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Friday, July 09, 2010

Cap And Trade:  A Difference Of Opinion About Benefits To Agriculture.


What have you heard about Cap and Trade lately? Probably not much, since it was put on the back burner so health care could get full Congressional attention. But since it was not moved to the front after health care was resolved, does not mean that it is dead. After all, ideas never die in Congress, they may linger, but they never die, and can always be brought up for debate or inclusion in other legislation. So Cap and Trade, which was designed to manage climate change by taxing carbon based energy and trading credits between carbon emitters and carbon sequesters, could be revived.

When Cap and Trade was last discussed, both the US Department of Agriculture and the US Environmental Protection Agency indicated that Cap and Trade would have a modest impact on agriculture. Yes, fuel prices would rise along with energy costs related to fertilizer production and the manufacture of crop protectants. But advocates also said farmers would be paid for their no-till practices, planting cover crops, and making other efforts to return carbon to the soil.

Hold your horses, says the Congressional Research Service in a recent report to Congress. The CRS policy analysts say, “When assessing climate change legislation such as a cap-and-trade program, it is difficult for economic models to forecast costs and associated impacts several decades into the future, much less beyond.” The analysts think that regulatory requirements that would be imposed now would become fragile in the future, there would be technology developments, and it is impossible to predict public behavior on such issues as climate change.

In defense of the USDA and the EPA, the Congressional Research Service says the economic impact estimates of the pending legislation are not unique, but CRS is not willing to agree with the estimates. Regarding the USDA’s and EPA’s conclusion that “carbon offsets revenue could yield net economic gains for the U.S. agricultural sectors,” CRS says, “These conclusions are rife with uncertainty. However, the uncertainty does not necessarily suggest that the economic impacts would turn out to be dramatically different than predicted, simply that they are unknowable.”

The specific concerns expressed by the CRS policy analysts about the USDA and EPA assumptions were in several different areas of the Cap and Trade issue:
1) USDA and EPA contended that carbon payments to farmers would cause land prices to rise and more land to be planted into forests to obtain even higher payments, CRS says land will not be converted away from crop production if carbon trading payments are not high enough to entice land owners to convert.
2) Will farmers respond positively to Cap and Trade? While USDA and EPA believe they would, the CRS staff says the non-economic factors and social norms within farming cannot be estimated, and they cannot be considered a moving force for farmers to endorse Cap and Trade programs.
3) Since USDA and EPA did not account for the costs of converting farmland away from row crops and into cover crops and forests, including the loss of any farm program payments, it would be difficult to assume that farmers would be willing to participate.
4) For tens of millions of acres of farmland to be converted from row crops to forests as the USDA and EPA proposal suggests, CRS says no one has thought about the capacity constraints and other logistics issues related to such a change, and there cannot be an assumption that sufficient changes would be made in production to achieve the goals of the climate change policies.
5) Finally, the CRS analysts say USDA and EPA did not take into consideration all of the legal and contractual constraints that might affect participation in a carbon market. In other words, an operator with an annual cash rent lease would be prevented from converting row crops to a long term forest planting program, which is a constraint not considered by USDA. CRS says land owners should be courted for participation, not farm operators.

The Congressional Research Service policy staff says there are concerns that larger farmers, or those which produce certain crops, would receive disproportional benefits under a Cap and Trade program, but the CRS economic model says it is really impossible to predict how different farm sizes would be affected. While large operations may benefit more from their economy of scale, CRS also says small operations might benefit more because their typical diversification may allow them to respond to non-economic influences, and they have been more willing to participate in programs such as the Conservation Reserve.

While USDA and the EPA believe that a Cap and Trade program would be a net benefit for agriculture, the Congressional Research Service says there are too many dynamics involved to be able to predict anything with any certainty. That includes whether benefits would go to either large or small operations or how farms are organized or their geography. CRS indicates that USDA and EPA have several flaws in their assumptions about the Cap and Trade benefits to agriculture.

Posted by Stu Ellis on 07/09 at 01:55 AM | Permalink

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