Patrick Westhoff (firstname.lastname@example.org) FAPRI-MU (www.fapri.missouri.edu) University of Missouri PotentialCongressional Action on GreenhouseGasRegulation Breimyer Seminar, 2010 “Greenhouse Gas Regulation, Boom or Bust for Agriculture?” Columbia, Missouri, May 27, 2010
Agenda • Status of climate change legislation • What would climate change legislation mean for the farm sector? • Other Congressional action on greenhouse gas regulation
Climate change legislation: Quick summary of Congressional debate • House passed bill in 2009 • Formally the “America Clean Energy and Security Act of 2009,” or ACES • Often referred to as “Waxman-Markey” after sponsors • Passed House 219-212 on June 26, 2009 • Senate has not passed a bill • Environment and Public Works Committee approved a bill in Nov. 2009 • Senators Kerry and Lieberman have proposed the “American Power Act”
Climate change legislation overviewApplies both to House bill and Kerry-Lieberman • Would limit greenhouse gas emissions from main sources • Covered firms need allowances to emit • Can trade allowances or purchase offsets • Offsets earned by reducing emissions/ sequestering carbon in uncapped industries • Cap reduced over time • 83% of 2005 level in 2020 • 17% of 2005 level in 2050
House climate change legislation: What is capped and what isn’t? • Capped • Electric and natural gas utilities • Oil refiners • Most “heavy” industry • Not capped • Farms (although input industries are) • Various small emitters of greenhouse gases
House climate change legislation: Distribution of allowances • Some given away for free • Electric utilities, natural gas distributors • Energy-intensive, trade-exposed industries (including nitrogen fertilizer producers) • Free allowances generally phased down over time • Others auctioned • Revenues used to reduce net costs to consumers • Some set aside for deficit reduction
House climate change legislation: How are offsets generated? • Reduction in emissions or sequestration by uncapped industries • Agriculture examples • Shift to no till • Install methane digester • Convert crop or pasture land to forestry • Can be domestic or international
House climate change legislation: Big picture impacts • Most analysis shows biggest actual GHG reduction from electric utilities • Reduced use of coal • Expanded use of renewables and especially nuclear power • Relatively little change in transportation fuels • Carbon price increases over time
Estimated value of an allowanceBased on House-passed bill Source: Table 3 in USDA testimony before House Agriculture Committee, Dec. 18, 2009, p. 21.
Things to note • Estimates of allowance values of House bill • Are very different (and there are other competing estimates, even from EIA) • Increase over time • Imply significant incentives for sequestration • No-till and other practices that may have little effect on agricultural production and prices • Expansion of forestry or energy crops, which could have an important effect on crop production
How does Kerry-Lieberman compare to House bill? • Many provisions same or similar to those in House bill • Greenhouse gas reduction targets • Basic regulatory system (although not identical) • Some distinctive features • Additional incentives for nuclear power, offshore drilling • Distribution of free offsets different than in House bill • Allows fewer international offsets
Impacts on energy costs (House-passed bill, change from baseline) Source: EIA and EPA analysis of HR 2454, the House climate change bill. These costs include the value of allowances.
Uncertainties in estimating crop production cost impacts • How much will energy costs change? • How does a given change in energy costs affect prices for fertilizer, chemicals, etc.? • How will provisions to benefit energy-intensive, trade-exposed (EITE) industries work? • What changes will farmers make in production practices?
Estimated impacts on corn operating costs (change from baseline) *Free allowances are phased out between 2025 and 2035 under HR 2454. Source: FAPRI-MU estimates.
Cropland shifts to forestry or energy crops • FASOM model (Dr. McCarl, Texas A&M) results: much crop and pasture land will shift to forestry • Reduction in crop production results in higher crop prices • Tennessee analysis: at moderate carbon prices, energy crop area increases (less effect on forestry) • If grain and oilseed production is reduced, prices will increase • Depends on magnitude of production decline • And on how price responsive users and other producers are
FAPRI-MU ongoing work • Estimating impacts on U.S. agriculture of multiple scenarios • Different increases in energy costs • Different assumptions about how biofuel sector is affected • Different assumptions about how many acres shift out of grain/oilseed/cotton/sugar production • Following results are all preliminary and may change if we get new information
Effects on production expenses(2030, change from baseline) Source: FAPRI-MU estimates. Measures changes in variable expenses (excluding land) for crops, feed and nonfeed expenses for livestock
Effects on prices(2030, change from baseline) Source: FAPRI-MU estimates. Farm prices for crops, Nebraska direct prices for steers, and 51-52% lean prices for hogs
Effects on planted acreage(2030, change from baseline) Source: FAPRI-MU estimates. 13 crops include listed crops, upland cotton, sorghum, barley, oats, rice, peanuts, sunflowers, canola, sugarcane and sugar beets.
Effects on farm income(2030, change from baseline) Source: FAPRI-MU estimates. These estimates do NOT include income from sale of offsets. If included, offset sales would increase net farm income.
Things to note • Reported estimates are based on layers of assumptions and may be revised • But basic points should hold • Higher energy costs would reduce farm income, all else equal • But increased biofuel production, acreage shifts (and offset income) could change the picture • Landowners most likely to benefit; livestock producers least likely
Back to the Congressional process • Senate debate on Kerry-Lieberman in June/July/??? • Would require 60 votes to overcome filibuster • Both partisan and regional issues • Any Republican support? • Will coal-state Democrats support? • Bill could change before or during floor debate • And always possible no bill passes • Even if bill is approved, would have to be reconciled with House-passed bill (and recall close House vote last year)
Congress and greenhouse gases: EPA regulations • EPA has proposed to move forward on regulatory approach if no climate legislation • Sen. Murkowski (R-AK) proposes “disapproval resolution” • Vote now tentatively set for June 10 • Unlikely to stop regulation (even if passes both Houses, President can veto), but some see as key test vote • Sen. Rockefeller (D-WV) seeks 2-year delay in regulations • Appropriations bills could seek to delay or limit implementation • Outcome uncertain
Congress and greenhouse gases: Biofuel issues • Biofuel tax credits and tariffs • Biodiesel credit ($1 per gallon) expired at end of 2009 • Ethanol credit ($0.45 per gallon) and ethanol specific tariff ($0.54 per gallon) expire at end of 2010 if no legislation • Unfolding debate this week on large bill including biodiesel credits for 2010 • Many expect year-end tax legislation to address issue of provisions expiring this year • Much support, but budgetary cost is major concern • Renewable Fuel Standard requires minimum levels of biofuel use even if credits are not available
Congress and greenhouse gases: 2011 and beyond • Good chance no climate legislation will be approved in 2010 • Terms of debate could be very different in 2011 • New Congress could have different partisan make-up • This and other factors could lead to very different legislation (or none at all) being considered • Budget issues could transform debate • Attacking budget deficit likely to be a high priority in 2011 • Taxing carbon or selling greenhouse gas allowances could raise a lot of revenue • But would also face widespread opposition
THANKS! • To contact me: email@example.com • FAPRI-Missouri website: www.fapri.missouri.edu