Climate Change - Effects of Cap and Trade Legislation on U.S. Agriculture

In order to better protect world and U.S. food security, the fertilizer industry and its farmer customers, TFI commissioned a study by Doane Advisory Services, which demonstrates the potential impact of a cap and trade climate change bill on the production of eight U.S. crops due to rising energy prices if such a system is voted into law. The study shows that a cap and trade bill would add $6 to $12 billion to total crop production costs, leading to a significant decline in farm income.

To access a complete copy of the Doane study, please click on the following link.

You can review a summary of the results on this page.

For more information, please contact TFI Vice President of Government Relations Katherine English by telephone at (202) 515-2719 or via e-mail at kenglish@tfi.org.

Energy Prices Have Already Impacted Crop Production Costs

Rising domestic energy prices have already had a significant impact on U.S. crop production costs. Specifically, U.S. Department of Agriculture (USDA) data indicate that from 2000 to 2007, operating costs for U.S. corn, soybean, wheat, cotton, rice, sorghum, barley and oat growers exhibited their largest increase over a seven-year period in history. For example, operating costs for corn rose $64.62 per acre from 2000 to 2007, while operating rates for wheat and cotton rose by $35.08 and $135.38, respectively.

Climate Change Legislation will Further Increase Farmers’ Costs

In the baseline scenario of the study, Doane assumed no new regulation of climate change emissions and applies forecasts of natural gas prices from the Energy Information Administration of the Department of Energy and crude oil price forecasts reported by the USDA. Alternative scenarios in the study are based on the energy price impacts estimated in three scenarios of the Environmental Protection Agency’s (EPA) recent analysis of S. 2191, the Lieberman-Warner Climate Security Act of 2008.

The Doane study indicates that S. 2191 will further exacerbate the problem of rising production costs for U.S. farmers. Due to increasing energy prices, operating costs for corn are forecast to rise by an additional $60.14 per acre by 2020. Potential climate change legislation will add an additional $40.33 - $78.80 in operating costs per acre of corn, resulting in a total increase of well over $100 per acre by 2020. As a share of total production costs, results for the others crops considered are equally significant.

Rising energy prices will continue to result in rising crop production costs and potential climate change legislation will add significantly to this rate of increase. Using USDA’s 2017 expected crop acres, the Lieberman-Warner Climate Security Act will add $6 to $12 billion to total production costs for corn, soybeans, wheat, cotton, rice, sorghum, oats and barley in 2020.

Some growers may have an opportunity to receive payments for sequestering carbon if they use specific farming practices. According to the Chicago Climate Exchange (CCE), farmers in 17 states could potentially receive a credit of 0.6 metric tons of carbon/acre/year for using no-till. Specified rates in the remaining states are either lower than 0.6 or are currently not available from the CCE. At an assumed future carbon price of $30 per metric ton, which is well within the range of prices being proposed as likely by climate change modelers, farmers could potentially receive $18 per acre for sequestering carbon. However, this is well below the projected crop production cost increases resulting directly from S. 2191 for corn and significantly below the total increase in corn production costs of $100.47 - $138.94 projected in 2020. Consequently, this potential legislation will place a severe burden on U.S. crop farmers by driving operating rates even higher for growers who are already experiencing the highest production costs on record, and will result in a significant decline in farm income.

Indirect Impact of Energy Costs are also a Future Factor

Indirect costs not included in the study will add to the already significant increase in crop production costs reported. For example, higher energy costs will raise the cost of transporting crops to market by truck, rail and barge, lowering the local basis and the market prices for the crops farmers produce. The impact of the higher transportation costs could be significant for producers that ship their crops long distances. Higher transportation costs will also raise the price of the inputs used on the farm, resulting in a further decline in farm income.

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