Methane abatement now: Financing agrifood transition in the EU

Climate change is no longer a distant concern for Europe’s farmers. The EU’s agricultural sector is already losing EUR28.3bn a year to climate impacts like extreme heat, droughts, and floods, equivalent to 6% of total production. Rapid climate action to mitigate the severity of climate events and preserve food security is crucial to the resilience of the European agriculture sector. 

While agriculture faces some of the EU’s toughest climate challenges, it also provides a tremendous opportunity for progress. The sector is responsible for over half of the EU’s methane emissions caused by human activity, and clear, ambitious policy changes can make rapid cuts to those emissions. Methane is a greenhouse gas with over 80 times the warming potential of CO2 over a 20-year period, so slashing methane emissions is one of the fastest ways to slow warming, improve air quality, and protect crop yields. 

Yet despite this, progress has stalled. Between 2005 and 2022, agricultural methane emissions in the EU fell by just 4%, compared to far steeper reductions in other sectors.

Our new paper, Methane Abatement Now: Financing Agrifood Transition in the EU, sets out how to turn this around. Supported by the Global Methane Hub, the paper lays out how the EU can close policy gaps, unlock finance, and deliver rapid, credible methane cuts throughout the agricultural sector.

Agriculture at the frontlines of climate change

The EU is a founding member of the Global Methane Pledge, committing to cut global methane emissions by 30% by 2030. The European Commission’s own modelling shows that meeting the EU’s 55% emissions reduction target for 2030 will require a 35–37% cut in methane emissions. Without decisive action in agriculture, this goal will remain out of reach.

Beyond the climate imperative, the economics are clear: reducing methane is a resilience strategy. Climate events are already eroding agricultural productivity, and the Food and Agriculture Organisation (FAO) projects global crop losses will rise by 66% by 2050 under a business-as-usual pathway.

Clear definitions, policy alignment, and targeted finance could rapidly scale solutions like low-methane feed, improved manure management, diversification away from ruminants, and demand-side measures to rebalance diets toward lower-emission foods.

Four ways the EU can enable methane cuts in agriculture

The paper identifies four key actions that can unlock methane abatement potential and bring agriculture into line with the EU’s climate objectives.

1. Fix the definition gap in policy

Agriculture lacks methane-specific targets and a clear definition of what “net-zero” farming means. Without these, it’s impossible for investors, banks, or policymakers to direct capital towards credible transition activities. The EU Taxonomy currently excludes agriculture from its delegated acts, and major subsidies like the Common Agricultural Policy (CAP) don’t define low-emission farming.

Setting sectoral methane targets and credible transition pathways, drawing on existing frameworks like the Climate Bonds Agriculture Criteria, would send a clear signal to markets and guide investment across the value chain, from feed producers to distributors.

2. Repurpose €57.5 billion in CAP subsidies

The CAP accounts for around 30% of the EU budget, or EUR57.5 billion annually, but most of this funding is not aligned with climate objectives. Redirecting these subsidies toward methane abatement and diversification away from high-emission activities could transform the sector.

Farmers themselves have called for reform away from area-based payments, which tend to benefit larger farms, towards targeted support that helps those most in need to transition. The UK’s post-Brexit reforms offer an example of shifting payments toward environmental stewardship.

3. Align the policy mix

Regulatory tools such as livestock emissions pricing, sustainability requirements in public procurement, or inclusion of agriculture in carbon border adjustment mechanisms can tilt incentives toward low-emission production.

Denmark’s 2024 Green Tripartite Agreement, which introduces a livestock emissions tax from 2030, shows how national policy can get ahead of EU-level action and position domestic producers competitively for a low-carbon future.

4. Ensure a just transition

With methane emissions highly concentrated, decarbonisation will fall heavily on a relatively small number of farms and regions, particularly in France, Germany, and Ireland. 

Smaller farms face higher barriers to transition, from financing constraints to reporting burdens. Tailored territorial action plans, lighter reporting requirements for smallholders, and safeguards to ensure distributors shoulder their share of costs can help ensure that farmers and consumers are not left behind.

Closing the financing gap

Despite agriculture’s central role in EU climate goals, both public and private finance for the sector’s transition is far below potential. The annual public investment needed to cut agricultural emissions by 53% by 2050 is estimated at EUR155 billion. Yet globally, agriculture, forestry, and land use (AFOLU) receive just 0.4% of all climate mitigation finance.

The current policy gaps make it harder for banks and investors to identify green-aligned agricultural activities, keeping the sector largely out of green bond and loan markets. The exclusion of agriculture from the EU Taxonomy also means investments don’t count towards banks’ Green Asset Ratios, reducing incentives to lend for transition.

Fixing the definition gap would unlock capital from both public sources like the CAP and private markets, opening new opportunities for labelled bond issuance, green lending, and blended finance to de-risk innovation at farm level.

What’s next?

For investors, methane emissions are both a risk and an opportunity. Inaction risks rising climate losses, volatile commodity prices, and policy shifts that may arrive suddenly and disrupt supply chains.

The opportunity lies in shaping a sector-wide transformation. Aligning policy definitions, redirecting subsidies, and opening access to green finance can create investable pipelines across the agri-food value chain. From biogas projects and alternative proteins to low-emission feed and manure management technologies, credible methane abatement offers a pathway to measurable climate impact, stable returns, and strengthened food security.

Read the full paper on the Climate Bonds website here.

‘Til next time!

Climate Bonds