Farm Progress

Farmers' costs under cap and trade: EWG

David Bennett 1, Associate Editor

December 2, 2009

11 Min Read

In early October, the Environmental Working Group released a study titled “Crying Wolf” that focused on what a cap and trade system would mean for farmers’ energy costs.

The study, said an EWG press release, found “projected increased costs of production due to the climate bill will be so small — $0.45 per acre for soybeans, $0.66 per acre for wheat, and $1.19 per acre for corn, for example — that they amount to well under one half of one percent of current production costs.”

To view the study, see

“Climate change will cost farmers far more in lower yields and greater expense to protect their crops than the climate bill,” said Craig Cox, EWG Midwest vice-president and co-author of the report. “Farm groups should be working for a bill that protects agriculture’s productivity, our food supply, and our environment instead of ‘crying wolf’ about the cost of the climate bill.”

As it frequently does, EWG struck a nerve. Almost immediately, Georgia Sen. Saxby Chambliss, ranking member on the Senate Agriculture Committee, claimed “in an attempt to sideline legitimate concerns of U.S. agriculture, data from three economic reports are melded together to manufacture a result they want the public to hear. As it turns out, if their agenda is realized it will ultimately make the United States more reliant on imported food and fiber. They are hoping to deceive farmers, ranchers and consumers that U.S. agriculture will not be harmed by … cap and trade bills.”

The following day, in an interview with Southeast Farm Press, Cox claimed Chambliss has it wrong, climate change does need to be addressed and farmers will be better off under new legislation.

Among his comments:

Do you have anything to say about (Chambliss’) comments … about you having taken three reports and mashed them together in order to come out with the result you wanted?

“That’s certainly not what we did.

“The primary concern being raised in the policy community was about how climate change legislation would substantially increase cost of production for farmers. Our goal was to look at various estimates of what those cost increases might be and put them in context by comparing them to what farmers’ costs were predicted to be whether there was a climate bill, or not. We thought that was the best way to try and get a handle on what the magnitude of the cost increases might be.

“So, we focused most our attention on the July 29 USDA study from the USDA’s Office of the Chief Economist and the Economic Research Service. That study focused solely on what the impact of increased energy costs would have on farmers’ cost of production.

“The results of that analysis showed there would be increases in cost, but they’d be quite small — 45 cents per acre for soybeans, 66 cents per acre for wheat, and $1.19 for corn. Some of the cost increases were higher for other crops. Rice was the highest at slightly over $3 per acre.

“Then we looked at other studies that came out about the same time to see if the USDA cost estimates were confirmed or if others were coming up with similar estimates.

“One of those was from the Center for Agriculture and Rural Development (CARD) at Iowa State University. That analysis came up with about $4.52 per acre in cost increases for Iowa corn and soybean producers. That’s actually in line with the USDA study.”

On an added complication…

“I’m sorry for this added complication — but there is a provision in the House climate bill that protects what are called ‘energy intensive and trade exposed industries.’ One of those is the fertilizer industry. So, there are provisions in the House bill that shelter the fertilizer industry, among others, from the impact of the climate bill.

“In the USDA study if they didn’t account for the protective provisions for the fertilizer industry, they came up with costs comparable to the CARD estimate.

“So even though the $4.52 per acre is higher than what the USDA reported, it’s actually seen to confirm the agency’s analysis.

“We also looked at the FAPRI (Food and Agricultural Policy Research Institute) study from Missouri.

“That study looked at representative farms in the state and came up with a 1.6 to 4 percent increase in costs. Again, they didn’t account for the protective provisions. They also used higher estimates than USDA did regarding energy prices.

“Again, it appears that the USDA (conclusions were) in the ballpark.

“A more recent study from the Nicholas Institute also confirmed the USDA predictions of cost increases.

“The final study we looked at was one that Sen. Chambliss requested from the AFPC (Agricultural and Food Policy Center) at Texas A&M. They looked at 98 representative farms — feed grains, oilseeds, wheat, cotton, dairy and ranches — across the country and found a really wide range of cost effects. The average and median increases in cost across all the representative farms were, again, in the ballpark.

“So that’s what we did with those studies. I don’t think what we did can be accurately described as ‘mashing them together.’ We relied on the USDA estimate because it allowed us to do an apples-to-apples comparison between what USDA predicted would happen to cost of production to what they claimed would happen in their agricultural baseline without any climate bill in place.”

FAPRI and AFPC (economists) who looked at cap and trade legislation … said this was the most complicated thing they’d tackled. I was wondering if you found the same.

“There are two ways to look at that.

“Estimating the impact of the climate bill on the cost of production is probably the least complicated part. Really, what you’re doing is taking the estimate of the bill’s impact on diesel fuel, electricity and natural gas and working those increases through. We know the price of energy has (impact) on farmers’ production costs either directly — say, through an increase in the cost of diesel fuel — or indirectly — say, through an increase in the cost of fertilizer, pesticide or herbicide.

“That part of the analysis is fairly straightforward. That’s why we focused most of our attention there.

“Let me pause here and say that the USDA and FAPRI studies focused solely on costs. Those studies didn’t account for farmers’ ability to adapt to those increased costs, to modify their fertilization regimes and pest control in (the face) of higher prices. So, those published cost increases are likely worst-case estimates.

