Cap-and-trade legislation will be good for farmers
A new study from researchers at Kansas State University has found that cap-and-trade legislation pending in Congress would benefit farmers and ranchers.
A team of seven Kansas State University (KSU) researchers completed an analysis and comparison of six key economic studies that looked at the effects of the Clean Energy and Security Act of 2009 (H.R. 2454, also known as the Waxman-Markey bill) on the agriculture sector.
American Farmland Trust (AFT) sponsored the research to advance understanding of the economic implications for U.S. agriculture as Congress considers legislation to address the impact of carbon emissions on the environment.
“Overall, the research suggests U.S. agriculture has more to gain than lose with the passage of HR 2454,” said Bill Golden of the Department of Agricultural Economics at KSU, the team’s leader. “The bill specifically exempts production agriculture from emissions caps, provides provisions to ease the transition to higher fertilizer prices, and fosters the development of carbon offset markets, which will likely enhance agricultural revenues.”
But Sen. Mike Johanns, R-Neb., said any attempts to regulate greenhouse gas through legislation or a regulatory approach will be costly to agriculture, which is highly dependent on fossil fuels, a main contributor to greenhouse gases.
Johanns said that cap and trade will increase the food consumer price index (Food CPI) by nearly 5 percent by 2050. He said the beef sector will see a 10 percent decline, while the hog and dairy sector will see reductions of 23 percent and 17 percent, respectively. Additionally, he said, cap and trade will take 59 million acres of cropland and pasture out of production.
Golden said the legislation would encourage the continued development of carbon credits for the offset market and low carbon renewable energy to satisfy the renewable energy standard (RES).
“At the present time it is not completely clear how renewable energy legislation and climate offset markets will function together,” Golden said. “The viability of these markets will depend upon the policies that regulate/foster/develop/cause such carbon trading to occur and how they complement or conflict with future renewable fuels policies. What is clear is that these markets have the potential to provide significant financial benefits to agricultural producers.”
Among the key findings of the KSU analysis:
n In the short run, per-acre profitability for both crop and livestock producers may decline. But for the most part, the research across multiple studies suggests the declines in the short run will be modest, with changes in production costs ranging from 0.3 percent to 6.4 percent by 2025.
n If other countries adopt similar legislation, in the long run the market for agricultural commodities will adjust and return producers’ profits to pre-HR 2454 levels.
n The economic impacts will vary regionally, and by crop and livestock sub-sector. The impacts depend on cultural and management practices and the farm-specific ability to sequester carbon and receive offset income.
n HR 2454 establishes a renewable energy standard (RES) that mandates a portion of all U.S. electricity be produced from low carbon renewable energy sources. As the market expands, financial benefits will accrue to the agricultural sector.
“While changes in costs and revenues are important economic metrics, we believe that the change in net income from crop and livestock production is the best metric for assessing the impact of HR 2454 on agriculture,” Golden said. “We also believe that evaluating a worst-case scenario, where agricultural offset markets do not exist, to be highly informative.”
A copy of the KSU study is available on the American Farmland Trust (AFT) Web site at http://www.farmland.org/reports, or through KSU at: http://www.agmanager.info/ for downloading.
“Farmers and ranchers have a great deal at stake,” said Jimmy Daukas of AFT. “While agriculture can play an important role in helping reduce and mitigate greenhouse gases, if no clean energy bill is passed, the EPA is mandated by the Supreme Court to enact regulations under the Clean Air Act, which will affect agriculture.”
Daukas said the EPA’s announcement of an endangerment finding confirming greenhouse gases as pollutants dangerous to human health and welfare that should be regulated is another signal that a regulatory approach is real.
“Regulations without opportunities will only bring costs to producers,” he said. “Agriculture needs USDA and others to analyze the effects of a regulatory-only alternative to better understand the potential economic impact.”
Johanns said that recent testimony delivered by USDA Chief Economist Joseph Glauber before a House Agriculture Committee hearing on the economic impacts of pending climate change legislation, “...confirms what we’ve known for some time: the cost of producing crops and livestock will increase, and energy prices will go up.” Johanns is a member of the Senate Agriculture Committee.
“American farmers will be asked to sacrifice 59 million acres of farmland while feeding a world population set to increase by 2 billion people,” he said. “If this bill becomes law, producers will be driven out of farming; production will plummet as land shifts from food to trees; food prices will rise; and production overseas will increase. Perhaps most alarming, the testimony is from an administration that wholeheartedly endorsed cap-and-trade legislation months ago. This is not a vision for American agriculture; it’s a death sentence.”