Cap-and-trade bill: What’s in it for me?

While President Obama is expected to focus on challenges in Afghanistan and a hefty new health care bill this week, many in the farm community are growingly concerned about the future of cap-and-trade legislation, and its implications for farmers. According to University of Illinois agricultural economist and environmental policy guru Madhu Khanna, there are both positive and negative consequences for American farmers in a climate bill that would define the nation’s first-ever mandatory limit on heat-trapping gases, in an effort to slow-down global warming effects.

“As it stands, agriculture is excluded from the caps, which would focus largely on reducing carbon emissions of major energy producers such as power-generating plants and fuel refineries,” Khanna said.

However, “those caps would lead to higher energy prices – and therefore higher fuel and fertilizer prices – which would raise farm-production costs,” he explained.

On the up side, Khanna expects that farmers could benefit from market-based payments for activities that sequester greenhouse gases (carbon), such as no-till farming or installing digesters that utilize methane on livestock farms, and convert it to energy. Additionally, farmers may also benefit from an increased demand for renewable fuels, which would spur higher prices for corn and other grain commodities. As a result, there could be a generous net increase in farm income for farm operators, he said.

“Some studies estimate that with carbon prices in the range of $30 per ton of carbon-dioxide, the agricultural sector could benefit by as much as $8 billion to $13 billion per year,” added Khanna.