4. Environmental sustainability

This chapter looks at EU policy that has been in place to date with respect to the sustainability of production, conservation of resources and production of ecosystem services. The major arms of EU policy in this agri-environmental domain are the many directives aimed at or strongly affecting the sector, cross-compliance, the greening elements of Pillar 1 of the CAP and AES in Pillar 2. Section 4.1 provides a short overview of the recent development of EU regulations and policies. Section 4.2 deals with environmental regulations and directives, beginning with climate change policies and covering the Water Framework Directive, Nitrates Directive, Sustainable use of Pesticides Directive, and Birds and Habitats Directives. Section 4.3 covers those CAP measures having to do with environmental sustainability, in particular cross-compliance, green direct payments, AES and eco-schemes.

Recognising persistent environmental and climate challenges at European and global scales, European environmental and climate policy making is increasingly driven by long-term sustainability goals (EEA, 2019[1]). While progress has been made in many respects, much remains to be done to achieve the European Union’s long-term vision to 2050 of living well, within planetary boundaries.

Farmers have a vital role in preserving, managing and enhancing biodiversity in the 39% of the EU area in agricultural land use. At the same time, certain agricultural practices are a key driver of biodiversity decline. Nature regulates the climate, and nature-based solutions, such as protecting and restoring wetlands, peatlands, and coastal ecosystems or sustainably managing forests, grasslands and soils, will be essential for reducing emissions and adapting to climate change.

Agricultural activities are important factors in achieving policy objectives across a range of areas. These include the objectives of the EU nature legislation and the EU and global Biodiversity Strategies for 2030. The United Nations Biodiversity Conference (COP15), on 19 December 2022, ended with the agreement called “Kunming-Montreal Global Biodiversity Framework” (CBD, 2022[2]).1 Additional environmental objectives relevant for agricultural activities are related to air pollution (National Emission Ceilings Directive), greenhouse gas (GHG) emissions (Effort Sharing Regulation and the LULUCF Regulation on Land Use, Land-use Change and Forestry) and water quality (Water Framework Directive and Nitrates Directive). Agriculture also has a key role to play in achieving the Sustainable Development Goals (SDGs), particularly SDG 2 – Zero Hunger, and for Europe, SDG 12 – Responsible Production and Consumption (EEA, 2019[1]). The Farm to Fork (F2F) Strategy, part of the EGD, has sustainable production and consumption of food as part of its six targets. See Chapter 2 (Section 2.3.6) for a discussion of the main food system initiatives where legislation is foreseen.

Over the last two decades, EU agriculture continued its evolution towards fewer and larger, more intensive production units (Chapter 2) and achieving environmental targets has been a challenge, particularly concerning improving biodiversity on agricultural land (Chapter 1). Early gains in water, soil and air emissions have been followed by relatively slow progress, which has pushed the attainment of objectives, such as expressed in the main EU environmental regulations. A substantial body of existing legislation governs how the agricultural sector interacts with its environment. Progress under the objectives set by each has been mixed, with substantial progress in some areas but generally less than the initial targets. Biodiversity, in particular, has been challenging, while objectives for water quality improvements are also taking longer than expected. In response, a number of new initiatives have been put in place.

The “implementation gap” between ambition and action is one reason progress has been slow. Flexibility mechanisms designed to help bring about agreement in the sometimes-challenging negotiations process and to reflect the different situations in Member States have weakened efforts as farmers and Member States choose approaches that are less costly and easier to implement but offer limited improvements to sustainability. Better reporting on progress has become an effective tool to balance flexibility with achieving ambitious targets, as it provides an incentive to take meaningful action. This is expected to take on a more important role as objectives are made more specific so that progress can be better evaluated.

This implementation gap has many causes, and systematically assessing and addressing these can improve the effectiveness of EU policy. Action is being taken on a number of fronts to improve the design and application of programmes, use objectives and targets to drive progress, and make better use of data and analysis to increase transparency and refine policy design. Many of these actions are described in this chapter.

The European Union has recently established its 8th Environmental Action Programme (EAP), which reiterates the long-term vision to 2050 of living well within planetary boundaries. It sets priority objectives for 2030 and the conditions needed to achieve these. Building on the EGD, the action programme aims to speed up the transition to a climate-neutral, resource-efficient economy, recognising that human well-being and prosperity depend on healthy ecosystems. The EAP identifies the enabling conditions needed to achieve the priority objectives. Among these is the need for full implementation of existing legislation.

In July 2021, the European Union adopted a Climate Law that increases the ambition for GHG emissions reductions in 2030 from 40% to net 55% compared to 1990 levels. Legislative proposals for a revised Effort Sharing Directive and a revised LULUCF Directive are under negotiation.

As highlighted in Chapter 1, the EU Biodiversity Strategy for 2030 is also part of the EGD. It aims to put Europe’s biodiversity on the path to recovery by 2030 by addressing the main drivers of biodiversity loss, putting in place an enhanced governance framework, and filling any policy gaps while at the same time consolidating existing efforts and ensuring the full implementation of existing EU legislation. It proposes setting legally binding EU restoration targets and restoring significant areas of degraded and carbon-rich ecosystems by 2030 (Box 4.1).

To support the long-term sustainability of both nature and farming and to operationalise the objectives of the F2F and Biodiversity Strategies, the CAP 2023-27 includes a new “green architecture” with higher environmental requirements in cross-compliance (“enhanced conditionality”) and the introduction of eco-schemes in the first pillar. Eco-schemes aimed at climate, environment and animal welfare reward farmers who manage land in a nature- and climate-friendly way. The CAP Regulation requires each eco-scheme to cover at least two areas of action for the climate (mitigation and adaptation), the environment (protection or improvement of water quality, reduction of pressures on water resources, prevention of soil degradation, soil restoration, improvement of soil fertility and nutrition management, protection of biodiversity, conservation, restoration of habitats or species, reduced or sustainable use of pesticides), animal welfare and anti-microbial resistance. As discussed in Chapter 3, the new CAP also includes a new delivery model, granting more flexibility to Member States, requiring them to develop CAP strategic plans (CSPs) and delineating how they will set and implement targets.

For the new funding period, ring-fencing rules on spending have also been introduced: 40% of the CAP budget should be climate-relevant, with at least 25% of the budget in the Pillar 1 allocated to eco-schemes and at least 35% of funds in the Pillar 2 allocated to measures supporting climate, biodiversity, environment and animal welfare.

Sections 4.2 and 4.3, together with the assessment of the main EU legislation and policy implemented until 2022, also provide an overview of the most important pieces of legislation that have been proposed recently (e.g. the proposal for a revision of the Sustainable Use of Pesticides Directive, the proposal for EU Nature Restoration Law), as well as an overview of the new policy measures introduced with the new “green architecture” of the CAP 2023-27.

EU policy with respect to agriculture and environment comprises a package including directives that set rules, practices and objectives influencing the way agriculture production is carried out, combined with the budgetary support and additional regulatory requirements contained in the CAP regulation. The elements of this package must be taken together to understand the full picture of agri-environmental policy in the EU context. As shown below, many of these elements have synergies or interact with each other. For example, some part of CAP spending is used to help farmers comply with the requirements of certain directives. Cross-compliance, in particular, where statutory management requirements (SMR) are connected with the specific requirements of certain directives, is an example of how the different elements of the whole policy package can reinforce each other. This section covers those EU Directives that are most relevant to agriculture operations.

Formerly the Effort Sharing Decision, the Effort Sharing Regulation 2018/842 sets legally binding GHG emissions targets for 2030 for emissions from sectors not included in the EU Emissions Trading System (ETS), including transport, buildings, small industry outside the ETS, waste and agriculture sectors. The combined emissions of these sectors represent 57% of the European Union’s total emissions (EEA, 2021[4]). For the agricultural sector, the ESR governs non-CO2 emissions linked to agricultural activities (methane and nitrous oxide), which account for ~98% of the sector’s emissions. Under the Fit for 55 proposal, the overall ESR reduction target for 2030 was increased from 29% to 40% compared to 2005.

Member States choose where and how to achieve their ESR reductions and may focus on specific sectors. This results in differences between the sectors covered under the ESR. Emissions governed under the ESR declined by ~11% between 2005 and 2018 (EEA, 2021[4]). However, agriculture (the third largest source of emissions in ESR sectors) contributed only 1% of the emissions reduction effort, despite contributing more than 17% of ESR sectors’ GHG emissions. Furthermore, EU Member State governments are not projecting significant emissions reductions in the agricultural sector by 2030, choosing instead to focus on other ESR sectors (Figure 4.1).

Under the ESR, Member States report on their annual emissions, projected progress towards meeting their emission limits, and information on planned additional national policies and measures to meet commitments. Member States not meeting their annual targets (after flexibilities are included) face an automatic penalty and must submit a corrective action plan. Flexibilities allowed under the ESR were designed to allow targets to be more cost-effective and include banking, borrowing and transferring emissions allocations and the use of ETS allowances and LULUCF credits to cover ESR obligations (under certain conditions).

The European Union’s LULUCF Regulation (2018/841) establishes a legislative framework for accounting emissions and removals from the land-use sectors between 2021 and 2030. Under the current framework, Member States must ensure that accounted CO2-eq emissions from the LULUCF sector are entirely compensated by an equivalent removal of CO2-eq from the atmosphere through action in the LULUCF sector. This is calculated as the sum of total emissions and total removals in all of the land accounting categories defined in the LULUCF Regulation. This is referred to as the “no-debit” rule”. The regulation includes six categories of land in its accounting: 1) afforested land; 2) deforested land; 3) managed cropland; 4) managed grassland; 5) managed forest land; and 6) managed wetland. However, it does not include non-CO2 emissions from the agricultural sector in its accounting as they are covered in the ESR.

The main source of GHG emissions in the LULUCF sector is cropland, of which approximately 50% are caused by organic soils, which is 1.2% of the total cropland area (Böttcher and Hennenberg, 2021[5]) (Figure 4.2). Emissions from organic soils come from the drainage of peatlands for agricultural or forestry use. Approximately 35 million hectares of EU27+UK peatland area is drained (Joosten, Tanneberger and Moen, 2017[6]), at least 6 million hectares of which is agricultural land under grassland or cropland (Schils et al., 2008[7]). Besides emissions from drained organic soils, there are also significant emissions from the loss of soil organic carbon in mineral soils.

There is potential for the agricultural sector to play an important role in meeting the 2030 sink target. While increasing carbon stocks in forests provide the largest absolute potential for strengthening the European Union’s carbon sink, there are promising options in agroforestry, restoring wetlands and the conservation of organic soils, as well as for maintaining and enhancing carbon in mineral soils.

Carbon sinks in the LULUCF sector will play an important role in meeting climate neutrality objectives. The current LULUCF Regulation includes flexibilities to help Member States account for uncertainties, natural disturbances and reduce the risk of non-compliance. This includes the ability to exchange units between Member States and for individual Member States to exchange remaining units of LULUCF credits to the ESR. The flexibility is capped at 280 Mt CO2-eq for all Member States and national maximum amounts.

The European Commission has proposed revisions to the LULUCF Regulation that establish a net carbon sink target for the LULUCF sector of 310 Mt CO2-eq by 2030.2 Other proposed changes to the LULUCF Regulation would merge the LULUCF sector with non-CO2 emissions from agriculture within the regulation’s accounting system by 2031, which will become the agriculture, forestry and other land-use (AFOLU) sector. This parallels the UN Intergovernmental Panel on Climate Change (IPCC) special report on Climate Change and Land, which merges agriculture, forestry and other land use together. Further, the European Commission proposes a GHG neutrality target for the combined AFOLU sector by 2035.3 While the EU-level target of climate neutrality for the land sector by 2035 is non-binding, derived Member State targets will be binding and enforceable. From 2036 onwards, the combined sector will need to generate further carbon removals to balance remaining emissions in other sectors based on a robust carbon removal certification system. While the proposed updates have yet to be adopted, trilogues for the LULUCF Regulation have been completed and the Council and Parliament confirmed the overall EU-level net sink target for 2030. Under the provisional agreement, the current “no-debit” rule will continue to apply until 2025. The agreement maintains flexibilities for Member States encountering difficulties in achieving their targets caused by natural disturbances up to a fixed limit.

