Brookings: Fears that cap and trade will hurt farmers are baseless

Climate legislation is a necessity for the agricultural sector to survive and thrive (see “Eight reasons for farmers to support global warming action“).  Yet many farmers mistakenly think that their sector would suffer from strong efforts to promote clean energy and reduce greenhouse gas emissions — no doubt because bill sponsors have not done a great job explaining things.  So I’m reprinting this post from WonkRoom. I have previously blogged on the new Brookings study and how it fails to model key features of Waxman-Markey that would reduce costs (see “New Brookings finds strong climate action would NOT hurt the economy“). Yet, “even without the inclusion of an offset program to allow the agriculture sector to benefit from carbon market, their analysis found the impact on agriculture to be minimal”:

Cap And Trade: Effect On Agriculture Sector (No Offsets)

A new economic study reveals that concerns a cap on global warming pollution could hurt American agriculture are unfounded. As the Waxman-Markey green economy legislation (H.R. 2454) moves toward passage in the House of Representatives, the farm lobby and rural officials have questioned the bill’s costs to farmers. Last week, Rep. Frank Lucas (R-OK), the ranking member of the House Committee on Agriculture, cried that farmers are “a prime target for a national energy tax“:

From higher energy costs to lost jobs to higher food prices, cap-and-trade promises to cap our incomes, our livelihoods, and our standard of living, while it trades away American jobs and opportunities. . . . Whether it’s the fuel in the tractor, the fertilizer for the crops or the delivery of food to the grocery store, agriculture uses a great deal of energy throughout production. On average, 65 percent of farmers’ variable input costs are fuel, electricity, fertilizer, and chemicals. Even a small increase in the operating costs for our producers will hurt American agriculture.

Yesterday, the Brookings Institute released the topline results of an economic analysis of cap-and-trade systems, with sectoral impacts. This study models the worst-case economic scenario for cap-and-trade programs, modeling the impact of an inflexible system that does not include offsets, incentives for renewable energy development, or other cost-control measures. Even without the inclusion of an offset program to allow the agriculture sector to benefit from carbon market, their analysis found the impact on agriculture to be minimal [see figure above].

Not only will the transition to a green economy not hurt America’s farmers, but it will save their livelihoods from the increasing threat of climate disruption, which impact the Brookings study did not model. In reality, the only sectors that face measurable pressure from a cap on carbon pollution are the coal and oil industries, who have enjoyed extreme profits at the expense of the rest of the economy “” and yet have failed to make any real investments in clean energy.

6 Responses to Brookings: Fears that cap and trade will hurt farmers are baseless

  1. SamB says:

    Economists at The Heritage Foundation’s Center for Data Analysis are digging deeper into the effects of the Waxman-Markey climate change legislation that includes a cap and trade plan to reduce carbon dioxide by 17 percent below 2005 levels in 2020 and by 83 percent below 2005 levels in 2050. Today’s victim: Farmers. Our CDA analysts found that Waxman-Markey would adversely affect farmers in a number of ways:

    • Farm income (or the amount left over after paying all expenses) is expected to drop $8 billion in 2012, $25 billion in 2024, and over $50 billion in 2035. These are decreases of 28%, 60% and 94%, respectively.
    • The average net income lost over the 2010-2035 timeline is $23 billion – a 57% decrease from the baseline.
    • Construction costs of farm buildings will go up by 5.5 percent in 2025 and 10 percent by 2034 (from the baseline).
    • By 2035, gasoline and diesel costs are expected to be 58 percent higher and electric rates 90 percent higher.

    Looks like we have some actual numbers. The economists are wrong on unemployment. Biden admitted it. Waxman is not up on farming or agriculture costs for some reason. Even CAFE standards tax a farmer buying a good sized work truck. You can’t haul a 2,000 pound hay bale on a tiny Fiat pickup with a 4 cylinder engine.

  2. Matt Dernoga says:

    because the Heritage Foundation is a non-partisan organization that would never fudge numbers

  3. MikeN says:

    I have a suspicion that if Waxman-Markey had been Kasich-Pence, supported by George Bush, all these environmentalists would be calling it a corporate sellout and a sham bill, and the reaction on this blog would be quite different.

  4. gmo says:

    re: SamB June 15th, 2009 at 6:16 pm – “Looks like we have some actual numbers.”

    Ha, “actual” numbers! At least we thus know we need not worry about SamB being one of those who would trash climate models as being inaccurate.

    re: MikeN June 15th, 2009 at 11:17 pm

    My suspicion is that in your scenario there would also be a real Waxman-Markey option out there too that would be much stronger in pushing us toward lower carbon emission levels faster so that what we see now in reality would look relatively like a sham and a sellout.

  5. djrabbit says:

    @SamB: Farm income is expected to decrease 94% by 2035.

    At which point all US farms will shut down because it’s not profitable enough, right? Despite the rising demand of some 8 billion hungry, increasingly meat-eating consumers worldwide… (Crazy alternative scenario: rising demand increases farm-output prices, preserving farmers’ profit margin.)

  6. djrabbit says:

    To rephrase in a less snarky way, a major flaw with many of the cost-projections surrounding this debate is that they look only at “first order” effects. That is, they assume (against experience and standard economic theory) that in response to new and different price signals, economic players make zero changes to their behavior. That is silly, dishonest, and frankly quite insulting.

    If cost go up for all farmers (first order effect), farmers will pass the higher cost on to their customers (second order effect) or change their operations in ways that avoid those cost increases (another second order effect). Customers will then change their behavior in response (third order effect), which will cause farmers to respond in kind, and so on.