Economists like the markets to fix the world’s ills, so maybe that’s why so many of them back the cap-and-trade solution to greenhouse gas reduction. After all, why not use market signals to motivate action?
I’m a free trader at heart and supporter of the market economy, but I’m not convinced cap and trade will be the boon to farmers that many say it will be.
Last week’s Farm Science Review featured a panel discussion on climate change, focusing specifically on economics and policy from the ag angle. Ohio State economists Brent Sohngen and Tim Haab, and Purdue counterpart Ben Gramig offered their two cents’ worth on the issue.
As way of explanation, the cap-and-trade idea creates tradable allowances for greenhouse gas emissions. So if you’re a business that emits few greenhouse gases — like many sectors of agriculture — you could potentially be paid when heavier polluters need to offset their emissions.
The process is nothing new; there have been wetland mitigation programs and current air emission trades for many years.
If a cap-and-trade system is created, most economists agree that the cost of energy — electricity, gasoline, diesel fuel, home heating oil and natural gas — will increase. Farmers could see that in higher prices for electricity, propane, diesel fuel and fertilizer and pesticides.
Assuming farmers make no adjustments to their operations, this summer Iowa State ag economist Bruce Babcock calculated the extra cost to his state’s corn and soybean growers would be $4.52 per acre.
Farmers could benefit, however, from using more conservation practices like covering manure storage, using no-till, or planting trees instead of beans.
Regardless of increased energy costs, economists, even Babcock, say cap-and-trade’s impact on agriculture will be small. And Ohio State’s Sohngen says agriculture could “mildly benefit” from cap-and-trade legislation (although I’m not sure how you quantify “mildly benefit”).
But here in Ohio, Sohngen admits, most of the economy is “not climate sensitive.” And the Buckeye State is actually a half-degree to a full degree below the optimum climate temperature for agriculture.
“We can gain from a little bit of warming,” Sohngen said at the Review.
To me, there are too many unknowns — economic impacts, effects of inactivity vs. effects of activity changes, price of carbon credits — to wholeheartedly embrace cap and trade.
But the elephant in the room is the U.S. Environmental Protection Agency. The panelists made it clear that the wheels are already in motion to deal with climate change via regulation rather than legislation, so their take was that legislation is the lesser of two evils.
“There is a move toward climate policy,” said Tim Haab, who specializes in environmental economics. “The question to me is how do we get that policy in place at the lowest cost to the most people.”
Ahh, the same way we’ve given U.S. consumers cheap food — on the backs of farmers.