LULUCF sector GHG emissions total 136 Mt CO2-eq and removals were -410 Mt CO2-eq. Agricultural GHG emissions total 435 Mt CO2-eq. If the LULUCF sink is still at the proposed 2030 target of -310 Mt CO2-eq in 2035, agricultural non-CO2 emissions would need to be mitigated by nearly 20% (Böttcher and Hennenberg, 2021[5]). However, according to data submitted by Member States to the European Environment Agency, the combined emissions from cropland and wetlands are only expected to decrease from 77 Mt CO2-eq in 2020 to 65 Mt CO2-eq in 2040, with existing measures. Emissions from grasslands are predicted to increase from 11.9 Mt CO2-eq in 2020 to 15.2 Mt CO2-eq in 2040.

The Water Framework Directive (WFD) is at the centre of EU water policy.4 It updates and brings together past directives related to water and provides a legislative framework for a consolidated approach to water policy. The WFD aims to:

  • prevent further deterioration of, protect and enhance the status5 of water resources

  • promote sustainable water use based on the long-term protection of water resources

  • enhance the protection of and improve the aquatic environment by reducing the presence of priority substances

  • ensure the progressive reduction of pollution of groundwater and prevent its further pollution

  • contribute to mitigating the effects of floods and droughts.

The WFD improves upon past legislation in many ways, but two major innovations over past approaches are worth highlighting. The first is to align water governance with the physical dimensions of water basins by establishing river basin management districts (Article 3). Each district produces a river basin management plan (RBMP), covering a period of six years. The second innovation was taking a Driver-Pressure-State-Impact-Response approach that emphasised identifying anthropogenic pressures on water systems and asking river basin management districts to produce a programme of measures (PoM) to address these directly. This approach brings together consideration of sources of pollution or abstraction of hydro-morphological pressures and the resulting quality of the aquatic environment, which had previously been treated as separate domains. The WFD’s governance mechanism is designed to enable Member States to bring together all the relevant actors to set up management plans based on river basins and to collaborate across borders.

The objectives of the WFD are ambitious and outcome-oriented, calling for a return to good status for all surface and groundwater bodies by 2015 (Article 4). Good status follows a strict “one out, all out” definition that requires all indicators of status to be good for the overall status of the water body to be considered good. This includes good status for water quality and quantity considering both surface and groundwater. Less than half of water bodies achieved good status by 2015, but provisions allow for two further planning cycles (2015-21 and 2021-27) that extend the deadline to 2027 under certain conditions.

Monitoring and reporting under the WFD have significantly increased knowledge of the European Union’s aquatic ecosystems, with beneficial spillovers in other policy domains. Monitoring trends of certain pollutants has, for the first time, provided Member States with the necessary information to manage the presence in the water environment of pollutants which are not or no longer authorised, e.g. from illegal use or run-off (EC, 2019[9]).

The WFD has a broad focus on the ecosystem and chemical status of surface water and the quantitative and chemical status of groundwater. While it lists a set of priority substances requiring special attention, it is up to river basin management districts to identify and address all anthropogenic pressures affecting the status of water bodies.6 The WFD also requires Member States to establish a register of areas that require special protection under other legislation, such as Natura 2000 sites (Article 6).

The WFD provides for three separate but related activities: 1) a framework for planning and governance (Article 5); 2) a system for monitoring and reporting of water quality (Article 8); and 3) a PoM based on an analysis of pressures on the water body to achieve the good status objective (Article 11). In addition, Article 9 requires the use of cost-based pricing for the delivery of water services.

The PoM consists of a common set of basic measures, along with additional supplementary measures if needed to achieve the objectives of Article 4. Basic measures encompass controls of water abstraction or potential pollution sources that may be detrimental to the status of a water body and mainly reflect the source control requirements of prior water legislation (such as the Nitrates Directive, covered below). The supplementary measures reflect the outcome-based objectives of the WFD. If the analysis shows that the basic measures are insufficient to achieve good status for a water body, supplementary measures are designed to bridge the gap. This combined approach of basic and supplementary measures brings together traditional source controls with outcome-based management.

The WFD was a breakthrough in water policy in Europe and resulted in improvements in many areas (Gruère, Ashley and Cadilhon, 2018[10]). In particular, ecological assessment, monitoring and reporting on water quality have been greatly improved (Carvalho et al., 2019[11]; EEA, 2018[12]). The river basin-based governance structure and integrated approach to addressing pressures were initially very challenging for the existing water management system to adapt to, but great progress was made after an initial slow start and the value of this structure is becoming clear (Voulvoulis, Arpon and Giakoumis, 2017[13]; Jacobsen, Anker and Baaner, 2017[14]; EC, 2019[9]).

WFD implementation is complex due to the need for measures that reflect the specific circumstances of each water body. This complicates the transparency and accountability of Member States and may have allowed lowered ambitions in their water policy. The extensive requirements for the river basin management plans and public consultation are designed to counteract this policy discretion via public transparency about water policy and actions (EC, 2019[9]).

The WFD has not achieved its original objective of restoring all surface and water bodies to good status by 2015 and doing so by 2027 remains challenging in many cases. Problems with implementation are a significant factor. The challenge in the first WFD cycle was to adapt existing governance structures to the new spatial scale of the river basin district and establish PoMs (Borowski et al., 2008[15]). The second cycle of the WFD improved the quality of monitoring and established a systematic approach to identifying all relevant pressures and designing and implementing appropriate measures as a main challenge (EC, 2015[16]; EC, 2019[17]).7 In the latest cycle, sector co-ordination and aligning sector policies with WFD objectives – “mainstreaming” water policy – and the appropriate level of financing for measures are the main gaps (EC, 2021[18]).

Agricultural activity is a major driver of pressure on water quality and quantity and a factor behind many water bodies’ failure to achieve good status (EC, 2015[16]). In general, RBMPs do not show determined action to address agriculture pressures nor satisfactory association of farmers to the WFD process, and WFD PoMs rarely intervene directly in the emission of nutrients or pesticides (EC, 2012[19]; Wiering, Boezeman and Crabbé, 2020[20]). Additionally, EU funds have been underused in funding supplementary measures under RBMPs (EC, 2015[16]).

PoMs rarely include agriculture directly, nor does the CAP fully integrate the European Union’s water policy objectives. Better integration of water objectives in agriculture policy is needed, but it has not yet happened at the scale necessary (EC, 2019[9]; Zingraff-Hamed et al., 2020[21]). Past delays in establishing RBMPs and PoMs are likely affecting the pace of integration of the WFD and the CAP. The European Commission anticipated that the basic measures in RBMPs would be part of cross compliance once these are fully implemented in all Member States and the obligations directly applicable to farmers identified (ECA, 2014[22]), but it took until the CAP 2023 27 to achieve this. The new CAP requires Member States’ CSPs to contribute to and be consistent with legislative acts concerning the climate and environment. It also provides for payments for area-specific disadvantages arising from farmers’ obligations under RBMPs (Article 72).

Financing constraints are a major limitation in achieving WFD goals, while potentially related CAP expenditures on the environment are often inefficient and deliver limited results (ECA, 2017[23]). Both of these challenges can be addressed via closer integration of WFD objectives and agricultural policy (including the Nitrates Directive) (Ribaudo and Shortle, 2019[24]; EC, 2019[9]). Most Member States recognise the contribution of the Nitrates Directive implementation but only in qualitative terms, not assessing how much it will close the gap to good status or how much additional effort is needed (EC, 2015[16]).

Voluntary approaches such as agri-environmental and climate measures may not reach the polluters affecting a water body, and subsidy-based programmes can have a limited impact due to public budget constraints and a lack of environmental regulations on diffuse pollution (OECD, 2017[25]). At the same time, direct measures in nutrient action plans (NAPs) as part of the Nitrates Directive have not been sufficient to address nutrient pollution that prevents water bodies from reaching good status (Wiering, Boezeman and Crabbé, 2020[20]). The third WFD implementation report on the first cycle of RBMPs called for a better balance between voluntary actions and mandatory measures in agriculture to provide a solid baseline for rural development programmes and cross-compliance water-related requirements (EC, 2012[19]).

The principle in the WFD of using supplementary measures when basic measures are insufficient to reach the objectives of the WFD is highly relevant for agricultural policies related to water pollution by nutrients. While some Member States have quantitatively assessed the pollution loads from agriculture, few have estimated the reduction needed to achieve good status according to the WFD (EC, 2015[16]). NAPs under the Nitrates Directive specify actions and restrictions that farmers must follow that are considered appropriate practices, and greening and agri-environmental and climate measures as part of the CAP are designed around beneficial actions that farmers can take for a number of environmental issues, but there is no adjustment mechanism in place if results fall short of targets beyond the multiannual planning cycle.

The regular reporting requirements of directives are a strength. The WFD has stimulated an enormous portfolio of new ecological assessment methods, which have greatly improved the monitoring and assessment of the ecological status of water bodies. These assessment and monitoring methods have also greatly improved the knowledge of the status of European waters (Giakoumis and Voulvoulis, 2018[26]; EC, 2019[9]).

However, the reporting time frames do not always allow for the most up-to-date information to be used in the policy development cycle.8 For example, the sixth implementation report of the WFD was released at the end of 2021, near the end of the second (2015-21) cycle of the WFD, but uses data from the 2018 mid-term evaluation (EC, 2021[18]). At the same time, by the end of 2021, the RBMPs for the third cycle (2021-27) were largely complete and likely did not benefit from the sixth implementation report. More frequent stocktaking of progress could help ensure that any needed adjustments can be made in a timely manner to ensure a successful outcome. At this stage, a three-year reporting lag represents more than half the remaining period up to 2027.

Article 9 of the WFD requires Member States to take account of the principle of cost recovery for water services, including environmental and resource costs, in accordance with the polluter-pays principle. This article emphasises not only sharing costs between water users, but also using water pricing to ensure that the right incentives for water use and conservation are in place. Member States may decide to not apply cost recovery or water pricing but must ensure that this does not compromise the objectives of the WFD. The decision must be explained in the RBMP.

Relatively less progress has been made in implementing the cost recovery and pricing requirements of the WFD. In some Member States, in some sectors, such as agriculture or households, metering of water consumption is not fully implemented. Cost recovery is implemented, to a greater or lesser extent, in households and industry. Cost recovery is not sufficiently applied to water users in agriculture; in many areas, water is charged only to a limited extent (EC, 2012[19]) This situation has not progressed much in recent years in some Member States (as is the case for some non-EU OECD countries) (Gruère, Shigemitsu and Crawford, 2020[27]).

Early in the WFD process, the European Commission had started infringement procedures against some Member States for a narrow interpretation of the cost recovery provisions of Article 9 (EC, 2012[19]). Since then, a few Member States have upgraded their water pricing policies, but significant gaps remain in translating these into concrete measures and achieving more harmonised approaches to estimating and integrating environmental and resource costs (EC, 2019[17]). In the case of agriculture, there is generally a low level of cost recovery of irrigation water pricing. The price paid by irrigators is generally lower than the price required to achieve cost recovery (EEA, 2013[28]).

The Nitrates Directive (ND) is the main tool for protecting water threatened by nitrate contamination from agricultural activity.9 Article 1 aims to reduce and prevent water pollution caused or induced by nitrates from agricultural sources.10 The directive refers to both ground and surface waters (including coastal and transitional waters). While many nature-related directives concern agriculture, the ND primarily concerns agriculture emissions.

Member States designate nitrate vulnerable zones pursuant to Article 3, which include areas in which groundwater contains or could contain more than 50 mg/L nitrate without measures or where surface water is eutrophic or could become eutrophic without measures or drains into vulnerable zones.11 For these vulnerable zones, Member States draw up nitrate action programmes containing measures to achieve the objectives set out in Article 1. These action programmes concern good agricultural practice and other specific measures as set out in the annexes of the ND. These action programmes are assessed every four years based on monitoring of ground and surface water quality.

The Nitrates Directive contributes to achieving WFD targets by reducing nutrient loads on ground and surface water by agriculture. The ND uses the Emission Limit Values approach, restricting pollutant loads discharged into the aquatic environment via management controls. However, this approach lacks an equivalent of the WFD’s supplementary measures to ensure results are achieved, and so it is less effective in achieving its aims (Giakoumis and Voulvoulis, 2018[26]).

The directive’s objective is to “reduce pollution”, but there are no exact thresholds to be achieved for surface water resources and no specific target dates. The ND establishes planning and measurement processes in Member States and requires them to identify a set of practices to reduce the amount of nitrogen entering the environment, especially in nitrate-vulnerable zones. While the ND identifies a set of good agricultural practices (Annex II) and a list of measures for Member States to implement (Annex III), these annexes identify subject areas only, leaving the specific parameters to Member States.12 One of the few specific requirements is the limit of 170 kg N/ha from manure (though derogations are possible).

