A team of seven Kansas State University researchers has completed an analysis and comparison of six key economic studies that looked at the effects of the Clean Energy and Security Act of 2009 — also known as the Waxman-Markey bill — on the agriculture sector.
Reviewing all the significant studies as of Dec. 1, the Kansas State team sought to identify common findings, as well as compare various assumptions and methodologies. American Farmland Trust sponsored the research.
“Overall, the research suggests U.S. agriculture has more to gain than lose with the passage of H.R. 2454,” says Dr. Bill Golden, Dept. of Agricultural Economics at Kansas State and the team’s leader. “The bill specifically exempts production agriculture from emissions caps, provides provisions to ease the transition to higher fertilizer prices, and fosters the development of carbon offset markets that will likely enhance agricultural revenues.”
Golden says H.R. 2454 will encourage the continued development of carbon credits for the offset market and low carbon renewable energy to satisfy the renewable energy standard.
"At the present time, it's not completely clear how renewable energy legislation and climate offset markets will function together," Golden says. "The viability of these markets will depend upon the policies that regulate, foster, develop and cause carbon trading to occur and how they complement or conflict with future renewable fuels policies.
"What is clear is that these markets have the potential to provide significant financial benefits to agricultural producers."
Among the key findings of the Kansas State analysis:
In the short run, per-acre profitability for both crop and livestock producers may decline, but for the most part, the research across multiple studies suggests the declines in the short run will be modest; with changes in production costs ranging from 0.3% to 6.4% by 2025.
If other countries adopt similar legislation, in the long run, the market for agricultural commodities will adjust and return producers’ profits to pre-H.R. 2454 levels.
The economic impacts will vary regionally, and by crop and livestock subsector. The impacts depend on cultural and management practices and the farm-specific ability to sequester carbon and receive offset income.
H.R. 2454 establishes a Renewable Energy Standard that mandates a portion of all U.S. electricity be produced from low-carbon, renewable-energy sources. As the market expands, financial benefits will accrue to the agricultural sector.
“While changes in costs and revenues are important economic metrics, we believe that the change in net income from crop and livestock production is the best metric for assessing the impact of H.R. 2454 on agriculture," Golden says. "We also believe that evaluating a worst-case scenario, where agricultural offset markets do not exist, to be highly informative.”
The studies make different assumptions about key variables, such as what agricultural offsets are included, that can have significant impact on the results.