FAPRI report on possible climate bill impacts offers more questions than answers

By Jon H. Harsch

© Copyright Agri-Pulse Communications, Inc.

Washington, July 9 – “Climate change legislation could have important effects on US agriculture. The impacts depend on the particular features of any final legislation, how it is implemented, and how individuals and firms respond.”

That's the bottom line of a thick report from the Food & Agricultural Policy Research Institute at the University of Missouri(FAPRI-MU), “Impacts of Climate Change Legislation on US Agricultural Markets: Sources of Uncertainty.” The report stresses that impacts will vary significantly depending on a wide range of variables including both petroleum prices and the specific provisions in any climate legislation. It also notes that its forecast for slightly higher net farm income by 2030 does not include possible income from the sale of agricultural offsets.

Among the report's findings for the 2010-2030 period if the House-passed “American Clean Energy and Security Act” becomes law, pricing carbon in a cap-&-trade system to reduce greenhouse gas (GHG) emissions:

  • Production cost impacts. Energy analysts have developed widely varied estimates of how climate change legislation would affect costs faced by users of fossil fuels. Farm production expenses for fuel, fertilizer and other energy-intensive inputs are likely to increase, but the magnitude of any increase remains uncertain. Key issues are the value of a ton of GHG emissions, how provisions to protect energy-intensive, trade-exposed (EITE) industries work, and how producers respond to changes in input costs. Under some scenarios, annual farm production expenses increase by several billion dollars.”

  • Biofuel sector impacts. By increasing the consumer price of gasoline and diesel fuel, the legislation could provide an additional incentive for biofuel production. The size of any impact on the biofuel sector depends on petroleum prices, biofuel policies and how climate change policies might apply to the biofuel sector. Under some scenarios, the impacts are quite large, increasing crop receipts and feed costs by billions of dollars.”

  • Land use impacts. Researchers at Texas A&M and at the University of Tennessee have estimated that climate change legislation could cause significant shifts in land use patterns, as farmers plant more trees or energy crops to sequester carbon and earn offset income. More land diverted to these uses means less land remains available for traditional crop and forage production, resulting in higher crop prices, higher feed costs and increased land rental costs.”

For the US farm sector as a whole,” the report concludes, “the effect on net farm income depends on the magnitude of these various impacts. Higher production expenses reduce aggregate net farm income, but biofuel effects, land use shifts and income from the sale of offsets push farm income higher.”

Based on its assumptions that the price of imported oil rises smoothly from $69 per barrel in 2010 to $168 per barrel by 2030 and that current Farm Bill policies remain in place through 2030, the report forecasts that:

  • Higher prices for oil and other energy sources contribute to significant increases in farm production expenses. Increasing motor fuel prices make biofuel use more attractive. The result is a sharp increase in biofuel production, which in turn results in higher prices for corn and other biofuel feedstocks. Higher corn prices draw more land into corn production, limiting supplies of competing crops like soybeans and wheat, and driving up their prices as well. Supportive policies help switchgrass and corn stover develop as feedstocks for cellulosic ethanol production, and switchgrass area displaces field crops, hay and pasture.”

  • Livestock producers face higher feed prices, which slow the expansion of meat and milk production. This pushes up prices for cattle, hogs, chickens and milk, as does rising global demand for animal protein. Both crop and livestock sector sales receipts increase over time, offsetting the increase in farm production expenses. Net farm income increases as well, but the rate of increase is very modest in real terms; expressed in 2009 dollars, net farm income never recovers to the 2005 level. Consumer food price inflation averages about 2.5% per year.

Overall, the most important message from the FAPRI report may be that any climate change legislation must be written very carefully to ensure that its net impact on the farm sector is positive rather than negative both during the transition away from fossil fuels and long-term.

To read the 51-page FAPRI report “Impacts of Climate Change Legislation on US Agricultural Markets: Sources of Uncertainty,” go to: www.fapri.missouri.edu/outreach/publications/2010/FAPRI_MU_Report_06_10.pdf

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