Carbon Credit Trading: Boom or Bust for Farmers & Ranchers?

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

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

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. 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. 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. The Mechanics • “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

8. Here’s where Agriculture comes in… • 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. MISSOURI FARM BUREAU

9. USDA’s role • The Departmentwill 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. 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. 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 FAPRI Estimates(using representative farms) MISSOURI FARM BUREAU

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

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. 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

19. QUESTIONS? MISSOURI FARM BUREAU