primary sectors. Impacts include reduction in water availability in already water-stressed areas, changes in the incidence of extreme events such as typhoons and droughts, and impacts of sea level rise in low-lying coastal areas (see Easterling et al. [2007] for a summary). Modern agriculture has tried to minimise the impacts of climatic and weather uncertainty through irrigation, the substitution of labour with energy-intensive practices and plant breeding for heat or water-stress tolerant crops. Thus adaptation in agriculture takes places either by farmers individually, by farmers and local institutions collectively, or through national level policy decisions which provide finance, research and development, and knowledge transfer, and property rights or legal frameworks to enable individual or collective action.

The effects of climate change on agriculture are characterised by various forms of uncertainty. First, as previously mentioned, there are uncertainties concerning the rate and magnitude of climate change itself. Second, there are uncertainties around the biological response of agricultural outputs, for example with regard to CO2 fertilization. Third, there are uncertainties as to how society responds .. or even has the capacity to respond .. to projected and expected impacts. Some aspects of climate change research are limited by fundamental, irreducible uncertainties. Some of these uncertainties can be quantified, but many simply cannot, leaving some level of irreducible ignorance in our understandings of future climate uncertainty (Dessai and Hulme, 2004).

The chapters above have reviewed estimates of the major impacts of climate change on agriculture and related resources at the global scale. Faced with these threats and challenges, there are two major responses for policy intervention in agriculture. The first strategy is to reduce the rate and magnitude of climate change itself through reducing the human causes of climate change i.e. mitigation of greenhouse gases, which is discussed in detail in Chapter 5. The second (and complementary) option1 is to promote adaptation to climate change to minimise the impacts and take advantage of new opportunities. Adaptation in the climate change context may also involve adjusting to changes resulting from climate impacts elsewhere in the world (such as the possible effects on markets, changing comparative advantage, increased migration) or changes resulting from mitigation actions (such as increased biofuel production and changes in land-use). There is also a need for a multi-sectoral planning approach, integrating the different aspects of agricultural production, particularly soil and water management.

Emerging scientific evidence on temperature thresholds has injected greater urgency into discussions about how to avoid the consequence of dangerous climate change (IPCC, 2007). This agenda has been supported by The Stern Review of the Economics of Climate Change (Stern, 2006), which provides a compelling if contested economic basis for advancing greater spending on mitigation strategies. In most OECD countries there is now a proactive programme to determine where emissions reductions should take place.

At present, research and policy relating to mitigation and adaptation are generally separate agendas, driven by different policy requirements and often handled by different agencies. Arguably, legally binding emissions reductions agreements have given more urgency to domestic mitigation agendas, which have, in part, eclipsed resource allocation for adaptation. The latter is often perceived as a longer-term agenda that can be partly assigned as a private rather than public responsibility. While this may be the case, there is nevertheless likely to be a public-good interest at stake when considering the outcome of private adaptation decision making in agriculture. At a minimum therefore the public role should be one of imparting relevant impact information as and when it becomes available and in seeking out the synergies in co-ordinated adaptation and mitigation planning.

Climate change is now a mainstream concern for governments across the OECD area, with most member countries also funding research into differing aspects of national impacts, adaptation and mitigation. In this chapter we focus predominantly on work that is developing appraisal and evaluation frameworks of relevance to agriculture, specifically any work aimed at improving the efficiency of responses.

It is possible to identify at least five areas of research and policy advocacy relevant for the OECD in relation to furthering the economics of climate change in agriculture.