Despite the ND having been in place for over 30 years and many Member States now implementing their seventh nitrate action programmes, N surpluses from agriculture are still a problem affecting surface and groundwater quality, with negative effects on Member States’ ability to achieve WFD objectives of good chemical and ecological status of water bodies and increasing problems in drinking water production. Between 2012-15 and 2016-19, the total area of nitrate-vulnerable zones increased by 14.4% and eutrophication remains a problem for inland, transitional, coastal and marine waters. Many Member States still have a large share of eutrophic waters (EC, 2021[29]).13

The ND is an older directive and lacks the clear timelines and objectives of newer legislation. That said, when put in place, it was a significant advancement in co-ordinated environmental policy at the EU level (Gruère, Ashley and Cadilhon, 2018[10]). It has established a reporting framework that has increased the amount of information available on the status and effects of nitrogen on ground and surface water. Moreover, new projects like NAPINFO bring this information together from all Member States in a coherent way. This, combined with WFD reporting, has provided a much clearer picture of nutrient pollution and water quality than would otherwise have been possible.

The situation has improved since the directive was adopted, but improvement has been slow since 2012. The low-hanging fruit have been collected and now more challenging measures are needed (EC, 2021[29]). Continual problems with water pollution from agriculture point to the inadequacy of current efforts as part of the nitrate action programmes to address sources of nutrients. In many cases, eutrophication and phosphate pollution are not sufficiently taken into account when identifying and designating polluted areas. While the ND requires that Member States take action when water quality does not improve, not all apply additional measures with sufficient ambition. Between 2016 and 2019, the European Commission opened ten infringement cases against Member States with respect to the designation of NVAs, their action plans or derogations. Most of these have been resolved (EC, 2021[29]).

There also appears to be an implementation gap where farmers are not correctly and completely implementing requirements. Ten per cent of observed infringements of CAP cross compliance requirements have to do with the statutory management requirements stemming from the ND, the third most common infringement overall and the most frequent among those cross compliance requirements related to the environment (ECA, 2016[30]).

The Biodiversity and F2F Strategies set a common objective of reducing nutrient losses in the environment by at least 50% by 2030, while preserving soil fertility. The ND is considered a key piece of legislation to achieve this target and other objectives of the EGD. To reinforce implementation and enforcement to match the objectives of the ND, an Integrated Nutrient Management Action Plan is planned to help co-ordinate efforts and identify the nutrient load reductions needed to achieve the EGD targets on nutrients (EC, 2021[29]).

The ND has become a basic measure under the WFD. Member States may elect to implement their nitrate action programmes in an integrated framework that jointly implements the ND and the WFD. In this case, the additional measures provided for in the WFD contribute to achieving the ND’s objectives (Gault et al., 2015[31]).

River basin management plans and PoMs are designed to achieve WFD objectives, and nitrate action programmes may be included in this process, but this is not always the case. There is no automatic process to adapt NAP measures in response to observed outcomes, only a requirement for Member States to amend actions when they are insufficient. This process is generally not integrated with the WFD and RBMPs. Aligning the nitrate action programmes and RBMPs is challenging – they operate at different spatial scales and on different time frames (NAPs are renewed every four years; RBMPs every six) and are developed by different administrative bodies. Moreover, neither nitrate action programmes nor RBMPs align with the CAP planning cycle.

There are many ways to adjust nitrate action programmes when objectives are not being met. The European Commission may request changes via consultation with Member States or through infringement procedures, domestic courts may rule current approaches insufficient to meet legal obligations, or the responsible administration may institute changes based on observed lack of progress. The European Commission can request additional measures as part of a derogation agreement, such as the cap at 2002 levels on total N and P in the Netherlands (Gault et al., 2015[31]). For most Member States, NAPs have been strengthened over time and the area designated as vulnerable has increased. However, this process has not resulted in a sufficient reduction of water pollution from agricultural sources.

The authorisation and marketing of pesticides have been regulated at the EU level since 1991. In 2009, the Sustainable Use of Pesticides Directive (SUD) replaced the EU Thematic Strategy on the sustainable use of pesticides, which started in 2006. The directive’s aim is to achieve a sustainable use of pesticides by reducing the risks and impacts of pesticide use on human health and the environment and promoting the use of integrated pest management (IPM) and alternative approaches or techniques, such as non-chemical alternatives to pesticides.

The SUD asks all professional users of pesticides to implement IPM, including the use of non-chemical alternatives, and to use practices and products with the lowest risk to human health and the environment. It defines IPM and the general principles it should include. The SUD requires Member States to identify trends in the use of certain active substances; identify priorities, such as active substances, crops, regions or practices that require particular attention, or good practices; communicate the results of these evaluations to the Commission and other Member States; and make this information available to the public (Article 15).

Member States are required to produce national action plans setting out how they will achieve the sustainable use of pesticides (NAPs), including quantitative objectives, targets, measures and timetables to reduce the risks and impacts of pesticide use on the environment. This should include indicators to monitor the use of pesticides containing active ingredients of particular concern. The NAP should reflect objectives, targets and measures set in other environmental planning tools, such as RBMPs, national biodiversity strategies or plans, or pollinator strategies. The first NAPs were published between 2012 and 2014, and the second between 2017 and 2021.

The SUD gives authorities the power to minimise or prohibit pesticide use in public spaces, Natura 2000 sites and water protection sites; to minimise or eliminate risks to the health of vulnerable groups; or to reduce pressures on biodiversity in protected areas (Article 12). There is a general ban on aerial spraying of pesticides (including from drones), with a procedure for Member States to grant derogations (Article 9). Article 10 requires specific measures to protect the aquatic environment and drinking water, including a preference for pesticides that do not damage the aquatic environment, buffer zones and safeguard zones, and measures to mitigate drift and flow, such as mandatory use of certain equipment. Member States should reduce the risk to water by decreasing or eliminating applications on or along roads, railway lines, very permeable surfaces, etc.

The SUD requires a system of regular checks of pesticide use equipment and regular training and certification of professional users and pesticide distributors and salespersons. It sets rules for handling, packaging, storing and disposing of pesticides. It requires a system of surveillance of pesticide poisonings of humans and wildlife. Member States shall inform and raise the awareness of the general public with accurate and balanced information relating to pesticides about the risks and the potential acute and chronic effects for human health, biodiversity and the environment arising from their use, and the use of non-chemical alternatives.

According to two Commission assessments, there is a lack of precise and measurable targets in the NAPs, along with a lack of ambition and a need to upgrade NAPs regarding biodiversity biodiversity objectives (EC, 2017[32]). These assessments were informed by a series of fact-finding missions, followed by audits to check compliance in 2018 and 2019. Only four NAPs set an overall quantified pesticide risk reduction target,14 and only Denmark and Germany link this to a measure of environmental risk. Despite these measurement problems, some evidence suggests that the SUD has failed to reduce pesticide use and risk and has not led to a common approach in NAPs to systematically treat problems, propose measures, or define timetables for implementation and indicators (Helepciuc and Todor, 2021[33]).

Limited monitoring of the impact of pesticides on the environment and human health makes it difficult to assess the impact of NAPs (Remáč et al., 2018[34]). Member States are required to ensure that professional users keep records of their pesticide use, but there is no legal requirement for the government to collect these records from users. A parliamentary resolution in February 2019 noted that very little progress had been made in promoting and incentivising the innovation, development and uptake of low-risk and non-chemical alternatives to conventional pesticides. Moreover, approximately 80% of Member States’ NAPs do not contain any specific information on how to quantify the achievement of many of the objectives and targets, particularly as regards targets for IPM and aquatic protection measures.15

The European Commission responded to the observed weaknesses in the SUD implementation with a combined evaluation roadmap and inception impact assessment of the SUD. The evaluation that followed included a support study submitted in October 2021 (Ramboll and Arcadia International, 2021[35]), stakeholder consultations during 2020 and 2021, and a public consultation between January and April 2021. In May 2020, the F2F Strategy established an EU-wide objective to reduce the use and risk of pesticides by 50% by 2030. The target was accepted by the European Parliament and Council. In June 2022, the Commission published its proposal for a new Sustainable Use of Pesticides Regulation to replace the SUD.

The first EU-wide Harmonised Risk Indicators were published in May 2019, setting a baseline of pesticide use in the period 2011-13, and trends from 2011 to 2019 based on sales data. Member States also produce Harmonised Risk Indicators at the national level. The indicators put greater weight on the use of pesticides that are candidates for substitution and the use of unauthorised pesticides and less weight on the use of low-risk and biopesticides. The risk indicators show a decreasing trend since 2011, but the volume of pesticides used in the European Union is not decreasing (Eurostat, 2022[36]). This reduction in risks has come mainly from banning or withdrawing active substances at the EU level that are then replaced with other pesticides with a lower risk weighting (Chapter 1).

Eurostat publishes annual pesticide sales figures for the major groups, categories of products and chemical classes. The significant differences in the range of products reported by different countries limit comparability and data on individual active substances are unavailable.16 Member States are not required to report these data to Eurostat, and currently, only 16 do. The revised Statistics on Agricultural Input and Output (SAIO) Regulation 2022/2379 places stronger reporting requirements on Member States starting in 2025. It implements farm-based collection of pesticide use statistics across the European Union and requires Member States to collect annual data on pesticide use from 2026 and publish annual reports from 2028 based on “a common list of representative crops” to be determined over a transition period from 2025. It will result in a register held by competent national authorities on the use of plant protection products in agriculture and ensure the availability in electronic format of the records to be kept by professional users of plant protection products. An implementing regulation is being developed that proposes that professional users of pesticides transmit their records in electronic format to competent national authorities.

The indicators are designed to reflect reductions in the use of candidates for substitution (CfS), pesticides whose use is considered most problematic because of their health or environmental hazards. The number of CfS in the EU market has decreased slowly in the six years since the system was introduced (Robin and Marchand, 2021[37]). CfS currently in use in the European Union must periodically have their approval renewed. Twenty-one of the 56 approved CfS were due to have their approval reviewed in 2022 and an additional 15 in 2023.17 If all these active substances were removed from the market, this would have a very noticeable effect on the indicator HR1.

Member States can improve their indicators by decreasing or eliminating the use of pesticides classified as CfS, with herbicides and fungicides having more impact due to their higher weight per application. For example, in France, CfS made up 22% of the weight of sales in 2018 (BASIC, 2021[38]). Governments may ban or severely restrict the use of CfS, make them more expensive than alternatives through differential taxation, or promote alternative methods.

Pesticide use is dominated by the largest agricultural producers: France, Germany, Italy, Poland, and Spain, which account for half of the pesticide sales by weight in the European Union. Reductions in pesticide use in these countries would have a large effect overall, while changes in smaller users would be less likely to be reflected in overall values.

The European Commission published a proposal for a Sustainable Use of Plant Protection Products Regulation in June 2022. The proposal was designed to address four problems: 1) alignment with pesticide-related targets in the F2F Strategy; 2) strengthening current SUD provisions; 3) improving data availability and monitoring; and 4) addressing new technologies. The regulation contains many of the provisions of the directive but also sets legally binding reduction targets for Member States, tightens the provision for pesticide-free areas, and more clearly defines what an IPM is and how it can be assessed.

Since the proposal was drafted in 2022, some have called for additional impact assessments of the Sustainable Use of Plant Protection Products Regulation. In December 2022, the European Council requested an additional analysis under Article 241 of the Treaty on the Functioning of the European Union.18 The Commission must deliver the requested assessment by June 2023.

Production costs per unit may increase subsequent to the Sustainable Use of Plant Protection Products Regulation due to:

  • stricter and more detailed reporting requirements

  • the expected reduction of yields due to lower pesticide use

  • the inclusion of an additional cost layer for those professional users not currently using advisers.

The Sustainable Use of Plant Protection Products Regulation evaluation support study (Ramboll and Arcadia International, 2021[35]) found a large uncertainty in the predicted economic impacts of the reduction targets. Estimates of yield loss from 2030 pesticide reduction targets range from 7% to 30% for permanent crops to 0-15% in annual field crops, based on expert opinions (Bremmer et al., 2021[39]). The impacts of the pesticide target on crop production depend on the alternatives that will be available to farmers in the future. The potential for innovation in this respect is hard to estimate but could be substantial, as shown by the reductions achieved by leading farms in France while maintaining overall profitability (Lechenet et al., 2017[40]). Member States may provide support under the CAP to cover the costs to farmers of complying with all the legal requirements imposed by the regulation for a period of five years (EC, 2022[41]).

