Climate Conundrum

August 29, 2009 02:24 PM
and Roger Bernard

Jaran Rundahl was among the first farmers in Wisconsin to sell carbon credits, putting more than 2,000 acres of his Coon Valley farm under contract in 2006 with the Chicago Climate Exchange.

Even though Rundahl has cashed in on environmental awareness—selling the carbon offsets generated by no-till practices to large corporations that need to reduce their greenhouse gas (GHG) emissions—he has mixed emotions about current climate legislation.

"I like the voluntary program we work with today, but I'm not sure I want the government to mandate emissions,” Rundahl says.

The Senate is considering options to advance a massive climate bill that will require U.S. industry to cut carbon emissions 17% by 2020 and 80% by 2050 compared with 2005 levels. The American Clean Energy and Security Act of 2009 passed by the House in June includes a cap-and-trade measure that would cap GHG emissions from industry and allow offsets from agriculture to be purchased.

Major farm groups are just as unsure as Rundahl about the climate legislation moving through Congress. Most farmland conservation groups support a national mandatory carbon emission cap-and-trade system as passed by the House, especially since USDA has been granted administration of agricultural offsets. Supporters of the cap-and-trade program also believe it will be a boon to farmers, with potential to create a domestic offset market valued at around $3 billion within five years.

Meanwhile, the American Farm Bureau Federation (AFBF) and livestock groups vehemently oppose climate change regulation on the premise that it would only raise fuel and production costs. AFBF fears U.S. competitiveness could falter if overseas competitors, such as China and India, aren't required to participate in an emissions reduction program.

Revenue potential
Some argue that the House-approved cap-and-trade bill is the best deal agriculture will get when it comes to climate legislation. Farmers have an opportunity to participate in a new market with cap-and-trade policy, says Laura Sands, a partner at environmental consulting firm The Clark Group and a member of the Agricultural Carbon Market Working Group.

"In the end, if Congress doesn't enact some type of greenhouse gas emissions policy, we've received a clear message that the Environmental Protection Agency [EPA] will,” Sands says. "Agriculture will fare much better through a cap-and-trade policy than with regulation by EPA.”

Some of the ways agriculture will be allowed to earn money and help offset GHG emissions are:

  • soil carbon sequestration
  • animal waste methane capture
  • nitrous oxide reductions from fertilizer application

It is estimated that carbon offsets supplied by farmers could be valued at $15 to $30 per metric ton, with prices increasing at 5% a year depending on market demand, according to an EPA analysis of the American Clean Energy and Security Act of 2009.

"Creation of an offset market will create opportunities for agriculture,” says Secretary of Agriculture Tom Vilsack. "Our analysis indicates that annual net returns to farmers range from $1 billion per year in 2015–2020 to $15 to $20 billion in 2040–2050.”

Some analysts even predict overall added revenue for farmers. Depending on the carbon pricing scheme, farmers could increase their net profits by up to 24% under a cap-and-trade system after taking costs into account, suggest Bruce McCarl and Justin Baker of Texas A&M University and the Climate Change Policy Partnership at Duke University.

"If the U.S. is serious about curbing greenhouse gas emissions, the reality is that there has to be a cost,” says Dave Krog, president of AgraGate, a subsidiary of the Iowa Farm Bureau that pools parcels of acreage into a large block for carbon credit trading. "The offset market at least can make up for some of the cost increase to farmers.”

Agriculture contributes less than 10% of U.S. greenhouse gas (GHG) emissions, primarily as methane (CH4), nitrous oxide (N2O) and carbon dioxide (CO2). Agriculture has the potential, with practices such as no-till and manure digesters, to reduce and sequester GHG emissions.

Costs to cap

While few in agriculture are against new market opportunities for farmers, the projected costs associated with cap-and-trade has many opposing the legislation. Cost projection estimates for agriculture vary widely.
Analysis by Iowa State University economist Bruce Babcock suggests "relatively small” production costs of $4.52 per acre for corn and soybean farmers in Iowa. This includes diesel, fertilizer and propane costs and
assumes a high-end carbon market price of $20 per ton of carbon dioxide.

Estimates based on Missouri farms predict an increase in production costs of 4% to 10%, depending on the commodity, according to the Food and Agricultural Policy Research Institute. This cost scenario does not include potential benefits from offset markets, bioenergy production or rising commodity prices as indicated in the institute's projections.

Newly released USDA economic analysis shows that the economic benefits to agriculture from cap-and-trade legislation will likely outweigh the costs in the short run, and that economic benefits from offsets markets could outpace increased input costs over time.

A Northern Plains wheat producer, for example, might see an increase of 80¢ per acre in production costs by 2020 due to higher fuel prices, but that producer could also mitigate those expenses by adopting no-till practices and earning $6.40 per acre in offset payments, according to Senate testimony by Vilsack.

"It's quite possible this wheat farmer could do even better if technologies and markets progress in a way that allows for the sale of wheat straw to make cellulosic ethanol,” Vilsack stated.

But not all agricultural sectors will be able to benefit from offset opportunities, says AFBF President Bob Stallman. The ability to participate in an offset program will depend to a great degree on where farmers are located, what they grow and whether their business can take advantage of the program, Stallman notes. Not every dairy farmer can afford to capture methane, and not every farmer can take advantage of no-till practices.

"Yet, these producers will incur the same increased fuel, fertilizer and energy costs as their counterparts who can benefit from the offsets market,” Stallman says.

Vilsack says USDA recognizes that climate legislation will affect different landowners in different ways and that the department can help smooth this transition by using farm bill conservation programs to assist landowners in adopting new technologies and business practices.

In the Senate
Climate change legislation squeaked by in the House, winning approval after just 5½ hours of debate.

In the Senate, however, things are not moving at so rapid a pace. The Senate Ag Committee held its initial hearing on the topic on July 22, and Chairman Tom Harkin (D-Iowa) signaled that it wouldn't be the last one. "It's clear we'll have to have more hearings on this,” he stated.

While some, such as AFBF's Stallman, want an exit option for agriculture if the new technologies that USDA and EPA signal will likely be developed as an aid to farmers under climate change aren't there, Harkin is eyeing a different benchmark. Should other countries not join the U.S. in cutting GHG emissions, Harkin said, "then we have to have an off-ramp.”

The finish line

Harkin makes it clear he sees the provisions in the House package as a starting point for the Senate's version. Even House Ag Committee Chairman Collin Peterson (D-Minn.) expects that outcome. "This will be the bottom,” he states. "The Senate will add onto it.”

Timing in the Senate for the climate-change finish line remains murky.

Majority Leader Harry Reid (D-Nev.) has already pushed back his initial deadline for committee action. Add in the prospect of health-care legislation and other initiatives and a crowded Senate calendar is emerging.
Then there's the matter of reconciling the differences between the House-passed and eventual Senate versions of climate change legislation. That will push the climate change finish line to later in 2009 at the very earliest.

"The bottom line is we still need more information,” adds Frank Lucas (R-Okla.), ranking member of the House Ag Committee.


 You can e-mail Jeanne Bernick at


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