carbon credit trading: boom or bust for farmers & ranchers? soil & water conservation...

Carbon Credit Trading: Carbon Credit Trading: Boom Boom oror Bust for Farmers & Bust for Farmers &

Ranchers?Ranchers?

Soil & Water Conservation Society Fall Forum September 17, 2009

MISSOURI FARM BUREAU

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Topics

• The Big Picture • Cap-and-Trade Basics• The Mechanics• The Ag Component • USDA’s Role • FAPRI & AFPC Studies • More Questions than Answers • Decisions, Decisions, Decisions• Closing Thoughts & Questions


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The view from 50,000 feet

• Mitigating supposed man-made global warming is a priority for the Obama Administration.

• Courses of action –A. Congress establishes a “cap-and-trade”

system for reducing greenhouse gas (GHG) emissions or

B. EPA regulates GHG emissions.


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Cap-and-Trade Basics • A program to “cap” emissions and

allow “trading” (buying and selling) of emissions credits.

• Considered to be a market-based approach to reducing GHG emissions.

• Designed to drive up the cost of carbon-based energy.

Don’t just take our word for it…


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Who said it?

“Under my plan of a cap and trade system, electricity rates would necessarily skyrocket…”

Presidential Candidate Barack Obama to the San Francisco Chronicle (Jan. 2008)


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Who said it?

“Reducing emissions to the level required…would be accomplished mainly by stemming demand for carbon-based energy by increasing its price.”

Non-partisan Congressional Budget Office


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“If left unmitigated, any GHG cap-and-trade program (as well as a carbon tax alternative) would be regressive”

(Source: Congressional Research Service)

Why?

It’s a de facto tax on carbon-based energy and it will affect those who earn less more.


The Mechanics

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• The availability of offsets is important for cost control.

• Agriculture and Forestry are recognized as providers of offsets in H.R. 2454, the Waxman-Markey bill.

• USDA will administer the offsets program for agricultural and forestry practices; EPA handles the rest.

Here’s where Agriculture comes in…


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USDA’s role

The Department will determine:– Eligible offset practices (with advice

from an advisory committee)– Offset methodologies – Third-party verification requirements – Audit procedures

The Department will also be responsible for approving third-party verifiers and offset project plans.


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FAPRI-MU Study

• Analyzed the effect of higher energy prices from H.R. 2454 on Missouri crop production costs.

• Used CRA International’s energy cost estimates.

• Did not incorporate possible changes in production practices or gains from selling carbon credits.


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FAPRI Estimates (using representative farms)

Lafayette County Farm

1,900 acres: 798 corn 1,000 soybeans 95 wheat

Production cost increases:

$11,649 in 2020$30,152 in 2050

Carroll County Farm

802 acres:297 corn406 soybeans 99 wheat

Production cost increases:

$ 4,903 in 2020$12,666 in 2050


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AFPC-TAMU Study • Assessed the economic impacts of H.R. 2454

taking into account– Anticipated direct and indirect energy-related

costs;– Expected commodity price changes; and– Estimated benefits to farmers from selling

carbon credits.

• Used EPA’s estimated energy price changes. • Looked at 98 representative crop farms,

dairies and livestock operations across the U.S.


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AFPC-TAMU Findings

Results for average annual total cash receipts:• Slightly higher average annual cash receipts for

all crop farms and dairies • Prices positively impacted by commodity

production changes and taking land out of commodity production for forestry

Results for net cash farm income:• Higher for feed grain/oilseed farms located in or

near the Corn Belt and wheat farms• Lower for most cotton and dairy farms• Lower for all rice farms and cattle ranches


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AFPC-TAMU FindingsResults for average ending cash reserves in 2016:

27 out of 98 representative farms are expected to be better off • Majority of feed grain, oilseed and/or wheat

farms (primarily in Corn Belt and Plains) • One dairy (gains from sales of corn and

soybeans)• One cotton farm • No rice farms or cattle ranches


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Carbon Credits: More Questions than Answers

• How will a farmer’s planting decisions be affected?

• What will third-party verification cost? • What paperwork/recordkeeping will be

required? • What are a farmer’s risk management

needs for acreage under an offset plan? • How will carbon credit trading affect

land availability?


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More Questions…• What are the durations of offset

contracts? • How will market transparency and

offset pricing be achieved?


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Decisions, Decisions, Decisions…Producers must examine their own operations and decide…

Will the potential financial gains outweigh the costs and requirements that come with carbon credit trading?


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Closing thoughts…

At the end of the day, we know• Some producers may benefit from the

sale of credit credits, but all producers will incur higher production costs.

• Offsets must be designed for “working lands” if some farmers are going to participate.

• Nothing is free — everything comes with a price.

• The devil is in the details.


QUESTIONS?


carbon credit trading: boom or bust for farmers & ranchers? soil & water conservation...

Documents

mechanics slide

carroll county farm

ghg cap

cost of carbon

missouri crop production

carbonbased energy

emissions credits

energy price changes