Ron Bailey at Reason has a remarkable concise and helpful outline of the hard-to-grasp Cimate Security Bill. It is definitely worth reading in its entirety, along with his links as well if you are unsure how this bill will change things for America.
This week the U.S. Senate is debating the Climate Security Act, a piece of legislation which would require the country to cut its greenhouse gas emissions by 4 percent in 2012, 19 percent in 2020, and 71 percent in 2050 below what they were in 2005. The act rations the emission of greenhouse gases produced by burning fossil fuels by issuing an ever declining supply of emissions allowances. Emitters such as electric power generators, coal, oil and natural gas companies, and energy intensive industries like steel and cement manufacturers will be able to buy and sell the government-issued permits. This trading puts a price on greenhouse gases. The idea is that as energy produced from climate-damaging fossil fuels becomes increasingly expensive, industries, researchers and entrepreneurs will be encouraged to develop new climate-friendly, low-carbon and no-carbon energy technologies. But will this happen? [More]We have a tendency in agriculture to focus strictly on ag legislation and science from the USDA, but this huge legislative initiative will roil the waters on our farm ponds (which are much larger lately around here). But most of the sporadic coverage I have seen in the farm media has somehow drifted around to the happy scenario of getting a payment for sequestering carbon.
This misses the whole idea of the bill and the climate change response. A better summary of the impact can be found in a study done for The Fertilizer Institute.
Of course, at this point any right-thinking (and leaning) producer should be amply horrified, but our knee jerk reaction to a possible cost increase begs the question: Did we think reducing our carbon footprint was going to be free or even an income generator?
Rising energy prices will continue to result in rising crop production costs and potential climate change legislation will add significantly to this rate of increase. Using USDA’s 2017 expected crop acres, the Lieberman-Warner Climate Security Act will add $6 to $12 billion to total production costs for corn, soybeans, wheat, cotton, rice, sorghum, oats and barley in 2020.
Some growers may have an opportunity to receive payments for sequestering carbon if they use specific farming practices. According to the Chicago Climate Exchange (CCE), farmers in 17 states could potentially receive a credit of 0.6 metric tons of carbon/acre/year for using no-till. Specified rates in the remaining states are either lower than 0.6 or are currently not available from the CCE. At an assumed future carbon price of $30 per metric ton, which is well within the range of prices being proposed as likely by climate change modelers, farmers could potentially receive $18 per acre for sequestering carbon. However, this is well below the projected crop production cost increases resulting directly from S. 2191 for corn and significantly below the total increase in corn production costs of $100.47 - $138.94 projected in 2020. Consequently, this potential legislation will place a severe burden on U.S. crop farmers by driving operating rates even higher for growers who are already experiencing the highest production costs on record, and will result in a significant decline in farm income. [More]
To reduce carbon emissions farmers (along with every other energy user) have to change what we do. If we don't have a financial stimulus, we keep on doing what are doing now. Our sense of entitlement will have most farm leaders demanding special treatment for farmers, even exemption from the burden of participating. [Now that we have divorced commodity prices from food costs, it will be interesting to see how we re-flip the argument to stress food supplies are in jeopardy if we have to pay our share of carbon expenses.]
I favor a carbon tax, but it's likely that even a cumbersome cap-and-trade system will look the same at our level, i.e. expensive energy.
So wait by the mailbox for your $18/A sequestration payment, but you'll sort through a lot of bills to find it. Regardless of how you feel about government action on climate change, I think the safer outlook is to anticipate astonishing energy price increases. This is the reason I don't see commodity prices falling much. It will simply be too expensive to plant if they do.