New study highlights how farms could benefit from cap-and-trade
© Copyright Agri-Pulse Communications, Inc.
Washington, May 7 – A new study concludes that, if structured properly, cap-and-trade has the potential to provide some benefits to farmers. However, there are also plausible policy design outcomes that could be very harmful, pointing to the need for agricultural interests to be fully engaged in writing any type of climate change legislation. At least that’s some of the perspective from the National Association of Wheat Growers (NAWG) and the American Farmland Trust (AFT), the two groups which requested the study.
“We've learned yet again from an independent study that a large segment of U.S. farmers and rural America can benefit significantly from properly structured clean energy legislation, with a net benefit to agriculture, and in particular wheat farmers,” says Jon Scholl, President of American Farmland Trust (AFT). “The Informa Economics study also concludes that if no climate change legislation is passed, direct regulation by the Environmental Protection Agency (EPA) would harm agriculture and farmers more than a bill.”
The definition of “properly structured” seems to be the key.
“This information highlights that we need to pay careful attention to issues of cost containment and potential benefits,” said NAWG Environment and Renewable Resources (ERR) Committee Chairman Eric Hasselstrom, a wheat producer from Winchester, Idaho. The report identifies policy issues that can represent risks or opportunities to the agricultural sector. A few key policy points include:
- Carbon allowances distributed to the fertilizer industry are critical in keeping the cost impacts down. It is important that these allowances are maintained, and language is inserted into the legislation to ensure that their benefit is passed on to farmers.
- Legislation should maximize the number of carbon offsetting opportunities.
- Legislation should ensure continued enrollment in offset programs is available for as long as is justifiable.
- Agriculture’s involvement is critical in establishing methodologies used to calculate sequestration rates for various carbon offsetting activities.
One of the most significant aspects of the study is its focus on farm income opportunities thru the renewable energy portions of a bill, says AFT. Informa has examined the evidence and they conclude that agriculture stands to gain billions of dollars of income by direct renewable energy generation, or by providing renewable energy feedstock/biomass.
Under cap-and-trade legislation, the study found:
- Production cost increases resulting from increased energy prices are thought to be relatively modest, 1% before 2025, and even after 2025 when proposed protections to the fertilizer industry expire. Cost increases are 7% for wheat production by 2035. Similar conclusions were found for corn and soybean costs. This analysis confirms a myriad of other studies that show similar a single digit range of production cost increases.
- Despite production cost increases, some farmers will participate in carbon offsetting opportunities such as no-till, improved fertilizer management and cover crops. Offset opportunities will also be provided for switching from conventional crop production to perennial crops or forest production, providing a 'carbon crop' for farmers. While the opportunities are not universal, this carbon crop will provide additional income to producers that exceed current cropping revenue and can make up for the cost increases of a bill, in some cases potentially exceed any cost increases.
- In addition to offset credits, there will be opportunities for some farmers to gain additional revenue from production of renewable energy and renewable energy feedstocks. The Renewable Energy Standard (RES), contained in House legislation requires states to produce 20% of total electricity from renewable sources by 2020. It is estimated that an additional 171 billion kwh of renewable electricity is required to meet the 2020 RES. The majority of this demand increase in renewable electricity (94%) is expected to come from biomass---this equates to about 32 million tons of biomass (agricultural residues, energy crops, forest residues and urban wood waste/mill residues) and $15.7 billion in electricity. Informa believes that dedicated energy crops will provide the overwhelming share of this biomass market.
- In reviewing acre shift projections, the study concludes that by 2035, roughly 11-18 million acres of corn, soybeans and wheat (5-8% of baseline acres) could potentially switch to perennial crops.
The executive summary is available online at www.wheatworld.org/climatechange.