CARBONFARMING:ATRANSITIONPATHFORAGRICULTURE&FORESTRY10February202204Atthefrontlineoftheclimatecrisis06AnaturalsourceofandsinkforGHGemissions10Improvingthesinkcapacity15Reducingemission18Theroleofcarbonmarkets22Lastbutnotleast:Don’tforgetthedemandPhotobykazuendonUnsplashALLIANZRESEARCH2Theagricultureandforestrysectorsareatthefrontlineofclimatechange.Researchshowsthatinthelast50years,severeheatwavesanddroughtshavealreadycausedcroplossestotripleintheEU.Withanincreasingriskofextremeweatherconditionsanddrought,by2050,climatechangecouldfurtherdragdowncornyieldsbyupto-22%acrosstheregion,andwheatyieldsbyupto-49%insouthernEurope.Thishighlightsthevulnerabilityofourfoodsystemtoclimatechange,andwhyadaptationisneededtomakeitmoreresilient.Thetwosectorsarealsobothsignificantsourcesandsinksofgreenhousegas(GHG)emis-sions.In2019,agricultureandforestryaccountedfor1.5%ofEUGDP1.However,agricul-turealonewasresponsibleforaround11%oftotalGHGemissionsintheEU,amountingto386MtCO2-eq2ofnon-CO2emissionssuchasmethaneandnitrousoxide,mostlyfromlivestockandmineralfertilizeruse,respectively.Infact,theagricultureindustrywasthelargestsectoralsourceoftheseemissions.Inaddition,forestryandlandusechangewasresponsibleforanother118MtCO2-eqofGHGemissions.Atthesametime,agricultureandforestryalsoplayasignificantroleascarbonsinks:forestscanremoveCO2fromtheatmosphereandstoreitasbiomass.In2019,landuseandlandusechangeandforestry(LULUCF)removedabout368MtofCO2,resultinginanetemissionof137MtCO2-eqforthewholesector.Inthiscontext,theEUseekstostrengthenitsterrestrialcarbonsinkandboostadaptivefarmingpracticestomakebothsectorsmoreresilient.TheEU’sproposedFitfor55packageoutlinestwokeyobjectivesfortheland-usesector:Theannualnetremovalshouldreach310MtCO2by2030and,by2035,agriculture,forestryandlandusecombinedshouldachievecompleteclimateneutrality.Tosupporttheseobjectives,atleast10EUstrategiesexistwiththeirownsub-targets,whichproposevariousadaptivefarmingandforestrypracticestobuildsustainabilityinthesectors,includingcovercropping,croprotation,precisionfarming,organicfarming,agroforestry,integratedpestmanagement,theuseofadaptedcrops,climate-smartsilviculture,low/notillageandpolyculture.However,tocomplywiththe1.5°Cgoal,theEUneedstotalinvestmentsofEUR185bnandanannualinvestmentgapofEUR8.3bnneedstobefilled.Projectedinvestmentuntil2030rangesaroundEUR240mnperyear,butitneedstobeincreasedbyanotherEUR30mnperyeartoachievethe1.5°Cambition.Thisisstilllowcomparedtothe2030-50period.After2030,investmentsneedtoseeamassiveincreasetoEUR760mntomeetthebasicambiti-onoftheEU’sFf55proposal.Assessingthenecessaryincreasetoenhancetheambitionto1.5°Cinthe2030-50periodsuggeststhatanaverageofEUR9.1bnperyearshouldbeinvested;thisgivesusthewhoppingshortfallofEUR8.3bnperyear.Lookingahead,anewresults-basedapproachproposedwithcarbonfarmingisexpectedtotakeoffinthenextdecade,boostingthecarbonsinkandincentivizinglandmanagers.TheEUplanstoproposearegulatoryframeworkforthecertificationofcarbonremovalbytheendof2022,whichcouldessentiallyleadtothecreationofanEU-regulatedcarbonmarketandfurtherincentivizelandmanagerstoadoptmoreresilientpractices.Theobjectiveisforeachlandmanagertohaveaccesstoverifiedemissionandremovaldataby2028,withthepotentialforcarbonfarminginitiativestoremoveatleast42MtofCO2-eqby2030(contributingtotheoverallnetremovaltargetof310MtCO2-eq).EXECUTIVESUMMAR...