Post on 17-Jan-2016
Department of Economics
Cap & Trade Legislation:What’s Proposed and What Does It
Mean
Iowa Meeting of ASFMRA and RLIAmes, Iowa
March 23, 2010
Chad HartAsst. Professor of
EconomicsIowa State University
Department of Economics
Climate Change
Source: www.conservationreport.com
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Climate Change
Source: Congressional Budget Office
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GHG Emission Rules
• Greenhouse gas rules are coming– Whether through legislation or regulation
• EPA has the authority to regulate GHGs– Via Clean Air Act
• However, Congress would like to set the rules– H.R. 2454, American Clean Energy and Security Act
of 2009, • Passed in U.S. House of Rep. on 6/26/09, 219-212
– S. 1733, Clean Energy Jobs and American Power Act
• Introduced 9/30/09, In committee (actually, six committees)
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U.S. GHG Emissions
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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CO2 Emissions
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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CH4 Emissions
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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N2O Emissions
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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GHG Emissions by Sector
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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Agricultural GHG Emissions
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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GHG Emission Statistics
Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007
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Climate Change Legislation
Source: Congressional Research Service
American Clean Energy and Security Act of 2009 (H.R. 2454)• Requires utilities to supply an increasing percentage of their demand
from a combination of energy efficiency savings and renewable energy (6% in 2012, 9.5% in 2014, 13% in 2016, 16.5% in 2018, and 20% in 2021-2039).
• Provides for issuing, trading, banking, retiring, and verifying renewable electricity credits.
• Establishes targets to cap and reduce greenhouse gas (GHG) emissions, annually, so that GHG emissions from capped sources are reduced to 97% of 2005 levels by 2012, 83% by 2020, 58% by 2030, and 17% by 2050; and establish a federal GHG registry.
• Provides for trading, banking and borrowing, auctioning, selling, exchanging, transferring, holding, or retiring emission allowances.
Department of Economics
Climate Change Legislation
Source: Craig Raysor, Gillon & Associates, PLLC
Agriculture provisions in H.R. 2454• Provides some exemptions from the GHG emission reduction
requirements for agriculture and forestry
• Provides incentive-based approach to GHG emission reduction/capture
• Allows USDA to help establish eligible GHG offset practices and review of those practices
• Shifts question on indirect-land-use to an independent panel for study with EPA and USDA to review in the future
• Allows for a specific exemption for livestock (enteric fermentation from ruminant animals) from uncapped emissions guidelines
Department of Economics
Lots of Analysis
• The EPA has funded the development of several models that are capable of examining the impact of this bill and other similar bills
• The environmental economists who worked on these models are very well respected and the work is sound
• However, the only certainty in the bill is the limit on carbon, everything else is assumption driven
Source: ISU, Dermot Hayes presentation, Oct. 2009
Department of Economics
Key Assumptions• The US economy was already on a slow growth
path for energy consumption, the analysis assumes that this continues
• Coal fired plants largely shut down and are replaced by nuclear
• Enormous reliance on international and domestic offsets
• If we cannot build the large number of nuclear plants or find the international offsets, then the price of carbon will increase at about twice the reported rate
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Energy Sources
Source: EPA Analysis of H.R. 2454, June 23, 2009
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GHG Emissions & Abatements
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Domestic Offsets
• Implementing regulations not yet written
• Uncertainty about how the offsets would work in agriculture, particularly for conservation tillage, but the intention is clearly to use these offsets as a way to stimulate agricultural incomes
• Consideration of leakage is prohibited pending a study
• Heavy reliance on the growth of trees on pasture and crop land
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Domestic Offsets
Source: EPA Analysis of Waxman-Markey, April 20, 2009
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Domestic Offsets
Table 1. Rental values ($/acre) for U.S. cropland used to grow trees
Carbon Price ($/ton) Region 20.00 30.00 40.00 50.00 60.00 90.00 Corn Belt 81 121 161 202 242 363 Delta States 127 190 253 316 380 569 Lake States 98 147 195 244 293 440 Southeast 115 173 231 288 346 519
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Land Use Changes
Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/3/09
Allowance Prices
Department of Economics
International Offsets• Must be a developing country that is a member of a
unilateral or multilateral emissions reduction agreement with the United States
• Must have the technical capacity to monitor, measure, report and verify forest carbon fluxes resulting from deforestation
• Must have the capacity to reduce emissions from deforestation, including strong forest governance
• The international offset project itself must be shown to result in permanent verifiable reductions that are net of any leakage measures
Source: ISU, Dermot Hayes presentation, Oct. 2009
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Allowances
Source: Congressional Research Service, June 2009
2016
2030
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Carbon Prices Increase Over Time
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Prices Are Sensitive to Offsets
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Energy Price Paths
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on an Average Household
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on Tillage Practices
Source: EPA Analysis of H.R. 2454, June 23, 2009
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Comparison of ResultsA
llo
wan
ce P
rice
Source: ISU, Dermot Hayes presentation, Oct. 2009
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USDA Estimates
Source: USDA, Office of Chief Economist Statement of Joseph Glauber, before House Ag Committee, 12/2/09
2012-2018 Production Costs Changes
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Crop Production Changes
Source: USDA, Office of Chief Economist, “The Impacts of the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
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Crop Price Changes
Source: USDA, Office of Chief Economist, “The Impacts of the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
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Livestock Production Impacts
Source: USDA, Office of Chief Economist, “The Impacts of the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
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Livestock Price Impacts
Source: USDA, Office of Chief Economist, “The Impacts of the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
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Offsets and Revenues
Source: USDA, Office of Chief Economist, “The Impacts of the American Clean Energy and Security Act of 2009 On U.S. Agriculture”
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Not The Only Game in Town• The House bill has not gained traction in the
Senate• Senate proposals have stalled in committee
– Very little committee action up to this point
• A bipartisan effort (Kerry D-Mass., Graham R-S. Car., and Lieberman I-Conn.) is underway
– No legislative language yet, but that may come soon– Expected to be more “business-friendly”– One trial balloon: carbon fee on transportation fuels
(suggestion from oil companies)
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Concluding Thoughts• The potential for cropland conversion points
to higher crop prices and feed costs
• Crop prices will likely track carbon prices
• Cropland conversion will benefit landowners through higher rents
• Agriculture will experience the benefits and the costs of climate change legislation
Department of Economics
Thank you for your time!
Any questions?