Cap-and-trade concept takes center stage

by Jay Sjerven
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WASHINGTON — The Senate Committee on Agriculture, Nutrition and Forestry plunged into the climate change debate taking testimony from administration officials and representatives of farm organizations during a July 22 hearing on the role of agriculture in global warming legislation.

Senator Tom Harkin of Iowa, chairman of the Senate Committee on Agriculture, Nutrition and Forestry, opened the hearing stating, "We need to drastically increase efficiency throughout our energy economy, and we need to accelerate the transition from fossil fuels to energy derived from domestic renewable energy resources. Agriculture and forestry can play a central role in this energy transition and earn economic rewards for doing so."

The Senate bill will be written by the Committee on Environment and Public Works with input from the agriculture committee and certain other committees. The American Clean Energy and Security Act, H.R. 2454, which was passed by the House by a narrow margin in June, provided a framework for discussion.

The centerpiece of the House bill is a cap-and-trade system under which greenhouse gas emissions expressed in carbon dioxide equivalent would be capped at 2005 levels, and allowances (permits to continue emissions) initially amounting to 80% of the cap provided free to regulated industries with the remainder of the allowances to be auctioned. The allowances would decrease over time.

Additionally, the House bill establishes an offsets program providing credits to those establishing projects resulting in a net decrease in greenhouse gas emissions. These credits may be sold to polluting industries to increase or maintain their emissions allowance or on markets expected to be established for the purpose of buying and selling of offsets.

The House bill exempts agriculture from the emissions cap, and producers will be able to participate in an offsets program administered by the U.S. Department of Agriculture.

Senator Saxby Chambliss of Georgia, ranking minority member of the committee, said he wants a bill that provides greater energy security and addresses climate change but added the House bill is not the answer. Mr. Chambliss said an energy security bill should reflect the realities of producing food, fiber, feed and fuel in the United States and include support for the development of nuclear energy, renewable and alternative energy sources, and new drilling for oil.

Secretary of Agriculture Tom Vilsack told the committee, "A robust carbon offsets market will provide farmers, ranchers and forest landowners with the potential for new sources of income."

Mr. Vilsack asserted a U.S.D.A. analysis of the House bill "demonstrates that the economic opportunities for farmers and ranchers can potentially outpace — perhaps significantly — the costs from climate legislation."

The U.S.D.A. analysis indicated increases in fuel prices might raise overall annual average farm expenses by about $700 million between 2012 and 2018, or about 0.3%, Mr. Vilsack said. Annual net farm income as a result of the higher energy prices was expected to fall by about 1%, he added. Fertilizer prices likely will show little effect until 2025 because of H.R. 2454’s provision to help energy-intensive, trade-exposed industries mitigate the burden that the emissions caps would impose, he added.

Longer term, the estimated impact of the cap-and-trade provision implies a decline of annual net farm income of $2.4 billion, or 3.5%, in 2030, and a decline of $4.9 billion, or 7.2%, in 2048, Mr. Vilsack said.

On the other hand, an offsets market would create opportunities for the agriculture sector, Mr. Vilsack asserted.

"In particular, our analysis indicates that annual net returns to farmers (under the offset program) range from about $1 billion per year in 2015-20 to almost $15 billion to $20 billion (per year) in 2040-50, not accounting for the costs of implementing land management practices," Mr. Vilsack said. "In the short term, the economic benefits to agriculture from cap-and-trade legislation will likely outweigh the costs. In the longer term, the economic benefits from offsets markets easily trump increased input costs from cap-and-trade legislation."

Roger Johnson, president of the National Farmers Union, told the committee H.R. 2454 "is a step in the right direction," but Bob Stallman, president of the American Farm Bureau Federation, was critical. Mr. Stallman said reputable scientists have raised questions about the computer models used in framing climate change as being primarily the result of human activity. He added the House bill would have virtually no impact on earth temperatures by 2050 but would have enormous economic consequences for the country and agriculture unless other nations adopt similar restrictions.

An offset program would be an important part of any cap-and-trade bill, but even an offset program does not mean the bill makes economic sense for farmers, Mr. Stallman said.

"We have not as yet been able to identify any scenario where the costs of cap-and-trade will not exceed revenue from offsets," he said.

This article can also be found in the digital edition of Food Business News, August 4, 2009, starting on Page 1. Click here to search that archive.

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