Tuesday, January 12, 2010
What Comes Around, Goes Around?
Your ancestors, or at least someone’s ancestors, shed a lot of blood, sweat, and tears to clear timber from your pristine Cornbelt farm. They cut trees to first build cabins, then later houses and barns, and then cut more wood for fence posts, railroad ties, and to fire up cookstoves to heat and feed their family. Now your view of millions of acres of corn and soybean fields is virtually unobstructed. What would those earlier generations think if you converted your corn and bean fields back to forest because carbon was a more valuable crop than grain? Don’t tell them. You may be doing it.We all know what carbon looks like. It is the black vapor from diesel exhaust, the soot that builds up in your fireplace, the coal that Dad used in heaters for livestock watering tanks, and it is also part of the invisible gas carbon dioxide that is being blamed for changing our climate. The latter is an issue of great public debate, which is beginning to focus on your farm, since you have the capability to retain carbon in the soil, and some folks are willing to see that you are paid to do that. How much you are being paid and how that relates to corn and soybean revenue is the focus of research lead by Iowa State University economist Dermot Hayes. His analysis of the American Clean Energy and Security Act, which creates a cap and trade program, says the proposed legislation would pay farmland owners for retaining carbon in the soil with the payment coming from industries that emit carbon into the air.
Hayes and colleagues look at the impact on agriculture from 2010 to 2023 and how “afforestation” affects grain production, grain prices, and cash rents in the Cornbelt. Afforestation reverts cropland to timber, which is the greatest method of retaining carbon in the soil, and would have the greatest impact on cash rents. The economists calculate a value for carbon at nearly $32 per metric ton in 2023, but used a rounded figure of $30 per ton for their scenario. Based on the projection of the US EPA that roughly 100 million acres of US land would require afforestation, 50 million acres would have to come from present day cropland and pasture. The economists report the entire amount could not come from waste and rangeland because of the lack of moisture and good growing conditions for new forests. With a goal of 1,000 pounds of carbon sequestered, or retained, per acre annually, that represents an equivalent of 2.66 metric tons of carbon dioxide per acre per year.
The economists looked at the cropland around the nation, and applied the EPA parameters to a gradual conversion of crops to trees from 2010 to 2023, chewing away at acres typically allocated to different crops.
Corn: The harvested area drops by 4.6 million acres by 2023, with production falling by nearly 830 million bushels. That creates a 28% in corn prices of $1.05. The diminished supply reduces exports by 513 million bushels, and raises the price of DDGS by $40 per ton.
Soybeans: The harvested area drops by 19.6 million acres, with a 913 million bushel drop in production and a $2.03 rise in prices. Soybean exports are cut by 650 million bushels.
Wheat: The harvested area is cut by 5.7 million acres, with a 314 million bushel cut in production. Exports fall by 294 million bushels as prices increase by $0.89 per bushel.
Rice: The greatest impact is on US rice farmers, which would see a nearly 40% cut in acres, and a nearly $4/cwt increase in prices. The US would also become a larger rice importer.
The economists say different sectors of the nation respond differently to the sequestration of carbon. One acre of trees in a far western state will not perform as efficiently as an acre of trees in the Midwest. Because of better carbon sequestration in some sectors, higher payments to landowners will result. The economists believe 22 million acres will be converted to timber in the Cornbelt, which is a 25% cut in cropland. But 92% of the cropland in the Delta states will shift from crops to trees.
But what is the incentive to shift from crops to trees? The economists say it is the amount of cash rent received by landowners. Based on USDA’s cash rent data and anecdotal data from Iowa, the economists say a $117 per acre payment from a carbon offset program would draw 25% of Cornbelt cropland into a tree planting program.
Summary:While some farm operators may scoff at a cap and trade program to retain carbon in the soil, their landowner may become interested in the long term payments that might result from converting cropland back to forests. The ability of Cornbelt soils to retain carbon and offset carbon emissions, provides payments to landowners that may exceed current cash rent payments in 25% of the Cornbelt. The results would also mean cutbacks in corn, soybean, and wheat production, with corresponding increases in crop prices.
Posted by Stu Ellis on 01/12 at 01:42 AM | Permalink
Comments
Posted by: David Cook at January 12, 2010 8:08PM
Planting trees will build up SOC to a new plateau, when that plateau level is reached, no more carbon is being sequestered and all payments stop. If you clear the land for crops, you will be responsible for repaying all the money received from sequestering the carbon.
It appears to be an academic idea with no realistic footing.
Another way that isn’t as clear to the non-accountant types is the money received for the carbon credits does not produce a profit or a gain in equity. Essentially the proposal is the EPA will make cash payments to farmers today, that will be offset by an environmental liability against the title to the land. From an accounting persceptive you are adding to the liquid assets and adding the equivalent amount to long-term liabilities.
What is worse is the carbon tax will appreciate faster than inflation, the only way to make a profit is for the cash payment to make a better return than the rate of appreciation of the GHG value.
David Cook