The 2009 SUD foresaw the possibility of the IPM becoming part of the conditionality rules of the CAP. However, the CAP legislation for the 2014-22 period did not include the SUD in the statutory management requirements for farmers. The European Commission’s report of October 2017 concluded that Member States had not developed clear criteria to assess the implementation of IPM principles in controls at the farm level and have not taken appropriate measures to deal with non-compliance in this regard. The second report reached the same conclusion. The European Court of Auditors (ECA, 2020[42]) concluded that Member States undertake only very limited control of farmers to verify that IPM principles are implemented, and as that IPM implementation is not a condition for receiving CAP payments, there is little development of non-chemical alternatives and little incentive for farmers to take them up. Several Member States request that farmers fill out a form with information on how they have applied for IPM. However, the forms are currently not checked by inspectors to determine compliance with the principles of IPM.

The CAP 2023-27 requires compliance with the SUD as part of conditionality; however, it does not reference the SUD Article 14 requiring farmers to apply IPM.19 There is, therefore, no mandatory requirement in the CAP that specifies that farmers have to make plans to reduce pesticide use and prove that they are applying IPM in order to receive direct payments. If the Sustainable Use of Pesticides Regulation is adopted, this will replace the directive in the CAP regulation.

The CAP framework includes the scope for Member States to set a strong mandatory baseline of requirements that make up the basis for IPM in the Good Agricultural and Environmental Conditions (GAEC) for crop rotation, buffer strips along water courses, cover crops, and at least 4% of area under landscape features and fallow or nitrogen-fixing crops in which pesticides are not used. Eco-schemes, agri-environmental schemes and investments can then be used to provide incentives for farmers to apply IPM or to carry out practices that support IPM. However, the ambition of the new CSPs appears to be low – target values for the results indicator on the share of utilised agricultural area under-supported specific commitments which lead to sustainable use of pesticides are below 10% in an assessment of nine plans (EEB and Birdlife, 2022[43]).

The CAP is an important source of funding for innovation and learning, which are crucial components of the transition to less use of chemical pesticides, and in particular the European Innovation Partnership for Agricultural Productivity and Sustainability (EIP-AGRI) approach has a good potential to tackle practical problems through a co-creation process involving farmers (Chapter 5, Section 5.6). Almost 450 of the 2 500 EIP-AGRI Operational Groups focus on topics related to the sustainable use of pesticides (EC, 2022[44]). The new CAP plans have considerable scope to support the transition and innovation and increase farmers’ capacities and knowledge to manage crops with lower pesticide use.

Known collectively as the Nature Directives, the Birds and Habitats Directives are the two main pieces of EU nature legislation which, for more than 30 years, have helped conserve natural habitats and wild fauna and flora in the European Union. Adopted unanimously by the Council in 1979, the Birds Directive aims to protect all wild bird species and their habitats across the European Union. The Habitats Directive, adopted unanimously by the Council 13 years later (1992), introduces very similar measures but extends protection to more than 1 200 other rare, threatened or endemic species of wild animals and plants, collectively referred to as species of Community interest and, for the first time, protects 231 habitat types in their own right. Both directives are similarly designed and structured, requiring the conservation of species and their habitats through a combination of protection measures, monitoring and research.

The Nature Directives require Member States to establish, protect and manage the Natura 2000 network, protect landscape features of importance for the coherence of the Natura 2000 network, protect species, and carry out supporting measures (e.g. funding, research and public awareness-raising). These actions form a coherent framework that can address the many problems facing habitats and species. The Natura 2000 network of areas of high nature value across the European Union is the most visible element of this framework, but the effect of the directives goes beyond the sites that make up Natura 2000 (Milieu, IEEP and ICF, 2016[45]).

Annex I of the Habitats Directive lists the natural habitat types of Community interest whose conservation requires the designation of special areas of conservation (Natura 2000 sites). There are 63 habitat types whose conservation depends on appropriate agricultural management (Halada et al., 2011[46]). These can occur in three broad types of agricultural land, which differ in the degree to which they support habitats and the species of community interest (EC, 2014[47]).

  • Semi-natural agricultural habitats (177 442 km2). Habitats Directive Annex I and similar habitats of high nature value are dominated by native species, dependent on extensive agricultural management of the vegetation and associated native species that have not been planted.20 These habitats are the result of centuries of human activities. They include permanent grassland and shrubland pastures that depend on livestock grazing, meadows dependent on mowing or grazing, and some long-established agroforestry habitats. Some areas of extensively managed cropland and fallow (pseudo-steppes) are also important habitats for species of European conservation concern.

  • Agriculturally improved grasslands and croplands (1.9 million km2). These include grasslands that are managed to increase their productivity through ploughing and reseeding with productive strains of agricultural grasses and the use of drainage and mineral fertilisers. Cultivated improved croplands are also included; these are arable or permanent crops intensively managed with the use of fertilisers, herbicides, pesticides and, in some cases, irrigation. Such intensively used farming landscapes do not host habitats of high nature value or sensitive species but do contain many widespread but declining farmland bird species, small mammals, etc., and may contain remnants of Annex I habitat types in small, fragmented patches.

  • Agroforestry, which integrates trees or shrubs with crops or livestock, is estimated to cover at least 106 000 km², representing about 6.5% of the utilised agricultural area in Europe (den Herder et al., 2016[48]). The proportion of utilised agricultural land involving agroforestry is reported as varying from about 50% in Greece and Portugal to low values in central and northern Europe. High-value agroforestry includes orchards of full-sized fruit or nut trees and grazed or mown (Annex I) agroforestry is less intensively or traditionally managed and “new” agroforestry establishes trees or shrubs in existing arable fields and has less significance as a habitat for species of European conservation concern.

Implementing the Nature Directives habitats and species protection “on the ground” is largely the responsibility of Member States. LIFE is the only dedicated EU fund for implementing the Nature Directives, and provides project funding but not long-term support; however, national funds can be combined with other EU funds (Chapter 5). For example, protected agricultural and forest habitats and wild birds and protected species associated with agricultural land can benefit from CAP funding (largely from the EAFRD) for nature conservation management payments for land managers. Member States report to the European Union every six years on progress. These contribute to the State of Nature reports published by the European Environment Agency, which provide the most up-to-date picture of the detailed performance of the Nature Directive.

The general objectives of the Nature Directives to conserve or restore habitats and species are translated into specific and operational objectives that lead to actions to identify and protect special protection areas and areas of conservation. The Natura 2000 network is made up of such areas. Financial, human and institutional resources are dedicated to support protection activities and achieve operational objectives. This includes site and species management, enforcement, research, information sharing, and education (Milieu, IEEP and ICF, 2016[45]).

Member States’ compliance with the Nature Directives is enforced through the Court of Justice of the European Union. There are currently 77 active cases, involving 24 of the EU27 Member States, some dating back to 2014. The number of breaches of the directives reported to the European Commission has decreased over time, indicating that the implementation of the directives has evolved and improved substantially. This improvement comes from a combination of guidance and lessons learnt from experience, enforcement actions and interpretation of the legislation by the Court of Justice of the European Union (Milieu, IEEP and ICF, 2016[45]). Better coherence with other EU policies can help increase effectiveness. Integration with the CAP is of particular interest since agriculture and forestry exert the most influence on terrestrial biodiversity in the European Union.

A comprehensive policy evaluation or “fitness check” in 2016 concluded that the Nature Directives are fit-for-purpose but achieving their objectives and realising their full potential will depend upon substantial improvements in their implementation. Key shortcomings in implementation include limited resources, weak enforcement, poor integration of nature objectives into other policy areas, insufficient knowledge and access to data, as well as poor communication and stakeholder involvement.

The Commission concluded from the fitness check that there has been important progress, such as establishing the terrestrial Natura 2000 network, but not all the necessary conservation measures have been put in place. The efficiency analysis shows a very low cost-to-benefit ratio, which means that investing in Natura 2000 makes good economic sense, but the biodiversity and ecosystem services within and outside the Natura 2000 network are undervalued (EC, 2016[49]).

The proposed Nature Restoration Regulation 2022 (also referred to as the Nature Restoration Law [NRL]) is an ambitious legal instrument to address the deficiencies in the implementation of the Nature Directives and achieve the ambition of the EU Biodiversity Strategy 2030 to reverse the decline of biodiversity in the European Union and build synergies between climate action and nature restoration. It is the most significant piece of EU biodiversity legislation proposed in the last 20 years and, if fully implemented, could be a substantial step forward in nature protection and a significant factor in meeting the ambitions of the Convention on Biological Diversity as expressed in the recent COP15 agreement.

Unlike the Nature Directives, it is an EU Regulation with quantified targets, indicators and milestones that the 27 Member States will be required to meet. The NRL will require:

  • Ambitious targets which strengthen and go beyond existing EU legislation – the proposal sets an overarching, legally binding objective for ecosystem restoration as well as ecosystem-specific targets which strengthen and go beyond current EU nature restoration legislation. These targets are set for 2050, with binding milestones by 2030 and 2040.

  • Strong communication and understanding of the huge environmental, societal and economic benefits which these restoration targets will deliver, highlighting the many benefits of nature restoration, is key to ensuring the restoration targets are supported and embraced by all stakeholders and society at large. Through its co-benefits, the NRL will help Member States meet other existing and upcoming targets and obligations under the EGD and international commitments.

  • A strong implementation framework through carefully designed national restoration plans. Member States are expected to submit a first draft of their national restoration plans within two years of the entry into force of the regulation and the plans will run until 2050. A key element of the plans will be to outline the financing needs for implementing the plan and to strengthen links and synergies with other EU environmental objectives, notably climate change action, and their corresponding planning tools. The European Commission will assess these plans to ensure they adequately meet the requirements of the law.

  • Effective monitoring and reporting. Progress will be monitored and reported by Member States and EU-wide reports will be prepared based on this. The regulation will be reviewed in 2035 to determine whether the law is achieving its objectives.

All farming and forestry systems in the European Union can potentially contribute to the proposed NRL targets, but the potential contribution, benefits and costs to the business differ between farming systems. The main benefits for farmers are resilience to the effects of climate change through improved soil functionality; crop pollination services; reduced impacts of floods, droughts and fire; and improved resistance of crops to pests and diseases.

There are costs to landowners and land managers in helping to achieve the NRL targets; many see this as “pay now, most of the benefits will come later”. Nevertheless, certain measures, such as improvement in soil fertility, can show benefits already after a short period of time. Costs and benefits will vary between farms depending on:

  • the agricultural intensity of the current management system

  • the opportunity cost of meeting NRL targets with respect to other land uses (or, in the case of Annex I habitat and high nature value (HNV) farming systems, the cost of avoiding abandonment or intensification)

  • the current (baseline) state of the habitats, species and agri-ecosystem indicators and, hence, the capital and ongoing maintenance costs of the NRL

  • the transaction costs of making these changes and securing funding.

Capacity building is also required to give farmers and foresters the confidence, skills and knowledge to respond positively to new environmental challenges. Farm advisors and the agricultural education system also need upskilling to accompany farmers with the support they need. There is also a need for more long-term contractual arrangements and governance to ensure the maintenance of restored areas that need to go beyond the six-year EU Multiannual Financial Framework (MFF) funding cycle.

In principle, the flexibilities in the new CAP 2023-27 allow Member States to direct funds to support actions by farmers that aid NRL targets. In addition to the CAP, other sources of EU funding can deliver for agro-ecosystems and forests, including the other EU Regional Development and Cohesion Funds, and financing from supply chain and private funders. Earmarking spending for biodiversity across different EU funds in future MFF cycles could ensure the necessary stability for achieving the long-term investments needed.

This section looks at the environmental elements of the CAP, providing an overview of the current situation (as of 2022) and the evolution of policies to this point, together with an overview of the main changes of the new “green architecture” of the CAP 2023-27. It assesses the design and delivery of environmental elements with respect to their outcomes. As described in earlier chapters, the CAP is composed of two pillars. Pillar 1 has traditionally concerned itself with the common market organisation and direct payments to producers. Pillar 2 concerns rural development policy, including ensuring sustainable management of natural resources and climate action. This latter objective is mainly addressed through Agri-Environmental Schemes (AES), although not limited to such schemes. The CAP 2014-22 maintained the existence of two pillars but took a more integrated approach to agri-environmental policy support via the introduction of the green direct payments scheme in Pillar 1 (Greening). The CAP 2023-27 deepens this approach by providing increased funding flexibility between the two pillars, strengthening the cross-compliance and allocating 25% of the budget for direct payments to eco-schemes.

