Agricultural Budgetary Support and Emissions Outcomes: Governance as a Moderator for Sustainable Agricultural Transitions

Abstract

ABSTRACT This study explores the potential of agricultural budgetary support as a lever for climate action within the Sustainable Development Goal 2.4.1 framework, which emphasizes sustainable and resilient farming practices. Specifically, it investigates first, the linear and non‐linear effects of agricultural budgetary support on greenhouse gas emissions from the agricultural sector, and second, examines the role of governance in moderating this relationship across 27 economies spanning 2014–2023. After employing the Driscoll‐Kraay, Instrumental Variable Two‐Stage Least Square (IV‐2SLS), and the Dynamic Panel Threshold Regression (DPTR) models, the analysis offers robust insights. The findings reveal a nuanced effect: agricultural support exerts a positive linear effect, whereby low levels of subsidies initially raise emissions, and a negative non‐linear effect, as higher levels of budgetary support reduce emissions through investments in climate‐smart practices and sustainable technologies. A dynamic panel threshold model further identifies a critical total support estimate (TSE) benchmark of 1.82% of GDP, beyond which subsidies consistently reduce emissions, including methane and nitrous oxide, which are the two most potent agricultural GHGs. Notably, countries such as India, China, Indonesia, Turkey, and Switzerland have allocated larger budgetary shares to agriculture than the rest of the sample, further underscoring the scale and policy importance of this sector. Furthermore, the findings on moderating effects reveal that governance interacts with government budgetary support to contribute to the efficient allocation of resources toward agro‐environmental schemes that reduce emissions. The findings suggest reforming support programs to integrate environmental criteria and tailoring policy interventions to local institutional and ecological contexts.