Study: Proper cap-and-trade system to benefit agriculture

By Anna Austin
Posted November 11, 2009, at 4:34 p.m. CST

A study released by the University of Tennessee's Bio-based Energy Analysis Group indicated that net returns for U.S. agriculture would be positive, with the passage of a properly constructed national cap-and-trade regulatory system.

"Properly constructed" was defined in the study as allowing for multiple offset practices such as energy crop production, reduced soil tillage, methane capture, efficient fertilizer application, the planting of perennial grasses or trees on marginal land and keeping good farmland in crop production.

Overall, the study examined how the agricultural sector might be impacted by various climate change policy scenarios, according to lead researcher Daniel de la Torre Ugarte. Ugarte said the study "Analysis of the Implications of Climate Change and Energy Legislation to the Agricultural Sector" didn't try to analyze any particular piece of legislation that has been proposed so far, but rather identified some key components that could make up sound climate change legislation while determining climate benefits, regional impacts and the impact on feedstock prices.

The scenarios proposed in the study, which assumed implementation of the renewable fuels standard in the Energy Independence & Security Act of 2007, are based on five different characteristics, including the level of feedstocks produced, carbon prices, the number of offsets included, the level at which crop residues can be collected, and whether or not fertilizers are going to be exempt from the impact of any carbon prices or carbon charges.

Study results showed no major shifts in commodity cropland use are expected under a cap-and-trade system, and at the U.S. EPA projected carbon price of up to $27 per metric ton of carbon equivalent, no cropland is expected to be converted to forests and grassland. It did find, however, that if carbon prices reached $160 per ton that could lead to the conversion of as much as 60 million cropland acres, if no cap and trade or climate legislation is passed. "The hypothesis of $160 per metric ton of carbon applies to the scenario in which EPA is in charge of regulating the agricultural sector without domestic offsets," Ugarte said.

The study also found that if carbon emissions were regulated by the EPA, net farm income was projected to fall below USDA baseline projections, and agriculture would be subjected to higher input costs with no opportunity to be compensated for the GHG reduction services the sector provided.

According to Ugarte, under a cap-and-trade program allowing multiple offsets, net returns of agriculture are positive and above the baseline for eight of nine crops examined in the study. "Income from offsets and from market revenues is higher than any potential increase in input cost, including energy and fertilizer,"he said.

In addition, biomass feedstock production may yield significant direct and indirect greenhouse gas reductions. "By direct we mean below-ground sequestration, and indirect, meaning when biomass is used as a replacement for fossil fuels for power and transportation fuels it will indirectly generate reductions in GHG emissions," Ugarte said. "The point to be emphasized is that we are crediting to the agriculture sector only the offsets that are directly generated in the agriculture sector." According to the study, biomass feedstock production reduces greenhouse gases significantly, including a 460 million metric ton reduction of carbon emissions.

To see the study, go to