As discussed in Chapter 3, mandatory environmental cross-compliance was first introduced in 2000. It became a requirement in Pillar 1 as part of the Fischler 2003 CAP Reform and from 2005, all farmers receiving direct payments have been subject to compulsory cross-compliance provisions.21 Cross-compliance aims to ensure that beneficiaries of the CAP implement mandatory basic standards and requirements and it is also designed to raise awareness on the part of beneficiaries regarding their obligations under statutory management requirements (SMRs). Since 2007, cross-compliance has also applied to area related EAFRD payments, and since 2008 to certain wine payments.

The intervention logic of the CAP with respect to the environment is based on a hierarchy of action and compensation based on distinguishing between minimum obligations and extra effort. Cross-compliance22 is at the base of this hierarchy, tying direct payments to farmers to compliance with a series of rules relating to the environment, food safety, animal and plant health, and animal welfare and to maintaining agricultural land in GAEC (Figure 4.3).23 These rules are set out (for the CAP 2014-22) in 13 SMRs and 7 GAEC standards. Non-compliance with these standards and requirements can lead to a reduction in CAP payments to the farmer.

SMRs are defined in the respective EU legislation on the environment, climate change, public, animal and plant health, and animal welfare and are obligatory on farmers regardless of whether they participate in the CAP. In 2019, 151 million hectares (84%) of all EU agricultural land were supported under the direct payment scheme and, therefore, subject to the cross-compliance requirements. Cross-compliance requirements have undergone revisions in each CAP cycle since their introduction, though these revisions are typically evolutionary in nature (Figure 4.4). SMRs consistently cover water quality, biodiversity and pesticide use. Initial GAEC requirements targeted soil quality and preservation of farmland area. After 2009, they were expanded to include additional conditions related to water and biodiversity, and after 2013 conditions preserving soil carbon stocks were added.

Member States have flexibility in the design of both SMRs and GAECs, so cross-compliance requirements do not result in the same requirements in all countries. For example, for the retention of landscape features (GAEC 7) in the CAP 2014-22, Member States selected mainly from the nine landscape features suggested in the legislation (hedges, ponds, ditches, trees in line, group of trees, isolated trees, field margins, terraces and traditional stonewalls), but could also choose elements that are not on the suggested list, such as protected trees and natural monuments (Table 4.1). Protection is most commonly applied to groups of trees, hedges and isolated trees, trees in a line, and terraces.

CAP regulations require that 1% of farms applying for CAP support are selected for an annual check, 75% based on a risk assessment and 25% via a random sample. Penalties for non-compliance are percentages of Pillar 1 payments and so are poorly correlated to environmental damages (Dupraz and Guyomard, 2019[52]). Penalties generally are around 3% of the amount granted as a direct payment, though this varies between 1% and 5%. This level of penalty, combined with the low rate of inspections, has an insufficient deterrent effect and infringement rates for some requirements are high (ECA, 2016[30]; ECA, 2008[53]). On the other hand, the European Commission’s own evaluation found that the compliance rate of farmers with GAECs 1 to 7 is estimated to be high, with only 1% to 4% of farmers non- compliant (EC, 2021[54]).

On-farm inspections are a valuable tool for raising awareness of legal requirements, understanding why farms fail to meet them and helping the inspected farm to come into compliance. OECD best practice on regulatory enforcement and inspection emphasises the importance of proportionality: allocating resources according to the level of risk and taking enforcement actions appropriate to the seriousness of the violation (OECD, 2014[55]). A risk evaluation can help ensure that investments in monitoring and enforcement are sufficient (OECD, 2014[55]). In the case of SMRs, cross compliance is not itself the regulation; it is a supplementary incentive for compliance directed at beneficiaries of direct payments. For this reason, the proportionality of inspection rates and penalties with respect to risk should be evaluated as part of the overall enforcement mechanism of the related legal requirement.

Farm advisory services are in place to help farms meet their cross-compliance obligations, and cross-compliance can provide incentives that “guide the search” for new innovative ideas and methods. That is, cross-compliance and greening requirements could have a positive impact on innovation by favouring the development of agricultural practices and systems that are more sustainable (Détang-Dessendre et al., 2018[56]).

It is recognised that the trade-offs between the two CAP policy objectives – farm production and income on the one hand and good ecological health on the other – complicate implementation and contribute to the low environmental efficiency of CAP spending (ECA, 2014[22]; EC, 2021[54]). In this regard, Member States’ ambitions are a key factor in effectiveness (EEA, 2019[1]; EC, 2017[57]).

Some positive effects of cross-compliance in promoting biodiversity on grassland and on arable land were observed in Switzerland, where the introduction of ecological compensation areas became conditional cross-compliance requirements in 1998 (Aviron et al., 2009[58]). As for the European Union, direct evidence of the effect of cross-compliance on environmental outcomes is lacking, but generally it is not perceived as an effective tool to improve sustainability. A public consultation of stakeholders, administrators, non-governmental organisations and the general public on the effectiveness of the CAP instruments that contribute to the sustainable management of biodiversity, habitats and landscapes found that GAEC were perceived as the least effective among all options. Forty six per cent of respondents reported GAECs as effective “to a very small extent” or “not at all”. GAECs also ranked at the bottom for effectiveness with respect to sustainable management of water and near the bottom with respect to sustainable management of soil (EC, 2021[54]).

A few years after the implementation of compulsory cross-compliance, the European Court of Auditors recognised that cross-compliance had contributed to better respect of the relevant environmental, food safety, health and animal welfare directives and regulations (ECA, 2008[53]). At the same time, SMRs do not place additional requirements on beneficiaries, and cross-compliance with SMRs is an additional penalty for non-compliance. On the other hand, GAECs help to maintain landscape elements (such as buffer strips, grassed strips and terraces), reduce soil erosion and limit the loss of soil organic matter. However, opting for minimum GAEC requirements is unlikely to bring substantial improvements (EC, 2021[54]).

The European Court of Auditors has twice examined the effectiveness of cross- compliance (ECA, 2016[30]; ECA, 2008[53]). In its earlier audit, it found that the scope of cross-compliance was not well justified, and that Member States only partially implemented requirements and standards. It noted that the introduction of cross-compliance in 2005 had weakened prior standards for “usual good farming practice”.

Closer integration of the policies and regulations related to environmental performance can benefit overall effectiveness and efficiency. In this regard, including elements of the Water Framework Directive (WFD) as an SMR in the new CAP is an important advance. Overall, cross-compliance can promote the external coherence of the CAP, as SMRs introduce mandatory conditionality based on non-CAP legislation. That said, cross-compliance does not alter the linkages between CAP and other legislation at a programmatic level, i.e. it does not direct CAP funding towards other objectives.

The internal coherence of the CAP instruments and measures to support the sustainable management of biodiversity, soil and water has been assessed as high (EC, 2021[54]). The effectiveness of those instruments on the biodiversity, soil and water objectives depends, however, on Member States’ choices and the related level of ambition. Cross-compliance and greening measures are also evaluated as highly coherent with respect to the objectives of biodiversity, soil and water (EC, 2021[54]). Significant synergies exist between SMR 1 (phosphates), SMR 2 (nitrates) and the cover crops’ ecological focus area (EFA) choice. However, overlaps of the two can create redundancies.24

The 2013 CAP reform effectively repurposed agricultural subsidies to target more environmental objectives by requiring that 30% of each Member State’s direct payments envelope be used for a greening payment for compulsory “agricultural practices beneficial for the climate and the environment”. As of 2023, the requirements of the green direct payment scheme will be integrated into cross-compliance requirements and will no longer be associated with specific payments.

The practices required for this greening payment were designed to be simple, general, annual and non-contractual. The three practices identified included: 1) crop diversification (the cultivation of a minimum of two or three crops on arable land above a certain size limit primarily to improve soil quality); 2) the maintenance of permanent grassland (requiring the level of permanent grassland to be maintained at least at 95% of its area as a proportion of total agricultural area compared to a base year, which previously had been a cross-compliance standard, as well as a requirement to protect the most environmentally sensitive permanent grasslands from ploughing, as a measure to protect soil carbon stocks); and 3) a requirement to manage at least 5% of the arable land of farms with more than 15 hectares of arable land as EFAs, comprising a combination of management practices or landscape features as set out in the regulation and applied by Member States, in order to safeguard and improve biodiversity on farms (Box 4.2).

By design, green direct payments need not generate additional environmental benefits but can be for preserving practices already in place. This intervention logic makes sense when repurposing existing direct payments that previously had no environmental requirements beyond cross compliance. Greening is best understood as raising the environmental ambition of the direct payment system rather than a new programme (Kokot, 2021[59]; ECA, 2017[23]; EC, 2016[60]).

The green direct payment has been criticised because it led to very limited changes in farm practices (Louhichi et al., 2018[61]). This was partly due to exemptions introduced in the legislation and partly because what was asked of farmers was made less demanding in the legislative process (ECA, 2017[23]). The prevalence of productive EFA options (nitrogen-fixing crops, fallow, catch crops) over those options with more obvious biodiversity benefits is seen as a weakness in its implementation. The crop rotation requirements mostly confirm existing practices and are not strongly binding, and the grassland requirements are also mainly designed to maintain the status quo (ECA, 2017[23]). The formal evaluation of the greening payment commissioned by the European Commission concluded that far more could be done to improve the environmental and climate performance of the greening measures (Alliance Environnment and Thünen Institute, 2017[62]).

Although it is not possible to observe the counterfactual that would exist without the EFA, there is some evidence that the 5% EFA requirement does increase the use of the required practices. In 2015, land lying fallow declared as EFA accounted for 34% of the total fallow areas reported in Eurostat statistics for the Member States concerned. Still, the area used for leguminous crops, as reported by Eurostat, has increased by 20% since 2013. Of this, nitrogen-fixing crops declared as EFA represented 49% of the total (EC, 2017[57]). On the other hand, the percentage of EFA areas declared by farmers is almost twice as much as the required 5% at the farm level, indicating that the EFA area requirement may be binding only in certain places and conditions. It has been estimated that typical configurations such as existing buffer strips, field borders and inaccessible field sections that would qualify as EFA already represent 3% of farmland (Bureau, 2013[63]).

The EFA requirement’s net impact on biodiversity could be much greater if farmers were to co-ordinate types and spatial arrangements to form larger habitat patches (as larger areas tend to be more resilient, hold more viable populations and have greater species richness) and/or mosaics of complementary habitats and/or Member States would have opted for non-productive elements instead. This might also be beneficial from a soil and water management perspective, depending on the location of the EFA elements (EC, 2021[54]).

Having so many productive and non-productive options available to farmers makes the share of area under EFA practices hard to interpret and of limited use for monitoring the results achieved (ECA, 2017[23]), which is reflected in the fact that as much as 14% of land was eventually registered as EFA.

In broad terms, the implementation choices that Member States have made suggest that their choices have primarily been driven by socio-economic, financial and administrative factors. This has limited the CAP’s potential to address the sustainable management of natural resources despite increasing ambition at the EU level (EC, 2021[54]).25 In particular, the predominance of productive EFAs, together with insufficient management requirements, reduces the potential benefits of greening for biodiversity (EC, 2021[54]; ECA, 2017[23]). As a response, some regulations were modified in 2018 to enhance the environmental delivery of greening, including via a ban on the use of pesticides and fertiliser on EFAs.26

Enhanced conditionality increases the mandatory layer of the CAP, revising and extending standards for GAECs in cross-compliance and including former greening commitments in a strengthened form. Member States have a degree of flexibility to further increase mandatory measures under conditionality. Previous GAECs have been carried forward and modified, while new conditionality rules related to climate have also been introduced (Section 4.3.1), notably GAEC 2 requiring the appropriate protection of wetland and peatland, with the possibility that the obligation to implement this standard can be postponed to 2024 or 2025 if Member States need additional time for management planning.

The GAEC standards are specified in the legislation in very general terms. It is up to Member States to set a national standard for each of the standards set at the EU level, taking account of the specific characteristics of the area concerned, including soil and climatic conditions, existing farming conditions, farming practices, farm size and farm structures, land use, and the specificities of outermost regions. While such discretion also existed for cross-compliance standards, the European Commission’s guidance in prior CAPs had been more specific.

