"Farmers were reluctant when fertilizer was first proposed ... or seed technology ... but they embraced the technology, and the result is agriculture production that is the envy of the world," [U.S. Secretary of Agriculture Tom] Vilsack said. "I understand the concern in farm country, but if [Cap and Trade] is done properly, it is going to ultimately, in the long term, the short term and the medium term, it is going to be a benefit to farmers."
The issues are simple. Cap and Trade doesn't cover agriculture, but farmers are worried that Cap and Trade in the energy sectors will result in higher energy prices, higher fertilizer prices and ultimately lower profits. The USDA agrees:
The new analysis of the House-passed climate bill (H.R. 2454) estimates that commodity crop farmers would see minimal price increases in the first four years, when a rebate in the bill would keep fertilizer prices lower.
Over the longer term, farmers would see bigger price increases, according to the agency. Agriculture itself is not capped in the bill, but the price of energy and fertilizer is expected to go up because of caps on the industries that supply the inputs for fuel and fertilizer. Livestock producers would also be hit by higher commodity prices.
For instance, corn, one of the most energy-intensive crops, would see cost increases of $1.19 per acre in the short-term but $25.19 in long term, or 9.6 percent.
USDA projects fuel costs to rise between 2.6 percent to 5.3 percent from 2012 to 2018. Fertilizer would go up an extra 0.3 percent to 1.7 percent per year.
How then, can Cap and Trade be a 'benefit to farmers'? Through offsets...
The cost estimates ignore potential benefits that farmers and ranchers might gain from selling carbon credits. Vilsack said in a teleconference with reporters yesterday that the offset market in the House bill could bring in $10 billion to $20 billion for the farm sector. USDA chief economist Joseph Glauber will expand on the benefits from offset markets in another round of testimony for the Agriculture Committee today.
Vilsack said all sectors -- including livestock and crops, like rice, that have less carbon-sequestration potential -- could have a chance to benefit under the system. But he warned the transition would not be easy for all farm enterprises.
"It is fair to recognize that different producers will be affected differently," Vilsack said. "But ... more farmers will benefit than not."
In other words, farmers who can undertake emissions reductions at lowest cost, and sell those reductions in the forms of offsets, will benefit the most. Less efficient farmers, in terms of the cost of emission reductions, will receive less benefit.
Emissions reductions at least cost...sounds efficient to me.