THE results of a new Informa Economics analysis predict a more positive situation for US agriculture if Congress passes climate change legislation with a cap-and-trade policy than previous analyses by the Environmental Protection Agency and the US Department of Agriculture, especially if true offset markets are established.
The Informa report indicates every grower in the US will experience increased costs of production but the impacts would be minimal in the short term, until 2025.
Having fertiliser allowances in sufficient quantities to offset rising natural gas prices is a key assumption that could mitigate the production cost impact. As fertiliser allowances are phased out starting in 2025, the real impact on production costs would begin to take effect.
"In the early years of this legislation, these higher production costs will be relatively minor. However, over time, these prices will significantly increase, placing an unnecessary burden on growers," National Corn Growers Association (NCGA) president Darrin Ihnen said.
Specifically, the report shows the net impact of cap-and-trade policy on the corn industry is relatively modest (Figure 1).
While there is a potential for losses of up to $50 per acre by 2035, for farmers who cannot adopt a carbon offsetting activity, there is also a potential benefit of up to $46 per acre for no-till adopters (assuming there are no costs associated with gaining this no-till carbon credit).
Under the base scenario assumptions regarding no-till costs and adoption rates, Informa estimates that, on average, US corn farmers will neither gain nor lose substantially from the proposed cap-and-trade policy.
Soybeans could see a smaller potential loss and larger potential gain as their production cost impacts are lower than for corn, and costs for no-till adopters also are lower (Figure 2).
Under base scenario assumptions, it is estimated that US soybean producers will benefit, on average, by approximately $60 an acre by 2035.
Ihnen said while the legislation offers opportunities to produce carbon offsets, this study demonstrates that not all growers will be able to participate. The single greatest offset opportunity is using continuous no-till production. However, not every corn grower is able to adopt no-till practices; that ability is driven by both economic and agronomic factors.
"Those growers unable to adopt no-till production will experience serious economic hardship. This burden will fall disproportionately on growers in the northern Corn Belt," he said.
The analysis also found the bill would result in diverting productive farmland into afforestation (newly planted forests) or perennial grasses solely for the purpose of gaining offset credits.
"Although our analysis shows dramatically less acreage diversion than noted by the US Department of Agriculture, it still diverts land needed to feed and fuel a hungry world and, therefore, affects both food security and energy security," Ihnen said.
The analysis is online here.
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