Conditionality sets the baseline for voluntary eco-schemes and AES. The more ambitious the GAEC standards are, the narrower the scope to remunerate farmers for practices that go beyond this baseline in voluntary measures. With respect to the main objectives of the GAEC standards, Member States are permitted to set additional standards to improve the environmental and climate delivery of the GAEC framework.

Agri-environmental schemes are voluntary participation programmes that offer payments to provide agricultural public goods beyond the level defined by existing regulations and cross-compliance requirements (OECD, 2012[64]). In general, their objective is to reduce the negative environmental impacts of agricultural activities and incentivise the provision of public goods such as biodiversity, improvement of water quality and carbon sequestration, among others. Most schemes pay for the implementation of specific environmental practices; relatively few pay for the achievement of environmental results.

In the European Union, AES predate the introduction of cross-compliance, with their first appearance in the Agricultural Structures Regulation of 1985 (EU Regulation 797/85). They were initially conceived as a mechanism to compensate farmers for less intensive management of environmentally sensitive areas. They have become part of the CAP since 1987 and have expanded in importance since then, being compulsory for Member States after 1992.

AES, now sitting within Pillar 2 of the CAP alongside other land management measures (such as organic farming support and non-productive investments), are the oldest and the single most significant measures for pursuing environmental objectives across the farmed landscape, both in terms of the spatial coverage and the resources allocated to them (Batáry et al., 2015[65]). Starting from small beginnings in a few countries where environmental issues were particularly sensitive, they have become a cornerstone of rural development policy applied throughout the European Union and support the management of landscape, biodiversity, natural resources, soil and genetic diversity.

AES are contract-based, with farmers enrolling their land in the scheme for a specified number of years. Farmers who participate in AES are compensated for any additional costs incurred or income foregone, in line with the criteria in the World Trade Organization’s (WTO) Agreement on Agriculture to ensure that such expenditure falls into the green box category. The EU AES are not subject to the European Union’s WTO ceiling on non-exempt support, although an incentive element (later changed to an element to cover transaction costs) has also been included. Overall, AES should not per se be classified as trade distorting, even if they lead to a positive production effect (Hasund and Johansson, 2016[66]; Glebe, 2007[67]).

Over time, the environmental priorities addressed by AES have expanded and the articulation of priorities at the EU level has strengthened. Maintaining and enhancing the character of cultural landscapes and protecting farmland biodiversity have been core priorities of the majority of AES operating in the European Union since the 1980s. Such measures have been increasingly used to encourage organic farming practices, but also objectives such as improving water quality and soil functionality or the maintenance of sustainable water resources have gradually become more widespread within these measures (OECD, 2011[68]).

Spending on AES has grown in importance, and these policy tools have become more flexible to be adapted to the needs of Member States. Furthermore, AES were referred to as agri-environment measures until 2008 and as agri-environment-climate measures after the 2008 CAP Health Check, which extended their thematic coverage by adding climate objectives. On average, in the period 2015-19, around 13% of EU agricultural area was managed under agri-environmental and climate measure contracts, although this proportion has been higher in the past.

In 2020, 15% of RDP expenditure was allocated to AES and, on average, farmers enrolled in such measures received a payment of EUR 162 per hectare (EC, 2022[69]). The main farm practices beneficial to natural resources supported by European AES relate to limiting livestock density (and pasturing), the conservation of grassland, no or reduced use of pesticides, crop diversification and crop rotation, grass-cutting restrictions, nutrient management, cover crops, and the conservation of landscape features (EC, 2021[54]).

AES are often seen as the prototype for payments to farmers for providing public goods. But although evaluations have pointed to some beneficial outcomes, their ecological effectiveness has been disappointing, despite many local and regional successes. The main inhibitors are limited budget, low uptake, and poor design and implementation (Pe’er et al., 2020[70]).

The voluntary nature of participation may lead to the problem of adverse selection, where the farmers that enrol are those that need to make minimum changes to their farming practices, leading to a high deadweight element and limited environmental additionality. In many cases, environmental issues surrounding intensive farms (such as the loss of nutrients and sediment to water and GHG emissions) are not being optimally addressed in scheme design and further development of such programmes is needed to reduce negative environmental impacts (Cullen et al., 2021[71]).

Evaluation studies commissioned by the European Commission on the impact of the CAP highlighted several limitations but also significant environmental achievement obtained through the AES. Biodiversity case studies revealed unnecessary administrative burden linked to designing options for AES (Alliance Environnement, 2019[72]). AES are the most demanding soil-relevant measure in terms of administrative burden, but they also appear to be the most effective CAP instrument for soil protection, resulting in a favourable cost-effectiveness ratio (Alliance Environnement, 2020[73]). The study on water finds that targeting AES on relevant beneficiaries or geographical areas for water issues has improved their efficiency in some Member States (Alliance Environnement, 2019[74]). AES also supported the management of inputs on 14% of arable and permanent land in the European Union in 2018. However, an analysis of FADN data shows no significant change in fertiliser or plant protection product expenses for holdings entering an AES (EC, 2021[54]).

In the programming period 2014-20, most AES have been designed to address biodiversity and other environmental objectives rather than climate change. Relatively more measures are relevant or partially relevant to adaptation than mitigation (Alliance Environnement, 2018[75]). The literature on AES effectiveness is also dominated by biodiversity studies, despite the range of public goods that schemes typically seek to deliver, as well as the strategic importance of other policy objectives such as soil fertility, water quality, climate change mitigation and other ecosystem services. New empirical research and on-farm trials to evaluate the public goods arising from interventions for which evidence is weak would help to evaluate overall AES effectiveness (Reed et al., 2020[76]).

To fully assess the effectiveness of the AES, it would also be necessary to further explore the coherence of the CAP instruments and measures that support the sustainable management of biodiversity, soil, water and climate to look for synergies. When combined, support for AES, organic farming, Natura 2000 and investments in physical assets is more effective; and it can be even more effective if also combined with support to knowledge transfer, co-operation and the farm advisory system (EC, 2021[54]).

When assessing the effectiveness of the AES in the European Union, there are several shortcomings in the availability of evidence on the role of AES in the provision of environmental public goods, which are linked to several factors, including data availability and a lack of data comparability (Chapter 3). Moreover, certain outcomes, indicators, interventions, farming systems and countries are less studied than others, which leaves important evidence gaps (Reed et al., 2020[76]). The scientific literature highlights that the assessment of the environmental impacts of AES requires much more work, which is a limiting factor to being able to successfully evaluate their effectiveness. Moreover, evaluations of agri-environmental policy impacts rarely assess both environmental and economic aspects, making it more difficult to assess policy cost-effectiveness (DeBoe, 2020[77]).

Overall, it is unclear whether the resources dedicated to AES are sufficient to achieve EU environmental objectives. The evolutionary process of AES development from one CAP to the next leads to improvement over time, but it does not ensure that AES are tailored to the specific needs of the moment. Moreover, the effectiveness of AES can also be offset by distortive policies such as market price support or output and input-based support (OECD, 2019[78]).

In many EU Member States, payment rates of AES designed for sustainable water management do not cover the opportunity cost for highly productive farms, while in others (e.g. Croatia, Finland Apulia in Italy), transaction costs are covered or limited (e.g. the Netherlands) (Alliance Environnement, 2019[74]). Similarly, as for AES targeted to soil protection, the payment levels provided under AES can sometimes hinder its attractiveness, notably for highly productive farms. In many cases though, the payment rate of Pillar 2 measures relevant for soil was high enough to offset opportunity costs but sometimes too low to cover the administrative costs further incurred by beneficiaries as part of transaction costs (Alliance Environnement, 2020[73]).

AES often suffer from ineffective programme design and targeting (Pe’er et al., 2020[70]; Cullen et al., 2021[71]) increasing number of actors from the public and private sectors have experimented with new approaches that provide better incentives to farmers to increase their provision of ecosystem services (Bredemeier et al., 2022[79]).

The compensation principle used to determine payment levels of the majority of the current AES in the European Union has been criticised as failing to give adequate incentives for the provision of public goods and ecosystem services other than the provision of food and biomass. Results-based schemes have been identified as a way to overcome some of these problems (Burton and Schwarz, 2013[80]). The WTO Agreement on Agriculture does not restrict the use of results-based payments27 (Hasund and Johansson, 2016[66]), and these have already been successfully used in a number of countries (Table 4.2). This approach offers several advantages that suggest the benefits of its wider use. However, it requires certain conditions to succeed and is not always a practical option. The European Commission has produced a Handbook on the use of results-based approaches that sets out these conditions and explains how to establish such approaches where appropriate (Keenleyside et al., 2014[81]).

Result-based schemes are particularly well-suited to achieving and maintaining in the long term the EU nature restoration regulations of strictly protected habitats and species, provided they are well-designed and implemented (Box 4.3). Result-based schemes for biodiversity have been funded by the CAP in the past and interest is growing following a 2014-18 pilot (funded by the European Parliament and Directorate-General for the Environment), which involved farmers in Ireland, Romania, Spain and the United Kingdom.28 The pilot demonstrated that such schemes could improve the biodiversity status of Natura 2000 and high nature value habitats and support farm incomes while engaging farmers and rewarding their management skills (Byrne et al., 2018[83]; Chaplin, Mills and Chiswell, 2021[84]). Ireland has pioneered the use of CAP funding for result-based scheme support for Natura 2000 habitats and species in its 2014-22 RDP and as part of its new CSPs.29

Farmers may be reluctant to sign up for results-based AES, as the payment depends on outcomes that cannot be perfectly predicted (though there are also many attractive aspects of this type of AES). To overcome this reluctance, hybrid approaches have emerged where results-based and management-based AES are combined to provide some payment certainty for farmers who adopt practices to improve biodiversity (OECD, 2022[82]). These, too, have some complications regarding the need to avoid double payment for the same practices, the different administrative requirements of the two types of AES, and the chance that the management-based component will displace the results-based one rather than complement it.

The OECD recently assessed the cost-effectiveness of different types of AES through a multi country choice experiment with farmers, with the objective of exploring their preferences for contracts based on the adoption of practices, the achievement of environmental results (based on either measured or modelled results) or hybrid mechanisms that offer a payment in exchange for adopting practices and achieving results (OECD, 2022[82]). Results indicate that schemes that pay farmers for achieving specific environmental outcomes (results-based payments) are the most cost-effective. Hybrid payments, in which participating farmers are paid based on both practice adoption and achievement of environmental results, are the second most cost-effective payment type, while practice based payments, where payment is conditional on adopting specific practices, are the least cost-effective. Result-based AES have several advantages, but they can be rather complex and they may require more specialised knowledge and advisory (Cullen et al., 2018[85]). In many cases monitoring and transaction costs are also higher for both farmers and policy makers (Simoncini et al., 2019[86]), even though advances in digital tools may reduce these costs over time (OECD, 2019[87]).

AES have been typically directed to individual farmers without the spatial co-ordination and collective action that could produce conservation synergies.30 This is changing, and territorial co-operation and community-based approaches for the provision of environmental public goods are becoming increasingly common. An OECD report on the collective delivery of environmental services offers many interesting examples (OECD, 2013[88]). The majority of collective schemes are based on farmer-to-farmer collaboration to co-ordinate individually implemented practices; areas were managed collectively to reach a defined target, but the underlying contracts were individual (Bredemeier et al., 2022[79]).

Evidence suggests that AES are more effective when designed at the landscape level and implemented by groups of collaborating farmers (Burton and Schwarz, 2013[80]; Franks, 2011[89]). Co-ordinated action and community commitment improve the performance and efficiency of AES, encourage mutual learning and increase social capital (Mettepenningen et al., 2013[90]). The existence of a collective AES creates opportunities for increased spatial co-ordination to enhance conservation outcomes in agriculture (Nguyen et al., 2022[91]). They can also reduce transaction costs for farmers, improve social learning and help farmers engage in decision making beyond the farm scale (Barghusen et al., 2022[92]; Amblard, 2021[93]). Despite these potential benefits, farmers are often pessimistic about the possibility of collective action for environmental purposes (Villamayor-Tomas et al., 2021[94]).

While other EU Member States are still in the early phases of implementing collective AES, the Netherlands has had them as part of its national programme for some time already (Barghusen et al., 2022[92]). Dutch farm collectives are the beneficiaries of the subsidies and responsible for managing the implementation of measures in their area. Forty agricultural collectives were registered in 2020, receiving a total of EUR 71 million in 2019 to cover lost income and related costs (Berkhout, van der Meulen and Ramaekers, 2021[95]). This approach is seen as effective, flexible, cheaper and with less error than previous AES (Terwan et al., 2016[96]).

