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
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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.
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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.
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