“Where it begins to get more complicated is in studies like those done by (the AFPC’s Joe) Outlaw where you look at other implications of the climate bill. What will a bill do to farmer decisions on what crop to plant? How much money can farmers make from selling carbon credits?

“When you start opening the analysis to include broader effects of the climate bill, then the analysis certainly becomes more complicated and difficult. The results depend a lot on the assumptions you make about, for example, what the price of carbon credits on the market will be or what systems farmers could use to sequester carbon or reduce greenhouse gas emissions. What will those systems cost? How does that compare to the price farmers will get?

“At that stage, it is more complicated and very dependent on assumptions made in the analysis.

“Having said that, it’s interesting that all the studies we looked at that attempted to do that — primarily the study completed by the Nicholas Institute for Environmental Policy Solutions at Duke University and the Texas A&M study — generally conclude that farmers are better off with a climate bill in place than they are without it. That’s because commodity prices increase and they make money on the carbon market.”

Our readers are mostly row-crop farmers. Would you address them specifically and explain why you believe they should line up behind (climate) legislation?

“Farmers have a long list of things they have to worry about year to year. The thing they generally worry about the most is bad weather and its impact — too much rain, too little rain or, in the worst-case, severe flooding or severe drought.

“We all know from looking at yield swings from year to year that bad weather is the driving force. And bad weather is what climate change is all about.

“The various climate change models may differ in the precise details of what will happen. But all the models, in a scientific consensus, say that the climate will become more volatile, weather will become more unpredictable, there will more severe storms, droughts, floods, colder and warmer temperatures. We will see a much less friendly climate and friendly weather patterns within which to produce crops.

“There is scientific consensus around that. There can be disagreement about what the magnitude of those effects will be. But more and more studies are coming out that indicate the effects could be quite severe and have substantial impact on farmers’ yields. The most recent study from the proceedings of the National Academy of Science predicts corn and soybean yields could decrease between 30 and 63 percent by the end of the century. That’s just because of higher temperatures.”

If claims are true about the impact of climate change on agriculture and the world, do you believe cap and trade is the way to go? Why is cap and trade the answer everyone is looking at instead of something like a carbon tax? Cap and trade versus a carbon tax?

“I can talk a bit on it, but it isn’t something we’ve spent a lot of time on.

“There are three options out there: Cap and trade, energy tax and the regulatory option with EPA using its authority to regulate emission of greenhouse gases.

“Most proponents of cap and trade argue that it would, overall, reduce the cost to the economy of reducing greenhouse gas emissions. The market-based approach would allow folks to purchase credits from industries that can reduce emissions more cheaply and, therefore, reduce the cost to the overall economy.

“I’m not qualified to critique or argue if that analysis is true, or not.”

On the most important thing…

“From our perspective, the most important thing is we get a policy in place soon that actually makes significant progress on reducing greenhouse gas emissions. More importantly, it will get us on a path to adapting to a more variable climate in the future.

“Whether that (takes the form) of cap and trade, an energy tax, direct regulation or some combination of the three, from our point of view the critical point is that we get started now and begin moving in the right direction.

“We focus largely on the impact of climate change on agriculture and what agriculture needs to do to protect the productivity of our agriculture system, our food supply and our soil and water resources that are so important. In that regard, we think the most important thing is to put some serious money on the table right away to help farmers change their farming systems and adopt more conservation practices in order to make their farms and ranches more resistant to a volatile climate and more able to recover from periodic droughts or severe, highly erosive and damaging storms. If I had one priority for climate change legislation in regard to agriculture that would be it.”

It seems we may need to do something a lot more drastic than cap and trade, which is being watered down as you noted in your report, by lobbyists and the like…

“I couldn’t agree more. It’s discouraging to see the weakening of the cap and trade provisions in order to get it passed. It’s certainly true that countries across the globe will have to take significant action if we’re to effectively slow climate change.

“But the other way to look at it is even in the absence of action by China, India and other countries it makes a lot of sense for the United States to begin making adjustments in its economy and energy supply now. That will give us a significant competitive advantage in the future.

“Countries are going to have to adjust to higher fossil fuel prices. Over time, regardless of whether climate change legislation is in place, countries will have to adapt to the much more risky climate in which we’ll all be living. Countries that get there first and make the changes when they’re less expensive and easier than they’ll be 10 or 20 years down the road will be in a much stronger position globally.”

Anything else?

“I’d just reiterate that if you look at the projected increased production costs in the proper context, they’re small enough to be lost in the noise of the year-to-year variation that farmers experience.

“Clearly there are things farmers need to worry about. There was the recent ERS (USDA’s Economic Research Service) prediction that there could as much as a 30 percent decline in farm income this year due to the global recession. Those are very serious concerns.

“If you look at what climate change might do to farmers’ incomes and our food supply, it’s important we take aggressive action as soon as possible. That would address the climate but it would also get financial and technical help to farmers so they can begin to adapt their production systems.”

e-mail: [email protected]

About the Author(s)

David Bennett 1

Associate Editor, Delta Farm Press

David Bennett, associate editor for Delta Farm Press, is an Arkansan. He worked with a daily newspaper before joining Farm Press in 1994. Bennett writes about legislative and crop related issues in the Mid-South states.

Subscribe to receive top agriculture news
Be informed daily with these free e-newsletters

You May Also Like