Low emission agriculture development will not be possible without significantly increasing the amount of investment in mitigation actions across the regions and agriculture sub-sectors but access to finance for climate action in agriculture is a major challenge. This paper evaluated innovative financial mechanisms and instruments that integrate climate finance, agriculture development budgets, and private sector investments to improve and increase farmers’ and other value chain actors’ access to finance while delivering environmental, economic, and social benefits.
Food production and consumption are gradually becoming a dominant source of greenhouse gas (GHG) emissions globally. More than one-quarter of the world’s GHG emissions come from agriculture, forestry, and land-use change, and this is likely to increase in the absence of mitigation actions in the sector. Livestock is a dominant subsector in agricultural emissions (31%) followed by crop production (27%) and land-use change (24%).
Regional disparities in agricultural emissions can also be observed based on production systems, input use, and level of agriculture intensification. Agriculture alone contributes an average of 18% of the net GHG emissions of the large emerging economies (Brazil, Russia, India, China, and South Africa-BRICS). Five countries (China, Brazil, India, United States, and Indonesia) with agricultural emissions of more than 200 Mt CO2eq contribute about 42% of the total global agriculture emissions.
Achieving the global target of limiting 1.5-2.0 0C warming under the Paris Agreement would require large changes in current food production, distribution, and consumption patterns. In addition, actions to reduce agricultural GHG emissions can have a synergistic effect on several Sustainable Development Goals (SDGs).
Promotion of low emissions agriculture development directly contributes to Climate Action (SDG 13) as the goal considers both adaptation and mitigation actions. Moreover, the first United Nations Food Systems Summit (2021) also stands in full support of global food systems transformation for more resilient and low emissions agriculture development. These all global initiatives emphasize investments in scaling up innovations that support resilience building and low emissions development in agriculture and allied sectors.
Recent GHG mitigation research in the agriculture and allied sectors has explored a range of options that can significantly reduce GHG emissions from the global food systems. Avoiding land conversion and restoring degraded lands offer large potential GHG emissions reductions and enhance carbon sequestration. Advances in agronomy (tillage, nutrient, water, weeds, and energy management) and improved breeding also have a large potential to reduce GHG emissions from crop fields. Livestock accounts for up to half of the technical mitigation potential of the agriculture, forestry, and land-use sectors.
Mitigation options in the livestock sector include improved feed and manure management, grazing optimization, development of silvopastoral systems, and reduction in demand for livestock products. Despite the large GHG mitigation potential, limited actions have been implemented to reduce emissions from agriculture. Implementation of many mitigation actions in agriculture identified in Nationally Determined Contributions (NDCs) of developing countries is conditional on technical and financial support from the bilateral, multilateral and other financing mechanisms.
Even developed countries are relying on a combination of voluntary policies with modest target setting for agriculture. In addition, the agriculture sector’s potential to address climate change is overshadowed by countries’ aggregate emission reduction ambition. The mitigation potential of countries providing specific targets for agriculture in their NDCs is about 15% of 2030 business as usual emissions, which is far below the technical as well as the economic potential of emissions reduction from agriculture.
Similarly, current climate finance for GHG mitigation from agriculture, forestry, land-use, and natural resource management is very limited, amounting to less than 2% of total global mitigation finance. Continued lack of progress in agriculture GHG emissions reduction with modest targets and limited finance could constrain efforts to achieve net-zero emissions by 2050. Total GHG mitigation investment in agriculture and allied sectors will likely continue to remain smaller than other sectors (e.g. energy and transportation) for the foreseeable future.
Implementation of mitigation actions identified in NDCs and other commitments requires an increase in investment shares over the next decades. One of the reasons for slow progress in GHG emissions reduction in agriculture could be the lack of business cases that can provide a strong basis for public and private investment in mitigation actions.
Impact investments can shift public spending and private finance to low-carbon agriculture and support implementing NDCs. The opportunities to mobilize investments in agriculture emissions reduction presented by the Paris Agreement and NDCs are mostly unrealized. One of the main reasons is the lack of a pipeline of business cases to make investment in agricultural GHG mitigation options.
However, the possibilities for mitigation finance in agriculture include a range of activities in food systems Investments for agriculture emissions reduction need to move beyond traditional loans and technical assistance approaches by developing innovative financing mechanisms that can leverage private investments in mitigation actions.
Little experience and information are currently available about how mitigation investments best support the long-term and widespread adoption of low emission technologies and practices in agriculture and allied sectors. This study assessed investment cases that link field evidence of economic relevance and potential to reduce agricultural GHG emissions by reaching the scale.
This paper presents i) an evaluation of investment cases that hold promise for reducing GHG emissions from the agriculture sector and support mitigation policies, and ii) discusses innovative approaches applied to overcome current barriers in financing in low emissions development agriculture. The assessment focuses on innovative financial mechanisms and instruments that can improve and increase farmers’ access to finance and deliver environmental, economic, and social benefits.
This study considers five different investment cases in four regions (Southeast Asia-Thailand and Vietnam, South Asia- India, Africa-Kenya, and Latin America-Colombia) and explores possibilities of climate finance for mitigation actions in agriculture and allied sectors in the different agro-ecologies. Investment cases include three major agriculture sub-sectors – paddy rice cultivation, crop nutrient management, and livestock.
Achieving the target of limiting global warming, SDGs, and net-zero emissions requires a combination of policies, incentives and technical supports, and coordination of actions across multiple stakeholders. Low emission agriculture development will not be possible without significantly increasing the amount of investment in mitigation actions across the regions and agriculture sub-sectors. But, access to finance for climate action in agriculture is a major challenge due to low investment priority and reluctance of global and national financial institutions.
This paper evaluated innovative financial mechanisms and instruments that integrate climate finance, agriculture development budgets, and private sector investments to improve and increase farmers’ and other value chain actors’ access to finance while delivering environmental, economic, and social benefits.
This assessment of investment cases provides rich information to design and implement mitigation actions in agriculture through unlocking additional sources of public and private capital, strengthening the links between financial institutions, farmers, and agribusiness, and coordination of actions across multiple stakeholders. These investment cases could help to develop new finance mechanisms that meet the needs of a large number of smallholder farmers and SMEs to implement the mitigation options
The innovative financial mechanisms and instruments used in the investment cases can accommodate the different risks-return profiles of all stakeholders of the project. For instance, Thai Rice and Kenya Dairy NAMAs are using layered capital structures to meet the risk appetite of each of their investors. Climate-Smart Rice Production Program in Vietnam and Soil Health Card Scheme in India promote public-private partnership (PPP) model to leverage private capital in climate actions.
All investment cases expand support for existing agricultural best practices, integrate forestry and agricultural actions to avoid land-use change, and support the transition to market-based solutions. These are the promising investment cases that can be replicated to facilitate the rapid advancement and scaling-up of climate finance in agriculture and allied sectors.
Read the study:
Arun Khatri-Chhetri et al. (2021) Financing climate change mitigation in agriculture: assessment of investment cases. Environ. Res. Lett. in press.