Green Payments in U.S. and European Union Agricultural Policy

Publication Date: November 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Agriculture, forestry and fishing; Environment

Type:

Abstract:

Green payments are generally defined as payments made to agricultural producers as compensation for environmental benefits that accrue at levels beyond what producers might otherwise achieve under existing market and regulatory conditions. They may support both environmental and farm income objectives.

Modern U.S. agri-environmental programs began in 1985 by paying farmers to retire land and limiting conversion of wetlands and highly erodible land to cultivation, thereby reducing negative environmental effects associated with production agriculture. These initial programs focused on a single agricultural benefit, limiting erosion. Since then, these programs have proliferated in number and overall funding, and now pay farmers to provide additional conservation benefits either while maintaining agricultural production on working lands, or by retiring land from production. These environmental benefits include stemming wetland loss and wildlife habitat deterioration, protecting farmland from conversion to other uses, and improving water and air quality. The Conservation Security Program (CSP), enacted in the 2002 farm bill (P.L. 107-171) is the most recent step in the evolution of U.S. agri-environmental policy. CSP pays producers to capture environmental benefits across their entire agricultural operation, while producing commodities. It has been characterized by some as the most comprehensive U.S. "green payments" program.

General environmental policy in the European Union (EU) deals with negative externalities from water pollution, nitrates, and pesticides, among other issues, and also affects agricultural production. EU farm policy since 1985, however, has included payments to farmers to compensate for costs incurred or income forgone from undertaking agri-environmental measures that meet farm policy and rural development objectives. Such measures include, inter alia, reducing use of fertilizer and chemical inputs, adopting organic production methods, maintaining countryside and landscape, or managing land for leisure activities or public access. Successive reforms of the EU's Common Agricultural Policy (CAP) have placed greater emphasis on such green payments -- and increased funding for them -- as agrienvironmental measures have been integrated into a broad rural development policy.

Congressional interest in green payments today is driven by pressure from international trade negotiations and the anticipated development of the next farm bill, which will likely contain the U.S. policy responses to the results of these negotiations. These negotiations create considerable uncertainty over future farm program options, and green payments, in some fashion, are widely viewed as an option that could be designed so as to satisfy both international obligations and domestic agriculture constituencies. Differences between the United States and the EU in how green payments have been defined and translated into policy and programs may make consideration of EU agri-environmental policy as a model or source of ideas problematic. This report, which compares current U.S. and EU efforts in the area of green payments, will be updated.