Climate Change Bill Chances Diminish

Coming off sweeping victories for Democrats in the 2008 elections, the new supermajority in town came out swinging. When House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid said they were going to pass climate change legislation, some in agriculture thought it was better to "be at the table rather than on the menu."

One of the main players at the table was the National Corn Growers Association. When the wheat growers, American Farm Bureau and many other commodity groups quickly denounced climate change efforts, the corn growers strived to remain neutral and be that voice at the table to hopefully get a workable solution for agriculture.

Last week NCGA changed its neutral position on the House's approved version to "oppose." The group is vowing to stay engaged in the discussions as the Senate still has not approved a bill.

Republican Scott Brown’s historical and highly unexpected takeover of Ted Kennedy’s former Massachusetts Senate seat changed a lot of things for Democrats last week. The election means they no longer hold the 60-vote supermajority that was expected to make passing major agenda items like health care and climate change much easier.

Brown’s victory makes it highly unlikely that climate change legislation will move in 2010.

Instead, Democratic senators are considering job-creation legislation with "clean-energy" provisions, followed by an "energy-only" bill, to replace the cap-and-trade proposal. The energy-focused bill would expand drilling, reform the U.S. power-transmission system and require utilities to use more renewable sources.

A bill on energy independence could be more widely supported than the cap-and-trade plan, said Sen. Benjamin Cardin, D-Md.

Fred Yoder, a past NCGA president and farmer often asked to testify to Congress on impact of climate change, said everything that has transpired from the lack of solid agreement in Copenhagen to stalled out talks in the Senate has bought some time to do cap-and-trade legislation right.

"I don't think greenhouse gas regulations have completely gone away, but it has bought us some time," Yoder said. "I do believe we'll all be better off by taking a big breath and figure out what is possible and feasible without the harmful economic effect on agriculture."

Informa analysis

Part of the reasoning behind the corn growers' change in position was the results of a new Informa Economics analysis. Yoder noted that the analysis does predict more positive situation than previous analyses out of EPA and USDA.

The results of an Informa study indicates that every corn grower in the country will experience increased costs of production resulting from H.R. 2454. "In the early years of this legislation, these higher production costs will be relatively minor. However, over time these prices will significantly increase, placing an unnecessary burden on growers," said NCGA President Darrin Ihnen.

Specifically the report outlined that for corn, the impact on production costs is to increase by $3.81/acre by 2020. However, as the fertilizer allowances are phased out from 2025 to 2035, this impact increases substantially. By 2035, the impact is expected to be nearly $50/acre above reference costs.

Similarly for soybeans by 2020 the impact is estimated to be $2.02/acre above reference case costs, accounting for only 1% of total variable costs. As the fertilizer allowances are phased out from 2025 to 2035, this impact increases but because soybeans are not as fertilizer intensive as corn, particularly nitrogenous fertilizers, this impact is significantly less than what was previously presented for corn. By 2035, the impact is expected to be nearly $11/acre above reference costs.

Under the base scenario, the per acre impacts of cap-and-trade on wheat production costs in the short-term are less than corn but more than soybeans. However, as a percentage of variable costs, cap-and-trade impacts on wheat production costs are greater in the short-run, as fuel costs account for a larger share of variable wheat costs than the other crops. Yet, in the out years of the forecast, as fertilizer cost impacts grow, corn which uses more nitrogenous fertilizer becomes more impacted than wheat on a percentage basis. By 2020, it is estimated that wheat production costs will be $2.67/acre above reference case costs, accounting for 1.6% of total variable costs. As the fertilizer allowances are phased out from 2025 to 2035, this impact increases, expanding to nearly $21/acre by 2035, the report outlined.

Ihnen added while this legislation offers opportunities to produce carbon offsets, this study demonstrates that not all growers will be able to participate. The single greatest offset opportunity is using continuous no-till. However, not every corn grower is able to adopt no-till practices. The ability to adopt continuous no-till production is driven by both economic and agronomic factors.

"Those growers unable to adopt no-till production will experience serious economic hardship resulting from H.R. 2454. This burden will fall disproportionally on growers in the northern Corn Belt," he said.

The analysis also found that the bill will result in diverting productive farmland into afforestation (newly planted forests) or perennial grasses solely to gain offset credits.

"Although our analysis shows dramatically less acreage diversion than noted by the U.S. Department of Agriculture, it still diverts land needed to feed and fuel a hungry world and therefore affects both food security and energy security," Ihnen stated.