protection agency.<sup>10</sup> Overall, there has been a shift away from cattle and other larger animals to poultry production in the region (figure 13). Moreover, the trend is expected to continue. For example, poultry production is expected to grow by 50 percent in Russia by 2015 and pig meat production is expected to grow by 70 percent during the same period in the eight European Union members from Eastern Europe (Sutton et al., 2008). Figure 14 breaks down the change in livestock herd sizes by country.<sup>11</sup> In general, the shift places less pressure on grazing lands and creates greater opportunities for rotating crops and fallowing. The switch away from ruminants also promotes a more efficient conversion of feed and lower methane emissions from belching and flatulence.

The second link has to do with the commercialization of livestock production. In general, commercialized livestock operations rely more on feed lots, slaughter houses and other production methods that concentrate animals into smaller and more confined areas of land. The changing composition of livestock production in favor of pork and poultry operations reinforces this as well, since these animals are raised in more concentrated settings. Commercialized livestock production creates its own set of problems, for example it can lead to water contamination, overloaded soils and other problems; however the production methods also lend themselves more readily to methane capture, organic fertilization systems and biomass production, all of which create mitigation opportunities. Indeed, mitigation projects that improve the management of manure and other organic wastes are among the few types of agricultural projects financed under JI and the CDM.

# **IV. Policy instruments and mitigation outcomes**

To this point, the discussion has focused on the sources of greenhouse gas emissions in ECA and opportunities to reduce net emissions at low cost. In this section, we turn to the sets of policies that give rise to mitigation outcomes. As the previous section on mitigation potential makes clear, greenhouse gas emissions in agriculture are closely tied to the choices farmers make about how they employ natural resources, especially land and water, decisions that are influenced by policies affecting agricultural markets and natural resource management. Increasingly, these decisions are affected by climate change and climate change policies as well. The relationships among climate change policy, agricultural policy and natural resource management policies are complex and varied, but the most visible change in the mix of policies has been the rise of policy-induced carbon markets that finance mitigation projects in agriculture and other sectors.

Looking ahead, what is striking is how current policies and the markets they engender are effective in tapping some sources of mitigation potential in agriculture but not others. Moreover, mitigation outcomes are only loosely tied to mitigation potential. This is partly because the methodologies used to build-up abatement cost curves that are used to quantify potential do not fully account for transaction costs – that is, the practical costs of moving from one type of technology use to another. In turn, there are significant differences in transaction costs among countries and across project types. Some differences have to do with national institutions and apply equally to all types of investments. Others are quite specific to the prevailing rules governing mitigation projects. Good policy can reduce transaction costs, but not eliminate them altogether, so fundamental differences in transaction costs will still affect mitigation outcomes. However it is also the case that design features of current institutions have practical implications for mitigation activities, especially in agriculture and, as a consequence, promote certain types of activities over others.

> 10 For more detail visit the Minnesota Department of Agriculture animal unit calculation worksheet, available on the Internet at http://www.mda.state.mn.us/animals/feedlots/feedlot-dmt/feedlot-dmt-animal-units.aspx. 11 Data is reported in Annex 3.

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