While passage last summer of the American Clean Energy and Security Act by the House of Representatives calls for establishing a cap-and-trade program to limit greenhouse gases, it’s expected to have a serious financial impact for farmers. However, the financial penalties will be much lower for continuous no-tillers.
Based on 2005 levels, this federal legislation calls for reducing greenhouse gas emissions by 17% by 2020 and by 83% by 2050.
The bill would establish an absolute cap on emissions and allow trading of emission permits and allowances by growers. Farmers and ranchers would be able to earn offsets for various conservation and carbon-conserving practices and sell the credits to refiners, utilities or other firms subject to the cap on greenhouse gas emissions.
Higher Production Costs
A study by Informa Economics for the National Corn Growers Association (NCGA) indicates corn growers can expect increased production costs.
For corn, the bill’s impact will add $3.81 per acre to annual production costs by 2020. Once fertilizer allowances are phased out from 2025 to 2035, the impact will rise to nearly $50 per acre.
For soybeans, the impact by 2020 is estimated at $2.02 per acre and later increases to $11 per acre. Wheat production costs by 2020 will increase by $2.67 per acre and nearly $21 per acre by 2035.
The bill allows for a $35-per-acre offset credit for adopting no-till by 2025 since no-till leads to more carbon sequestration than other tillage systems. While pasture and forestland can also qualify for offsets, a change from conventional tillage to no-till is viewed as the main way for growers to sequester carbon and earn a credit to offset their increased cost of production.
The Informa study indicates that there will be significant regional differences. For example, Great Plains growers from North Dakota to Texas will receive lower no-till offset credits and will be at a relative competitive disadvantage with other areas of the country.
While there is the likelihood for increased costs of up to $50 per acre by 2035 with corn, there is also a potential benefit for no-tillers to earn up to an extra $46 per acre. Further adoption of no-till with soybeans could lead to a benefit of up to $60 per acre by 2035. No-till wheat benefits will be about $30 per acre.
While the legislation offers opportunities for growers to produce carbon offsets, the Informa study indicates not all growers will be able to participate. The study indicates that the single-greatest, profit-building opportunity is using continuous no-till.
While the NCGA has long remained neutral regarding ongoing climate-change legislation discussions, they believe they no longer have any choice but to oppose the House Bill.
There are still plenty of questions and no easy answers. But it appears no-tillers will be ahead of the game if the country gets more serious about sequestering carbon and reducing greenhouse gases.