Last week saw the release of a new report (PDF) from Kansas State University that compares and summarizes the findings of several cost-benefit studies of cap-and-trade’s impact on the agriculture sector. The report confirms what we’ve written in the past: that the farm industry is actually going to come out well if cap-and-trade as currently designed is implemented.
According to the study:
Overall, the research suggests U.S. agriculture has more to gain than lose with the passage of H.R. 2454. 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 which likely will enhance agricultural revenues.
The report acknowledges that costs will rise as a result of setting a cap on emissions. But the size of the increase for farmers would be relatively small. Moreover, much of the cost would be passed on to consumers in the form of higher prices. In the short-run, per-acre profitability would see a dip, but the researchers claim it will be modest. And – a particularly important point with Copenhagen going on – if other countries adopt similar legislation, American farmers would not lose their competitive advantage, the market for agricultural commodities will adjust, and producer profits would return to pre-cap-and-trade levels in the long run.
That’s the cost side of the ledger. The benefits for farmers are potentially enormous. Income from carbon offsets (these could include methane capture, bioenergy crop production, and grassland sequestration) would more than compensate for the higher input costs under a cap-and-trade system. In addition, the increased demand for biofuels under cap-and-trade would also bring benefits, as the agriculture and forestry sectors are the main sources of stocks for bioenergy.
In other words, the creation of a new market brings new incentives and revenue opportunities. It’s the lesson that people who oppose cap-and-trade always seem to forget: as with any market, there will be losers and winners.
Now if only the farm industry would listen.
