“Stacked” House Ag Subcommittee Hearings Don’t Change the Facts: Farmers to Benefit from Cap and Trade Bill
Last week the House Agriculture Subcommittee on Conservation, Credit, Energy, and Research held hearings on the economic impacts of climate legislation on the domestic agricultural sector. Certain members of the Committee continued to cite one-sided studies that focus on increases in fossil fuel costs, despite multiple independent studies showing that the benefits to U.S. farmers from a cap and trade bill would outweigh costs (see earlier blogs highlighting these here and here). These legislators’ arguments ignored the benefits farmers will see from new and expanded markets for carbon offsets and renewable energy, not to mention the potential costs of inaction to farmers in the form of decreased yields, harsher droughts, changes in water supply, and more frequent and extreme weather resulting from unmitigated climate change.
The congressional naysayer’s two most repeated claims were: 1) agriculture is a fossil energy-intensive industry so anything that increases the costs of fossil energy is bad for agriculture, and 2) the offsets program will encourage taking cropland out of food production in order to plant trees, which will increase food prices. Let’s take on each of these claims separately.
First, USDA’s analysis of the effects of the American Clean Energy and Security Act (H.R. 2454 a.k.a. ACES) shows that short-term costs to agriculture will be extremely low, resulting in a net farm income loss of less than 1%. USDA estimates that new revenues from the sale of agricultural offsets could cover these costs entirely in the short-run. And USDA projects that, though costs to agriculture rise modestly over the medium and long-term (a decrease of 3.5% and 7.2% in net farm income, respectively), benefits accruing to farmers from offsets rise over time and will overtake costs. When asked whether the cap and trade bill will disproportionately affect the agricultural sector , Dr. Joseph Glauber, USDA’s chief economist, drove home the point by saying that, though agricultural is an energy-intensive industry and will be affected like other energy-intensive industries, farmers can take advantage of opportunities for offsets that producers in other industries do not have. Dr. Glauber’s full statement can be found here. [It is important to note that USDA’s estimates are conservative because they assume no changes in on-farm production practices over time, such as increases in energy efficiency or improvements in technology—i.e. they do not account for the ability of farmers to successfully adapt to changes in market conditions, something American farmers have done for centuries].
New and expanded markets for renewable biomass resources, such as agricultural and forestry residues as well as some dedicated energy crops, will additionally translate into substantial new sources of revenue for farmers and jobs in rural communities. According to a recent analysis by the Nicholas Institute, new direct revenues to farmers from the sale of offsets and greater bioenergy production will be in the range of $1.77-$18.11 billion per year under ACES and complementary energy policies such as the Energy Independence and Security Act of 2007 and the ACES Renewable Electricity Standard.
Second, though the offsets market would provide an incentive for farmers to shift lands to forest, this incentive wouldn’t kick in until the later years of the program when carbon prices are higher, because afforestation projects are relatively expensive to implement. According to a University of Tennessee study for the 25 x 25 Coalition on the impacts of climate change and energy legislation on U.S. agriculture, the agricultural sector will see no large-scale afforestation of croplands as a result of offsets incentives. Though the study only models up to a carbon price of $27/ton, this takes us out to roughly 2030 according to EPA modeling of carbon prices under ACES. Professor Bruce McCarl, developer of the model used by EPA to estimate the supply of agricultural and forestry offsets under ACES and panelist at last week’s hearings, stated that these newly forested acres would still constitute only a tiny fraction of total U.S. cropland. Other panelists similarly argued that given the changes farmers can expect to see in the coming years as a result of population growth, increased demand for meat in developing countries, as well as the impacts of climate change itself, any new offsets-based incentives to afforest are just one small driver of change in the domestic agricultural sector.
Importantly, Dr. Glauber correctly highlighted the need to focus on the structure, administration and regulation of the offsets program itself. Agricultural producers and their representatives should help ensure the carbon offsets market is governed by sound rules and that agricultural and forestry offsets represent a high-quality, high-value commodity, instead of continually peddling biased and misleading analysis of cap and trade legislation’s economic impacts on the agricultural sector and raising unfounded fears about food prices. Done right, a market that ensures a high-quality supply of offsets and thus maintains investor confidence will create a stable source of new income for farmers.