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Clean Energy Legislation Has Potential for Significant Long-Term Benefits to Farmers, Potential Benefits Contrasted With a Direct EPA Regulation Scenario
Says New Informa Economics, Inc., study prepared for
American Farmland Trust & National Association of Wheat Growers

Jennifer Morrill: 301-792-6238 (cell), jmorrill@farmland.org
Washington, D.C., May 6th, 2010 —“We've learned yet again from an independent study that a large segment of U.S. farmers and rural America can benefit significantly from properly structured clean energy legislation, with a net benefit to agriculture, and in particular wheat farmers,” says Jon Scholl, President of American Farmland Trust (AFT). “The Informa Economics study also concludes that if no climate change legislation is passed, direct regulation by the Environmental Protection Agency (EPA) would harm agriculture and farmers more than a bill.”

“For agriculture and rural America to benefit, however, requires the engagement of farmers and ranchers in writing the legislation, and throughout the rule making process,” Scholl said. The Informa Economics, Inc. (Informa), study was prepared for AFT and the National Association of Wheat Growers (NAWG), and examines the potential impacts of cap-and-trade policy on U.S. agricultural producers.

“There will be production cost implications from increased energy prices under a bill, although they are relatively modest,” said Juan Sacoto, Senior Vice President of Informa Economics, Inc. “Yet there will also be opportunities for some farmers to gain income by participating in carbon offsetting activities such as no-till, improved fertilizer management, and cover crops. Those gains are expected to exceed costs within the agriculture sector as a whole.”

One of the most significant aspects of the study is its focus on farm income opportunities thru the renewable energy portions of a bill. Informa has examined the evidence and they conclude that agriculture stands to gain billions of dollars of income by direct renewable energy generation, or by providing renewable energy feedstock/biomass.

Under cap-and-trade legislation, the study found:

  • Production cost increases resulting from increased energy prices are thought to be relatively modest, 1% before 2025, and even after 2025 when proposed protections to the fertilizer industry expire. Cost increases are 7% for wheat production by 2035. Similar conclusions were found for corn and soybean costs. This analysis confirms a myriad of other studies that show similar a single digit range of production cost increases.
  • Despite production cost increases, some farmers will participate in carbon offsetting opportunities such as no-till, improved fertilizer management and cover crops. Offset opportunities will also be provided for switching from conventional crop production to perennial crops or forest production, providing a 'carbon crop' for farmers. While the opportunities are not universal, this carbon crop will provide additional income to producers that exceed current cropping revenue and can make up for the cost increases of a bill, in some cases potentially exceed any cost increases.
  • In addition to offset credits, there will be opportunities for some farmers to gain additional revenue from production of renewable energy and renewable energy feedstocks. The Renewable Energy Standard (RES), contained in House legislation requires states to produce 20 percent of total electricity from renewable sources by 2020. It is estimated that an additional 171 billion kwh of renewable electricity is required to meet the 2020 RES. The majority of this demand increase in renewable electricity (94%) is expected to come from biomass---this equates to about 32 million tons of biomass (agricultural residues, energy crops, forest residues and urban wood waste/mill residues) and
    $15.7 billion in electricity. Informa believes that dedicated energy crops will provide the overwhelming share of this biomass market.
  • In reviewing acre shift projections, the study concludes that by 2035, roughly 11-18 million acres of corn, soybeans and wheat (5-8% of baseline acres) could potentially switch to perennial crops. Informa’s analysis digs deeper into what type of acreage is expected to shift and the study finds that even by 2035, prime cropland is not expected to shift into forestry or perennial crop production.

Under an EPA regulation scenario, the study found:

  • Achieving equal greenhouse gas (GHG) emissions under direct EPA regulation will result in greater energy price increases;
  • There will not be any offsetting revenue opportunities for agriculture; and,
  • While the agriculture sector is not capped within a cap-and-trade system, some producers will be subject to direct costs of compliance under an EPA regulation scenario.

The Informa analysis recommends four key policy points that U.S. farmers and ranchers should seek in climate and energy legislation:

  1. Carbon allowances distributed to the fertilizer industry are critical to keeping cost impacts down—and those allowances must be maintained and passed on to the farmer;
  2. Maximum carbon offsetting opportunities;
  3. Ensure continued enrollment in offset programs for as long as possible; and
  4. Involvement in establishing methodologies used to calculate sequestration rates for various carbon offsetting activities.

“Given a continuing stream of independent research and analysis coming to light about the potential benefits of properly structured clean energy legislation we are anxious to see what might come forward in the Senate in coming days and weeks. We remain ready to assist members of Congress and the administration in moving forward in their efforts, and we're hopeful we'll