Researchers: Ag producers have more to gain than lose in climate legislation

Researchers at Kansas State University have scrutinized recently released studies on the impact of climate change legislation for agriculture producers and came to the conclusion that most, but not all, producers will benefit from the package passed earlier this year by the U.S. House of Representatives.

The seven-member KSU team was lead by Bill Golden, an agriculture economist, and provided an analysis and comparison of earlier studies completed by the U.S. Department of Agriculture, Iowa State University, Duke University, Texas A&M, the University of Tennessee, and the University of Missouri.

“We were approached by the American Farmland Trust [to do this comparative study],” Golden explained on KSU radio. “There are several studies out there that appear to conflict with one another, and our charge as a group was to approach the studies from an extension-type standpoint — look at the studies and try to relate [the findings] as if we were talking to an extension-type audience in Kansas.”

The group concluded that each study they reviewed suggested that there would be a small cost increase with the implementation of the Clean Energy and Security Act of 2009, as passed by the U.S. House, and that consumers would be most likely to bear the brunt of that increase. But the studies offered different opinions on the prospects of revenue — specifically if revenues would be enough to offset the potential cost increases.

“The bottom line for production agriculture is that there looks like there will be a very small net cash revenue differences with or without the program,” Golden said. “Of course, that is assuming that there are provisions put in the bill so that we are not faced with an unlevel playing field with our foreign neighbors. … If our agricultural producers are faced with costs that our competitors are not faced with, it will definitely put us at a cost disadvantage.”

One of the most confusing aspects of the proposed legislation for producers is the creation of a carbon market where different entities could trade credits. For instance, a utility that produced an excess of adverse environmental impacts could purchase credits from producers or other environmental benefiting entities through the this market as a part of a “cap-and-trade” policy.

The studies released so far, according to Golden, have not provide a clear picture as to exactly what impact such a system would have on agriculture.

“Each study made different assumptions,” he said. “They each used a different list of possible offsets. They each used different prices for carbon. And, they each used different net receipts from carbon offsets to the producers. All of which are very important to determine just how much better off agriculture may be. Nobody really knows, which is why we see such a big difference in the assumptions among these studies.”

Some of the studies assume that producers will be reimbursed for converting to no-till, others assume that there would be carbon credits passed on to producers for growing bioenergy crops, converting cropland to pastureland or trees (aforestation), reducing field emissions of nitrous oxide and methane, or sequestering pastureland. Depending on the assumption taken in the specific study, the legislation is viewed as being more favorable to either crop or livestock producers, as it relates to land use.

“One of the things that we have to remember, and we stated this in our study — and I certainly hope that we didn’t offend any of the authors of the other studies — when you start predicting out 60, 70 or 80 years, the confidence interval around those predictions is pretty large,” Golden said.

“In our study we pretty well focused on the short run. We said that we believe that will really determine which way the impacts go. It isn’t that the land use is not a big issue, it’s simply that you have a very difficult time today predicting how individual producers are going to react over the next 80 or 90 years and, specifically, you really have a hard time understanding and predicting what type of technologies will come about in the next 100 years. We can look at examples, like the ethanol industry, that have just occurred over the past decade.”

The consensus of the Kansas State University group is that overall per-acre profitability may decrease slightly in the short-run, but longer term outlooks are more beneficial. That being said, Golden is quick to point out that while their overall conclusion might be good, it should not be taken to mean that all regional-specific and commodity-specific producers will fare equally well.

The economic impacts will vary regionally and by crop and livestock sub-sector. The impacts will depend on cultural and management practices and the farm-specific ability to sequester carbon and receive offset income. While on the national level agriculture appears to be positively affected, on a farm level some sub-sectors, such as rice production, appear to be worse off.

Overall, the research suggests U.S. agriculture has more to gain that lose with the passage of H.R. 2454. The bill specifically exempts production agriculture from emission caps, provides provisions to ease the transition to higher fertilizer prices and fosters the development of carbon offset markets which likely will enhance agricultural revenues.

“While on average agriculture might be better off,” he said, “not everybody will be.”

The full report from Golden and the KSU research team is available online.