Another interesting example is the collective management in upland landscapes in southern France, where the funds provided by AES are directly invested to support collective management, such as for community pastures, and not distributed to single farmers for working together (Dodsworth et al., 2020[97]).

Given their potential advantages, their low uptake of collective AES seems surprising. Collective approaches are not mandatory in the CAP’s national strategic plans and use thereof among EU Member States remains low. One reason is the start-up costs of establishing and managing the organisations serving as the intermediary between public authorities and individual farmers. Some initiatives are trying to address this by providing solutions to this and other barriers associated with collective engagement in agri-environmental schemes (Prager, 2015[98]).

Only limited changes were made to the provisions governing voluntary AES in the new legislation. The most important one, as for eco-schemes, is that Member States are no longer obliged to use average or representative costs as the basis for their compensation calculation but can set compensation at the level that will attract the desired level of participation in the scheme. There is no longer a specific measure supporting organic farming; such support is now authorised under the general AES heading. The legislation also ring-fences 35% of a country’s rural development budget for agri-environment-climate commitments (with 50% of expenditure for areas characterised by natural or other area-specific constraints included in the calculation of this percentage).

Following the rules and legislation of the EU Rural Development Policy of the CAP, targeting and delivery of AES and the calculation of payment rates are made by Member States, reflecting their differing needs and environmental priorities and, indeed, their varying institutional capacity to apply to the measure. As a result, there is considerable diversity amongst the range of AES currently operating in the EU27.

This section provides an overview of the results of the AES questionnaire, which gathered information on key design features of the agri-environmental schemes applied by EU Member States (OECD, 2022[99]). The analysis is largely based on the taxonomy developed to characterise AES, where eight design features were identified as essential in determining the cost-effectiveness of AES: 1) targeting mechanisms; 2) use of baselines; 3) tailored payments; 4) contract flexibility; 5) technical assistance; 6) inspections; 7)penalties; and 8) policy evaluation tools (Guerrero, 2021[100]).

The questionnaire asked Member States to rank the three most important AES in terms of budget allocated in the 2014-20 programming period. Answers were then categorised in one of the 20 rural development measures defined by the European Commission in the context of rural development plans. A large majority of schemes (35 out of 59) is implemented as a sub-measure or operation of the agri-environment-climate measure (Measure 10); one-quarter of schemes (15 out of 59) are implemented in the context of the organic farming measure (Measure 11); a minority of schemes are implemented in the context of the investments in physical assets measure (Measure 4) (7 out of 59), animal welfare (Measure 14) and co-operation measures (Measure 16) (1 out of 59 each). Some of the answers reported below refer to the three selected schemes only, but since these concentrate about two-thirds of the overall budget allocated to AES in each Member State, such measures can be considered representative of the main features of the AES in each country.

The most commonly cited objectives for the selected measures were protecting biodiversity, which may entail a broad biodiversity goal or the protection of specific species (e.g. pollinators, crops, livestock); protecting ecosystems and landscapes; followed by support to farming activities and other specific activities, which include, for example, traditional practices, organic and sustainable farming, and pest management (Figure 4.6).

Results from the questionnaire also help to characterise key features of AES in Member States (Table 4.3). Overall, it was possible to identify the presence of several features that may be conducive to cost-effectiveness, such as the presence of baselines, enforcement mechanisms or contract adjustment clauses. However, targeting mechanisms should be improved adopting cost-effectiveness or environmental performance criteria in enrolment screens, by increasing bid-based mechanisms and result-based payments, and better integrating cost-effectiveness criteria into policy evaluation.

AES theme definition. In almost all Member States participating in the survey (19 out of 20 respondents), AES are designed as part of a broader policy package. According to the respondents, the assessment of key environmental issues and national programmes/priorities play an equally important role in the definition of the priority themes for the AES (both are selected by 18 out of 20 respondents), but past programmes were also considered relevant in many Member States (14 out 20). Finland indicated that priority themes are chosen in direct co-operation with stakeholders, while Austria and Portugal also stressed the relevance of EU legislation and strategies when defining AES objectives.

Budget definition. In a large majority of Member States (70%), the budget for the AES is decided in advance based on the estimated cost of achieving a specific measurable objective. In around one-quarter of Member States, the budget is chosen based on past programme spending. It is extremely uncommon (5%) for the budget to depend on participation rates, regardless of whether a cap is applied or not, and the budget is never decided based on a negotiation with stakeholders.

Baselines. Establishing baselines, benchmarks or reference levels improves the effectiveness of policies, as payments will go to those beneficiaries who adopt practices or produce outcomes above those reference levels. More than 80% of schemes specify baselines or benchmarks in their eligibility criteria, and 56% of AES establish a minimum level of supported activity; land cover restrictions clauses are present in 36% of analysed schemes.

Payments. The payment rate has important implications for budgetary cost-effectiveness of the AES; tailoring payment rates is especially crucial to provide transfers no greater than necessary to obtain the desired outcomes (OECD, 2007[101]). The majority of AES use forgone revenue (92%), followed by estimated or actual participation costs (69%). None of the schemes uses a bid-based mechanism to calculate payments, whereas only a minority takes into account the estimated or actual environmental performance (8%). Almost half of the analysed schemes provide for uniform rather than differentiated payments. When payments are indeed differentiated, this occurs most often based on the following criteria: land use (approximately 20% of analysed schemes), extent of practices applied, farmland size or other criteria (all respectively applied by 12% of schemes). Individually differentiated payments are only implemented in 12% of analysed schemes. Payment rate characteristics are, therefore, only partially in line with the set of characteristics considered essential for AES effectiveness; these recommend the use of tailored payments (which are only used by half of the analysed schemes), based either on participation costs or on bid-based mechanisms (Guerrero, 2021[100]).

Engagement. Engagement with potential recipients of the agri-environmental schemes occurs at different stages of the policy cycle, but it is worth noting that in almost all Member States (17 out of 20 respondents), stakeholders are engaged in defining objectives, strategies and needs. In approximately three-quarters of Member States, stakeholders are also informed in advance of planned AES. In Spain, stakeholders are engaged throughout the entire policy process, as well as in public consultations, while Austria, France, Poland, and Portugal mentioned that stakeholders are more generally involved in the development of the intervention and/or its specifications and the design of the scheme. Overall results show that even if stakeholders are engaged in all Member States to different extents, they generally play a consultative role (providing comments and/or participating in discussions about the design of schemes). None of the responding countries reported that stakeholders co-manage or are equal partners in setting the agenda. As reported above in the examples of France and the Netherlands, in some countries, local organisations and co-operatives are in charge of the local implementation of AES schemes.

Eligibility criteria. The policy implementation phase has three main pillars: 1) distribution of benefits among beneficiaries; 2) monitoring and control instruments; and 3) technical assistance (Guerrero, 2021[100]). First, during the distribution phase, eligibility criteria and enrolment screens define scheme recipients and the actions they will implement. As for the Member States participating in the survey, eligibility criteria are most commonly decided on the basis of EU and/or national legislation (19 and 16 out of 20 respondents, respectively), but expert consultation and political considerations are also relevant (15 and 10 out of 20 respondents, respectively). Only in a minority of Member States (4 out of 19) are they based on ex ante evaluations.

Enrolment screens. Enrolment screens can be considered one of the essential features to ensure the cost-effectiveness of AES and should ideally be based on cost-effectiveness and/or environmental performance or directly support environmental performance or results. For a large majority of selected AES, enrolment screens are not used to select recipients from the pool of applicants that have already met the eligibility criteria (Figure 4.7). When enrolment screens are in place, these are most commonly based on environmental performance or geographical considerations.

Checks, inspections and penalties. The second pillar of scheme implementation refers to the monitoring and control phase, which requires monitoring compliance with scheme requirements and conditions and scheme enforcement actions: checks, inspections and penalties. Almost all analysed schemes (96%) use both on-the-spot inspection controls and administrative data to verify compliance with the contract. Self-reported data (such as beneficiaries’ bills, records and/or receipts) and data from digital technologies are also widely used (almost 70% of schemes).

Technical assistance. The third pillar of the implementation phase is technical assistance, which involves training sessions, information dissemination and the use of tools such as software to simulate scheme interventions, monitoring devices and digital technologies (satellite images, sensors, apps, etc.) for monitoring outcomes. Almost all the analysed AES provide some form of technical assistance to recipients (93%). The most common forms of assistance are: the provision of training and the use of extension services (both provided by more than 60% of schemes); digital technologies are used by approximately one-third of schemes.

Policy evaluation. Regular evaluation of policies helps to detect flaws and strengths and points to areas for improvement. As such, policy evaluation tends to play an important role in improving the cost-efficiency of AES. Such evaluation can be undertaken before (ex ante) or after (ex post) a given policy is enacted. The survey included several questions to gather information on both ex ante and ex post policy evaluation. In the majority of respondent countries (13 out of 19), programme evaluations are carried out during their implementation rather than at their conclusion. Some countries stress that evaluations at different intervals of time, e.g. through a mid-term evaluation and ex post evaluation (Belgium, Flanders; Finland; France; Portugal) or annual reports (Slovak Republic); some receive feedback on the implementation on a continuous basis (Denmark). The evaluation tools and modalities are quite varied across Member States: survey of programme administrators, survey of recipients, and internal and external analyses are equally common evaluation methods used by 42-47% of Member States. Ex ante evaluations of potential impacts of the schemes can help to inform and decide policy features such as eligibility and enrolment criteria, payment mechanisms, and monitoring and compliance mechanisms. In all Member States, ex ante evaluations are mandatory and in almost all the investigated Member States (19 out of 20 respondents) are conducted at the design stage. Nevertheless, in a large majority of countries (14 out of 20), ex ante evaluations are consultative rather than determinant. In Lithuania, ex ante evaluations are consultative, with the exception of the Strategic Environmental Assessment conducted by the State Service for Protected Areas, whose conclusions are binding. In the Czech Republic, they are formally consultative, but if no argument is found against the proposed amendments, these have to be integrated into the AES. In a large majority of countries (14 out of 20), ex ante evaluations are part of a Strategic Environmental Assessment. The majority of the selected schemes call for some form of ex post evaluation (62%). The most common criteria employed are environmental effectiveness or a multi-criteria analysis. Cost-effectiveness and cost-benefit criteria are used, respectively, by 20% and less than 10% of schemes (Figure 4.8).

Eco-schemes are voluntary for farmers and refocus some Pillar 1 funds on climate-friendly actions in agriculture. These schemes for the climate, environment and animal welfare aim to reward farmers who manage land in a nature- and climate-friendly way. The CAP Regulation requires each eco-scheme to cover at least two areas of action for the climate (mitigation and adaptation), the environment (protection or improvement of water quality, reduction of pressures on water resources, prevention of soil degradation, soil restoration, improvement of soil fertility and nutrition management, protection of biodiversity, conservation, restoration of habitats or species, reduced or sustainable use of pesticides), animal welfare and anti-microbial resistance.

Practices that could be funded under eco-schemes overlap with those that can be funded under voluntary AES in Pillar 2 of the CAP (DG AGRI, 2020[102]; EC, 2021[103]). A recital in the Strategic Plans Regulation notes that “It should be possible for Member States to establish eco-schemes as ‘entry-level schemes’ as a condition for farmers for taking up more ambitious environmental, climate-related and animal welfare commitments under rural development”. Whether eco-schemes and AES are linked in this way or are programmed as stand-alone measures, the “no double-funding” obligation applies (commitments under the two measures must be different) and in both cases should go beyond the mandatory conditionality standards. However, Member States can design enhanced eco-scheme commitments to complement conditionality. A preliminary assessment conducted by Runge et al. (2022[104]) on eco-schemes in 15 Member States shows that the majority either build upon components from past greening obligations that did not become compulsory under conditionality or stem from AES.

The major differences between the eco-schemes and AES are that the eco-schemes are confined to farmers in receipt of direct payments, are annual and have greater flexibility in the way payments are set. Payments in eco-schemes can be determined either on the compensation principle for costs incurred and income foregone (as for AES) or set as a top-up to the basic payment when the practice covered by the eco-scheme is not linked to any form of production. The payment under the compensation principle can take account of the targets set for eco-schemes, implying a more flexible interpretation of the compensation principle than that used in the CAP 2014-22. The top-up option can enhance the attractiveness of enrolling in eco-schemes for more intensive farms. However, it may also allow schemes that are primarily intended to provide income support under the guise of being an environmental scheme. Thus, just as evaluations of the greening payment found, there is potential for considerable deadweight in the implementation of eco-schemes.

