Carbon Offsets Would Be a Boon to Farmers

Several studies show that farmers could significantly profit from an offset market, says Tom Kenworthy.

Secretary of Agriculture Tom Vilsack has argued that for American agriculture, the income benefits from climate legislation will outweigh the costs. In particular, farmers would have the ability to profit from the carbon offsets market. (AP/Steve Pope)
Secretary of Agriculture Tom Vilsack has argued that for American agriculture, the income benefits from climate legislation will outweigh the costs. In particular, farmers would have the ability to profit from the carbon offsets market. (AP/Steve Pope)

When it comes to legislation cutting carbon pollution, two Iowans steeped in agriculture policy take very different views of the likely impact on rural America.

“The agriculture industry and rural communities will be some of the hardest-hit areas,” says Senator Chuck Grassley (R-IA).

“For American agriculture, the income benefits will outweigh costs, particularly over the long term,” says Tom Vilsack, Iowa’s former governor and now secretary of agriculture in the Obama administration. “For rural Americans, it will help create new economic opportunities and green-energy jobs.”

Secretary Vilsack has it right. While no one can precisely predict what the economic impacts will be of either the American Clean Energy and Security Act, H.R. 2454, which passed the House in June, or the Clean Energy Jobs and American Power Act, S. 1733, now under consideration in the Senate, most thoughtful analysis contradicts the doomsday scenarios seen by some farm state lawmakers and representatives of big agriculture.

For American farmers and the rural areas where they live, clean-energy and carbon-pollution-cutting legislation will mean significant economic benefits. A clean energy economy built on wind, solar, and biofuels including gas derived from anaerobic digestion of manure will bring vitally needed economic development to the rural areas that are home to most of those resources. And taking action now will help prevent the often catastrophic impacts of doing nothing, including droughts, heavy downpours, and floods, all of which will reduce crop yields and cut farm income.

One of the key upsides to legislation curbing carbon pollution is it will give farmers the ability to profit from conservation measures that capture or store carbon and cut emissions of other harmful gases such as methane from livestock waste and nitrous oxide used in fertilizer. Those practices include no-till and reduced-till farming, using less fertilizer, planting trees or cover crops, and capturing methane from livestock operations. Farmers, who are not subject to the pollution caps in the legislation, will be able to sell those offsets to industrial polluters whose emissions are capped and can’t meet their targets on their own or find they can do it more cheaply by buying offsets from farmers.

Both the Department of Agriculture and the Environmental Protection Agency see a huge market opportunity for farmers in offsets that will boost their incomes and help strengthen rural economies. EPA’s estimate of the House bill is a $20 billion offset market by midcentury.

As Vilsack wrote in a recent commentary in the Wichita Eagle: “Over the long term, the benefits will far outweigh costs, growing to almost $15 billion to $20 billion in 2040-50. At that rate, agricultural offsets could be worth more than 5 percent of today’s total agricultural sales.”

Vilsack also explored the impact of carbon pollution reduction legislation in testimony before the Senate Environment and Public Works Committee on October 27, 2009:

“While farmers, ranchers, and forest landowners have a lot at stake if we fail to act, they also have much to gain if we address climate change quickly and wisely,” he said. “Rural America has an unprecedented potential for economic development and job growth through new energy technologies…A robust carbon offsets market will provide farmers, ranchers, and forest landowners with the potential for new sources of income.”

The U.S. Department of Agriculture’s analyses of both the House and Senate bills, said Vilsack, show “that economic opportunities for farmers and ranchers can outpace—perhaps significantly—the costs from climate legislation.”

American agriculture is well positioned to take advantage of these opportunities, according to a report from the Center for Rural Affairs: “[A]griculture can play an important role in mitigating these damaging emissions, both by reducing its own emissions and by sequestering carbon. Given U.S. agriculture’s current climate, the quality and volume of its soils, the competence of its farmers, the maturity of its science and technology, and the sophistication of its policy institutions, there is no national agricultural complex better suited to carbon sequestration than U.S. agriculture.”

Though farmers will face some higher costs for fuel, fertilizer, and electricity under carbon-pollution-reduction legislation, analysts say the potential extra income from selling offsets will easily outpace those costs.

“Depending on the carbon pricing scheme, farmers could increase their net profits by up to 24 percent,” notes the Agricultural Carbon Market Working Group, with additional income coming “from a number of sources including revenue from the production of low-carbon biofuels and an increase in commodity prices caused by changes in management practices.”

A University of Tennessee study released on November 11 also predicts that farm revenue will grow by $13 billion a year with a well-designed trading system in carbon offsets.

Iowa State University economist Bruce Babcock analyzed the impacts on Iowa corn and soybean farmers from climate legislation and predicts higher production costs of about $4.52 per acre (1 percent to 2 percent), but additional income of about $8 an acre by shifting to no-fill farming.

Further, a study prepared for the Nicholas Institute for Environmental Policy Solutions at Duke University concluded “that the agricultural sector would be placed in a favorable position” by policies that cut carbon pollution and establish a market for offsets.

“While agricultural producers will feel the input price ramifications of restrictions on fossil fuel-intensive input suppliers (energy, fuels and fertilizers in particular), they can benefit in several ways. First, a portion of production cost increases can be passed on to consumers in the form of higher prices. Second, new revenue opportunities may exist for bioenergy feedstocks. Third, by being outside the [carbon pollution] cap, agriculture and forestry are a considerable potential source of offsets for sale.”

Progressive voices in American agriculture understand that farmers and rural America have a great deal to lose from climate change and much to gain from a robust policy to cut carbon pollution.

As National Farmers Union President Roger Johnson told the House Agriculture Committee in June: “Failure to reduce [carbon pollution] emissions poses significant economic impacts on agriculture and populations whose welfare is of special interest to the agricultural community. Models of climate change scenarios demonstrate increased frequency of heat stress, droughts, and flooding events that will reduce crop yield and livestock productivity.”

Carbon offset projects, he added, “could be valuable revenue streams for producers who will experience increased agricultural input costs.”

Tom Kenworthy is a Senior Fellow at the Center for American Progress.

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Tom Kenworthy

Senior Fellow