Making sense of 'cap and trade': Energy bill impact may vary from one ag sector to another

Farmers keep hearing the term "cap and trade," but probably few have waded far enough into the 1,200 page "American Clean Energy and Security Act of 2009" (HR 2454) to see how it could affect local operations.

Those agriculture groups that have studied the legislation, also known as the Waxman-Markey climate change bill, which passed the U.S. House of Representatives in June, have mixed opinions.

The answer to "How will this affect farmers?" is complex. First, it depends on what kind of farming is being discussed. Second, it depends on whether the effects of the bill, if adopted, would actually make an impact on global warming; and third, it depends on a belief that climate change will wreak havoc on agriculture, as some predict.

It may also depend on how the bill is interpreted when the rules it creates are implemented.

"There are a lot of things left open for interpretation," said Terry Hilgedick, a member of the Missouri Corn Growers Board. "The legislation is 1,200 pages and the rules could take as many pages."


American Farm Bureau and Missouri Farm Bureau are strongly opposed to the legislation, which is expected to be taken up by the Senate before the first of the year.


"Overall, we believe agriculture is the big loser in the Waxman-Markey legislation," said Garrett Hawkins, Missouri Farm Bureau director of national legislative programs in a telephone interview.

But a few farm groups, including The National Farmers Union, have said that the opportunity to trade carbon credits, the "trade" part of the bill, will offset the rising costs of fuel and fertilizer, the "cap" part of the bill for farmers.


According to an Associated Press story, NFU President Roger Johnson said energy costs might soar without the proposed legislation. He also stated that global warming could cause problems for the food supply.

"All of the climate change research says we're going to see more flooding, we're going to see more droughts, we're going to see higher temperatures, we're going to see more pests, we're going to see more diseases," he said. "All of these things are going to require significant adaptation cost increase for agriculture."


The National Corn Growers Association has taken a cautious approach, according to an Associated Press story. President Bob Dickey said in a statement that the NCGA has decided it will work for passage of the climate change bill rather than opposing it, saying they plan to be "at the table and not on the table" during deliberations.


During a telephone interview while combining corn on a farm near Hartsburg, Hilgedick said there are some "good and bad things in the climate change bill for agriculture."


"The USDA would be a significant player in administrating the programs relating to agriculture, which is a good thing," he said.
 Another plus, he said, is that agriculture is also given a "pass" by being exempted from scoring how much greenhouse gases are emitted.


"None of us know how much we really emit," he said, adding it would be hard to measure.

A "big downside" of the legislation, he said, is the higher cost of energy, adding that no one is debating the fact that it will be more expensive under this bill.


"I don't think anybody is saying it won't be," he said.


Hilgedick also explained the voluntary "carbon credit program," which farmers could enroll in to lessen their greenhouse gas emissions. In exchange for reducing emissions, farmers would be awarded carbon credits that they could sell, though how much the credits might be worth is unknown.


"They would be bought and sold on the market," Hilgedick said. "They could be worth as much as $2 a ton or they could be worth as much as $40 a ton, nobody's really quite sure. It would depend on supply and demand of those credits."


In opposing the bill, Farm Bureau has pointed to several studies, which have estimated the costs of the legislation to farmers.


One of the most recent, and some say most comprehensive, was done by Texas A&M University. The study analyzes the impact of HR 2454 on 98 feed grain, cattle, dairy and wheat farms representing different farm sizes and crops from coast to coast.
 Hawkins points out that in the report only 27 of the 98 farms, located primarily in the corn belt, would have a higher income if the legislation was enacted. The other 71 would have lower incomes.

Three of the farms -- all feed grain operations in the middle and northern part of Missouri, which includes Saline County -- would be impacted positively by 2016 if the current bill is enacted, according to the study.


Of the eight Missouri farms studied, the report showed that the bill would impact five other farms in the state -- beef, dairy and rice operations -- negatively.


"There aren't many Missouri dairy farmers who can afford to invest in a methane digester," Hawkins said, explaining that is one of the ways dairies could take part in the carbon credit trading.


Bob Stallman, president of American Farm Bureau, writing on the group's Web site takes that one step further.


"Not every dairy farmer can afford to capture methane. Not every farmer lives in a region where wind turbines are an option. Not every farmer can take advantage of no-till. And not every farmer has the land to set aside to plant trees," he said. "Yet, these producers will incur the same increased fuel, fertilizer and energy costs as their counterparts who can benefit from the offsets market."


Other studies, including one by the University of Missouri's Food and Agricultural Policy Research Institute, analyzed the effect of higher energy costs from the legislation by 2050. That study, however, did not take into account selling carbon credits.


According to that study, "dryland" corn costs could increase by $10.03 per acre or 3.2 percent by 2020. It showed an 8.1 percent rise by 2050. Soybean operating costs were estimated to rise by 4.4 percent an acre by 2050. Wheat costs were estimated to go up 10.4 percent by 2050, according to the bill.


A USDA report concluded that if the bill is passed, farmers and others in agriculture could see an initial 1.0 percent to 7.2 percent loss in income due to increase costs in energy, which is used to make fertilizer.

According to the report, the losses would be far outweighed "by the tens of billions of dollars farmers are expected to rake in for projects" to reduce greenhouse gases in years to come.


But, said Sen. Mike Johanns, R-Neb., a former agriculture secretary under President George W. Bush, the report is incomplete, and he believes the USDA rushed the study to address Senators' concerns after the House passed its bill.


"This makes no sense to me whatsoever. Why would the leadership of the House ... put a bill out when they hadn't had analysis on the ag sector? That not only impacts farmers and ranchers, it impacts consumers," Johanns said.

Contact Marcia Gorrell at

marshallag@socket.net

On the Net:
http://tinyurl.com/kj8xc4
http://tinyurl.com/nvgtp3