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Carbon Credit Trading: Boom or Bust for Farmers & Ranchers? Soil & Water Conservation Society Fall Forum September 17, 2009 MISSOURI FARM BUREAU.

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Presentation on theme: "Carbon Credit Trading: Boom or Bust for Farmers & Ranchers? Soil & Water Conservation Society Fall Forum September 17, 2009 MISSOURI FARM BUREAU."— Presentation transcript:

1 Carbon Credit Trading: Boom or Bust for Farmers & Ranchers? Soil & Water Conservation Society Fall Forum September 17, 2009 MISSOURI FARM BUREAU

2 2 Topics The Big Picture Cap-and-Trade Basics The Mechanics The Ag Component USDA’s Role FAPRI & AFPC Studies More Questions than Answers Decisions, Decisions, Decisions Closing Thoughts & Questions MISSOURI FARM BUREAU

3 3 The view from 50,000 feet Mitigating supposed man-made global warming is a priority for the Obama Administration. Courses of action – A.Congress establishes a “cap-and-trade” system for reducing greenhouse gas (GHG) emissions or B.EPA regulates GHG emissions. MISSOURI FARM BUREAU

4 4 Cap-and-Trade Basics A program to “cap” emissions and allow “trading” (buying and selling) of emissions credits. Considered to be a market-based approach to reducing GHG emissions. Designed to drive up the cost of carbon- based energy. Don’t just take our word for it… MISSOURI FARM BUREAU

5 5 Who said it? “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket…” Presidential Candidate Barack Obama to the San Francisco Chronicle (Jan. 2008) MISSOURI FARM BUREAU

6 6 Who said it? “Reducing emissions to the level required…would be accomplished mainly by stemming demand for carbon-based energy by increasing its price.” Non-partisan Congressional Budget Office MISSOURI FARM BUREAU

7 7 “If left unmitigated, any GHG cap-and- trade program (as well as a carbon tax alternative) would be regressive” (Source: Congressional Research Service) Why? It’s a de facto tax on carbon-based energy and it will affect those who earn less more. MISSOURI FARM BUREAU The Mechanics

8 8 The availability of offsets is important for cost control. Agriculture and Forestry are recognized as providers of offsets in H.R. 2454, the Waxman-Markey bill. USDA will administer the offsets program for agricultural and forestry practices; EPA handles the rest. Here’s where Agriculture comes in… MISSOURI FARM BUREAU

9 9 USDA’s role The Department will determine: –Eligible offset practices (with advice from an advisory committee) –Offset methodologies –Third-party verification requirements –Audit procedures The Department will also be responsible for approving third-party verifiers and offset project plans. MISSOURI FARM BUREAU

10 10 FAPRI-MU Study Analyzed the effect of higher energy prices from H.R. 2454 on Missouri crop production costs. Used CRA International’s energy cost estimates. Did not incorporate possible changes in production practices or gains from selling carbon credits. MISSOURI FARM BUREAU

11 11 FAPRI Estimates (using representative farms) Lafayette County Farm 1,900 acres: 798 corn 1,000 soybeans 95 wheat Production cost increases: $11,649 in 2020 $30,152 in 2050 Carroll County Farm 802 acres: 297 corn 406 soybeans 99 wheat Production cost increases: $ 4,903 in 2020 $12,666 in 2050 MISSOURI FARM BUREAU

12 12 AFPC-TAMU Study Assessed the economic impacts of H.R. 2454 taking into account –Anticipated direct and indirect energy-related costs; –Expected commodity price changes; and –Estimated benefits to farmers from selling carbon credits. Used EPA’s estimated energy price changes. Looked at 98 representative crop farms, dairies and livestock operations across the U.S. MISSOURI FARM BUREAU

13 13 AFPC-TAMU Findings Results for average annual total cash receipts: Slightly higher average annual cash receipts for all crop farms and dairies Prices positively impacted by commodity production changes and taking land out of commodity production for forestry Results for net cash farm income: Higher for feed grain/oilseed farms located in or near the Corn Belt and wheat farms Lower for most cotton and dairy farms Lower for all rice farms and cattle ranches MISSOURI FARM BUREAU

14 14 AFPC-TAMU Findings Results for average ending cash reserves in 2016: 27 out of 98 representative farms are expected to be better off Majority of feed grain, oilseed and/or wheat farms (primarily in Corn Belt and Plains) One dairy (gains from sales of corn and soybeans) One cotton farm No rice farms or cattle ranches MISSOURI FARM BUREAU

15 15 Carbon Credits: More Questions than Answers How will a farmer’s planting decisions be affected? What will third-party verification cost? What paperwork/recordkeeping will be required? What are a farmer’s risk management needs for acreage under an offset plan? How will carbon credit trading affect land availability? MISSOURI FARM BUREAU

16 16 More Questions… What are the durations of offset contracts? How will market transparency and offset pricing be achieved? MISSOURI FARM BUREAU

17 17 Decisions, Decisions, Decisions… Producers must examine their own operations and decide… Will the potential financial gains outweigh the costs and requirements that come with carbon credit trading? MISSOURI FARM BUREAU

18 18 Closing thoughts… At the end of the day, we know Some producers may benefit from the sale of credit credits, but all producers will incur higher production costs. Offsets must be designed for “working lands” if some farmers are going to participate. Nothing is free — everything comes with a price. The devil is in the details. MISSOURI FARM BUREAU


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