Climate Change Legislation & Agriculture

Department of Economics

Climate Change Legislation & Agriculture

2009 Ag Outlook and Management Seminars


Climate Change

Source: www.conservationreport.com


Climate Change

Source: Congressional Budget Office


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)


U.S. GHG Emissions

Source: EPA, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2007


CO2 Emissions



CH4 Emissions



N2O Emissions



GHG Emission Categories



GHG Emissions by Sector



Agricultural GHG Emissions



GHG Emission Statistics



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.



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


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


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



Energy Sources

Source: EPA Analysis of H.R. 2454, June 23, 2009


GHG Emissions & Abatements



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



Domestic Offsets

Source: EPA Analysis of Waxman-Markey, April 20, 2009


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



Shifting Land Patterns

Source: EPA, “Greenhouse Gas Mitigation Potential in U.S. Forestry and Agriculture”, Nov. 2005


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



Allowances

Source: Congressional Research Service, June 2009

2016

2030


Carbon Prices Increase Over Time



Prices Are Sensitive to Offsets



Energy Price Paths



Impacts on an Average Household



Impacts on Tillage Practices



Comparison of ResultsA

llo

wan

ce P

rice



Assumptions Impact ResultsFall 2007 CARD Data

(Baseline)Fall 2008 CARD Data (Baseline)

Model used Searchinger et al. GreenAgSiM

US Deforestation

Yes Yes No No No No No

LCA Model GREET GREET GREET GREET GREET GREET BESS

Agricultural Production

No No No No Yes No Yes

Ethanol increase (mill. liters)

55,950 55,950 55,950 29,859 29,859 29,859 29,859

Difference in Area Harvested (thou. ha.)

10,817 10,817 10,817 6,076 6,076 (1,281) 6,076

Difference in Emissions (million tons of CO2eq)

3,801 4,179 3,218 1,425 1,514 403 1,514

Payback Period (years)

166.69 183.27 141.13 117.18 124.41 31.50 55.40




Source: USDA, Office of Chief Economist“A Preliminary Analysis of the Effects of HR2454 on U.S. Agriculture”



Source: FAPRI-Missouri, Report #05-09



Source: Ben Lieberman, Heritage Foundation, July 21, 2009

“Since farming is energy intensive, it will be hit hard by Waxman-Markey's energy price hikes. In addition to higher diesel fuel and electricity costs, prices for natural gas-derived fertilizers and other chemicals will also rise. Everything else affecting agriculture, from the cost of constructing farm buildings to the price of tractors and other farm equipment, will also go up. Consequently, farm profits are expected to decline by 28 percent in 2012 and will be an average 57 percent lower from 2012-2035.”


Results from a Budget Based Analysis

• USDA and FAPRI calculated the direct impact on corn production costs at 6% to 8% due to higher energy and fertilizer costs, actual increase could be twice this amount

• In addition, livestock producers will face higher utility costs

• Total for these two impacts is about $3.50 per hog by 2030

• Benefits of about $1.50 per hog for fertilizer displacement and/or manure offsets



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


Thank you for your time!

Any questions?

Climate Change Legislation & Agriculture

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