Eco-schemes suffer from several design weaknesses that could limit their effectiveness. One is that they are located within the annual payments structure of CAP Pillar 1. In principle, there is the option to extend eco-schemes several years where suitable, but as they are non-contractual, such commitments would not appear to be binding. In practice, farmers who opt into an eco-scheme in one year are likely to continue to opt-in in later years. Also, the benefits of some eco-scheme practices (e.g. tree or hedgerow planting) will continue in later years even if a farmer does not later enrol in a similar eco-scheme. An annual scheme may allow farmers who have not previously engaged with environmental and climate-friendly agricultural practices to gain experience in these practices without committing to a multi-year contract. This increases the likelihood that they may later enrol in an AES (Runge et al., 2022[104]). Nonetheless, the environmental and climate benefits of annual schemes are likely to be more limited than the benefits derived from similar multiannual AES, where collective efforts can be encouraged (ECA, 2018[105]).31

The European Commission reports 184 eco-schemes in 27 Member States based on the draft CSPs (EC, 2022[106]). Many different types of eco-schemes are available to farmers. Individual measures vary in their complexity: some focus on a single requirement regarding a particular management practice while in other countries, a single measure contains a bundle of requirements to be respected, so the number of measures alone does not give the full picture. The agricultural knowledge and innovation system (AKIS), a mandatory element of the CAP 2023-27 (Chapter 5), could play a key role in fostering training and advice on sustainability issues. This may also facilitate the uptake of eco-schemes (Runge et al., 2022[104]).

Attention to climate change accelerated in the CAP 2014-22, most notably through the greening requirements in Pillar 1 and the relabelling and reform of AES into agri-environmental and climate measures in Pillar 2. The 2013 reform incorporated climate priorities by making climate action one of the three new core CAP objectives, with climate action becoming an objective for both pillars for the first time. In Pillar 1, measures were subject to formal monitoring and evaluation requirements alongside Pillar 2 for the first time, with relevant climate indicators put in place (i.e. result indicator 17% of agricultural land under management contracts targeting the reduction of GHG and/or ammonia emissions).

In the second pillar, EU RDP Priority 5 focused on resource efficiency, and a low-carbon/climate-resilient economy. The focus areas for Priority 5 include: increasing efficiency in energy use in agriculture and food processing; facilitating the supply and use of renewable sources of energy; reducing GHG and ammonia emissions from agriculture; and fostering carbon conservation and sequestration in agriculture and forestry. Several measures under the EAFRD have an intervention logic involving the mitigation of GHG emissions (Table 4.4).

The European Commission estimated that measures on climate-related expenditures under the 2014-20 funding period totalled EUR 14.7 billion per year, representing 26% of the CAP budget. The Court of Auditors reassessed this number to a more “prudent” estimate of 18%, because many of those measures primarily address biodiversity, water and air quality, and social and economic needs (ECA, 2021[107]). This compares to the EUR 20.4 billion per year that the European Union spent in 2019-21, on average, on market price support and on payments based on output and on the unconstrained use of variable inputs (OECD, 2022[108]), i.e. on the policy measures that are the potentially most environmentally harmful (Henderson and Lankoski, 2019[109]).

Funding for climate mitigation focus areas under Priority 5, as a proportion of total spending allocated to the programmes, may, in fact, have been quite limited, and measures supported during this period generally were not those with the highest potential to mitigate emissions (ECA, 2021[107]; ENRD, 2021[110]). A total of EUR 7.7 billion, approximately 5% of the total public expenditure under RDPs, was set out under Priority 5, with just 1.1% dedicated to GHG and ammonia emissions (FA 5D) and 2.4% dedicated to carbon conservation and sequestration (FA 5E) (Figure 4.9). The 118 RDPs, on average, allocated less than 5% of their budget to climate mitigation focus areas, with just 11 allocating more than 20% of their budget to climate change mitigation actions under Priority 5 (ENRD, 2021[110]). The aggregated targets that were set for the result indicators under Priority 5 are also an indication of the overall level of ambition of the related public expenditure: across all RDPs, 1% of livestock units (R.16) and 2% of agricultural land (R.17) was targeted for actions to reduce GHG and ammonia emissions, while 0.3% of agricultural and forest land was targeted to come under management contracts for carbon sequestration (R.20).

The 2023-27 CSPs combine a range of targeted interventions addressing the specific climate needs of each EU Member State and demonstrate how they will deliver tangible results in relation to EU-level objectives, specifically how they will contribute to the ambitions of the EGD.

CSPs must demonstrate result-based outcomes. Updated CAP legislation established a new set of indicators (result indicators, impact indicators, output indicators) as part of a performance, monitoring and evaluation framework. Climate-related indicators include: impact indicator I.10 (contributing to climate change mitigation); result indicator R.13 (share of livestock units under support to reduce GHG emissions; result indicator R.14 (share of land under supported commitments to reduce GHG emissions or to maintain or enhance carbon storage). These indicators will be monitored through annual performance reports and biannual reviews of the performance of the CSPs, which will assess Member States’ progress. CSPs must also abide by the “no backsliding” rule, meaning they must demonstrate increased ambition in their climate-related measures over the previous funding period.

The new CAP can support the uptake of carbon farming (Box 4.4) in the European Union through payments as well as developing skills and funding for pilot schemes. The CSPs are intended to be a vehicle to support various interventions facilitating the uptake of carbon farming, either through Pillar 1 eco-schemes or Pillar 2 rural development environment-climate and investment interventions, investments, and co-operation measures, with support for advice and training. Besides the CAP, other sources of EU funding will come from the LIFE programme, Horizon Europe projects and Cohesion Funding.

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[74] Alliance Environnement (2019), Evaluation of the Impact of the CAP on Water, European Commission, https://doi.org/10.2762/63371.

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Notes

← 1. The agreement includes concrete measures to halt and reverse nature loss, including putting 30% of the planet and 30% of degraded ecosystems under protection by 2030.

← 2. The European Parliament proposed repealing the use of LULUCF credits and restricting the rules on borrowing, banking and trading. The European Parliament also recommended the European Commission produce a report assessing EU-wide non-CO2 emissions reductions planned and implemented under relevant EU and Member State laws and policies. If needed, the European Commission should recommend additional mitigation measures, and where appropriate, potentially include sectoral targets or sector-specific measures, or both.

← 3. This is not without controversy. The Rapporteur for the LULUCF Regulation in the European Parliament’s Committee on Environment, Public Health and Food Safety argued against this merger, saying that there was “no benefit” of bringing non-CO2 emissions of agriculture into LULUCF and instead sees a “risk of hiding emissions from the agricultural sector behind forest sink…without incentives for the agricultural sector to decrease emissions.”

← 4. Directive 2000/60/EC of the European Parliament and of the Council establishing a framework for the Community action in the field of water policy.

← 5. Ecological status and chemical status for surface waters (including environmental flows); quantitative and chemical status for groundwater bodies.

← 6. The WFD list of priority substances was updated by the Directive on Environmental Quality Standards (Directive 2008/105/EC), also known as the Priority Substances Directive, which also set environmental quality standards for the substances in surface waters. The list was replaced again in 2013 by Annex I to Directive 2013/39/EU, which also included environmental quality standards and some other provisions on chemical pollutants.

← 7. The second RBMPs show a marked reduction in water bodies with “unknown” status and improved confidence in assessment. For surface water bodies, the proportion in unknown ecological status and chemical status fell from 16% to 4% and from 39% to 16%, respectively, while, for groundwater bodies, the proportion in unknown chemical status and quantitative status decreased to only 1% (EEA, 2018[12]).

← 8. The European Court of Auditors notes this same issue for monitoring information related to the CAP policy development cycle (ECA, 2018[105]). Some lag in reporting is inevitable for technical reasons. In water monitoring time is needed to have reliable data worthwhile for analyses. Data are also dependent on weather and many other fluctuating short-term conditions.

← 9. Council Directive 91/676/EEC of 12 December 1991 Concerning the Protection of Waters against Pollution Caused by Nitrates from Agricultural Sources.

← 10. Fertiliser use can also result in emissions of ammonia (NH₃), nitrogen oxides (NOₓ) and nitrous oxide (N₂O) to the atmosphere, contributing to poor air quality and climate change. These emissions are covered, inter alia, by the National Emissions Ceiling Directive and the WFD.

← 11. Eutrophism in fresh waters in dominantly caused by phosphates, while in brackish or salty waters nitrates are the main cause.

← 12. Annex III requires certain measures to be included in NAPs, such as minimum manure storage capacity, periods where the application of fertiliser is prohibited and limits to the total land application of fertiliser.

← 13. Among these are Belgium, the Czech Republic, Denmark, Finland, Germany, Latvia, Luxembourg, and Poland (EC, 2021[29]).

← 14. Denmark, France, Germany, and Luxembourg.

← 15. European Parliament Resolution of 12 February 2019 on the Implementation of Directive 2009/128/EC on the Sustainable Use of Pesticides (2017/2284(INI), https://www.europarl.europa.eu/doceo/document/TA-8-2019-0082_EN.html.

← 16. Eurostat Agri-environmental indicator – consumption of pesticides. Available at: https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Agri-environmental_indicator_-_consumption_of_pesticides.

← 17. The 2022 reviews were delayed for technical reasons and will be carried out in 2023.

← 18. Council of the European Union press release of 19 December 2022: https://www.consilium.europa.eu/en/press/press-releases/2022/12/19/council-calls-for-a-complementary-impact-assessment-on-the-sustainable-use-of-plant-protection-products-proposal.

← 19. According to CAP Regulation (EU) 2021/2115. SMR 8 refers to SUD Article 5(2) (certification) and Article 8(1) to (5) (equipment checks); Article 12 with regard to restrictions on the use of pesticides in protected areas defined on the basis of Directive 2000/60/EC and Natura 2000 legislation; Article 13(1) and (3) on handling and storage of pesticides and disposal of remnants.

← 20. This estimate excludes Romania (which does have a significant area of semi-natural habitats in pastoral use, but accurate estimates are not available); and including a relatively small area of natural habitats, mostly in remote or localised areas that are extensively grazed but not dependent on grazing by farm livestock for maintenance of their ecology and biodiversity

← 21. The first cross-compliance requirements were put in place in 2000 for set-aside (Article 19.4 Regulation 2316/1999) and as part of Pillar 2 AES which were requirements for so-called ‘Good Farming Practice’ (GFP). In 2001, the Small Farmers’ Scheme (Regulation 1244/2001) required farmers receiving decoupled payments under this scheme to keep their entire holding in “Good Agricultural Condition” as defined by their Member States.

← 22. In the new CAP, the term is “enhanced conditionality”.

← 23. Cross-compliance also applies to seven rural development measures, which represented approximately 40% of planned EAFRD expenditure for the 2007-13 period.

← 24. Member States can act to limit or avoid deadweight through additional restrictions, as in the Netherlands, where catch crops required under SMR 1 cannot be declared as EFAs.

← 25. This conclusion is not restricted to greening and has been noted for cross-compliance and the WFD.

← 26. Commission Delegated Regulation (EU) 2017/1155 of 15 February 2017.

← 27. One green box criterion for environmental payments is that “the amount of payment shall be limited to the extra costs or loss of income involved in complying with the government program”. Therefore results-based payments do not meet the criterion for exemption but are still permitted since the European Union has a very large margin (many billions of euros) below the ceiling on non-exempt support (the amber box).

← 28. See https://ec.europa.eu/environment/nature/rbaps/index_en.htm (accessed on 10 November 2022).

← 29. Using a combination of agri-environment, environmental investment and (especially) co-operation measures. Ireland’s CAP Strategic Plan 2023-27 is available at: https://www.gov.ie/en/publication/76026-common-agricultural-policy-cap-post-2020 (accessed on 10 November 2022).

← 30. Collective action mechanisms have been also identified as one of the three necessary pillars for sustainable management of groundwater resources in agriculture (OECD, 2015[114]).

← 31. Member States may choose to target eco-schemes to specific areas (territories) if this is justified by the SWOT analysis and the needs assessment, but there is no mechanism in eco-schemes to encourage groups of farmers within an area to work together to achieve environmental change at the landscape level.

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