Cap

1
Cap Trade Legislation Whats Proposed and What
Does It Mean

Chad Hart Asst. Professor of Economics Iowa State
University
Iowa Meeting of ASFMRA and RLI Ames, Iowa March
23, 2010
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Climate Change
Source www.conservationreport.com
3
Climate Change
Source Congressional Budget Office
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GHG Emission Rules

• Greenhouse gas rules are coming
• Whether through legislation or regulation
• EPA has the authority to regulate GHGs
• Via Clean Air Act
• However, Congress would like to set the rules
• H.R. 2454, American Clean Energy and Security Act
  of 2009,
• Passed in U.S. House of Rep. on 6/26/09, 219-212
• S. 1733, Clean Energy Jobs and American Power Act
• Introduced 9/30/09, In committee (actually, six
  committees)

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U.S. GHG Emissions
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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CO2 Emissions
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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CH4 Emissions
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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N2O Emissions
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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GHG Emissions by Sector
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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Agricultural GHG Emissions
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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GHG Emission Statistics
Source EPA, Inventory of U.S. Greenhouse Gas
Emissions and Sinks 1990-2007
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Climate Change Legislation

• American Clean Energy and Security Act of 2009
  (H.R. 2454)
• Requires utilities to supply an increasing
  percentage of their demand from a combination of
  energy efficiency savings and renewable energy
  (6 in 2012, 9.5 in 2014, 13 in 2016, 16.5 in
  2018, and 20 in 2021-2039).
• Provides for issuing, trading, banking, retiring,
  and verifying renewable electricity credits.
• Establishes targets to cap and reduce greenhouse
  gas (GHG) emissions, annually, so that GHG
  emissions from capped sources are reduced to 97
  of 2005 levels by 2012, 83 by 2020, 58 by 2030,
  and 17 by 2050 and establish a federal GHG
  registry.
• Provides for trading, banking and borrowing,
  auctioning, selling, exchanging, transferring,
  holding, or retiring emission allowances.

Source Congressional Research Service
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Climate Change Legislation

• Agriculture provisions in H.R. 2454
• Provides some exemptions from the GHG emission
  reduction requirements for agriculture and
  forestry
• Provides incentive-based approach to GHG emission
  reduction/capture
• Allows USDA to help establish eligible GHG offset
  practices and review of those practices
• Shifts question on indirect-land-use to an
  independent panel for study with EPA and USDA to
  review in the future
• Allows for a specific exemption for livestock
  (enteric fermentation from ruminant animals) from
  uncapped emissions guidelines

Source Craig Raysor, Gillon Associates, PLLC
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Lots of Analysis

• The EPA has funded the development of several
  models that are capable of examining the impact
  of this bill and other similar bills
• The environmental economists who worked on these
  models are very well respected and the work is
  sound
• However, the only certainty in the bill is the
  limit on carbon, everything else is assumption
  driven

Source ISU, Dermot Hayes presentation, Oct. 2009
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Key Assumptions

• The US economy was already on a slow growth path
  for energy consumption, the analysis assumes that
  this continues
• Coal fired plants largely shut down and are
  replaced by nuclear
• Enormous reliance on international and domestic
  offsets
• If we cannot build the large number of nuclear
  plants or find the international offsets, then
  the price of carbon will increase at about twice
  the reported rate

Source ISU, Dermot Hayes presentation, Oct. 2009
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Energy Sources
Source EPA Analysis of H.R. 2454, June 23, 2009
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GHG Emissions Abatements
Source EPA Analysis of H.R. 2454, June 23, 2009
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Domestic Offsets

• Implementing regulations not yet written
• Uncertainty about how the offsets would work in
  agriculture, particularly for conservation
  tillage, but the intention is clearly to use
  these offsets as a way to stimulate agricultural
  incomes
• Consideration of leakage is prohibited pending a
  study
• Heavy reliance on the growth of trees on pasture
  and crop land

Source ISU, Dermot Hayes presentation, Oct. 2009
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Domestic Offsets
Source EPA Analysis of Waxman-Markey, April 20,
2009
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Domestic Offsets
Source ISU, Dermot Hayes presentation, Oct. 2009
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Land Use Changes
Allowance Prices
Source USDA, Office of Chief
Economist Statement of Joseph Glauber, before
House Ag Committee, 12/3/09
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International Offsets

• Must be a developing country that is a member of
  a unilateral or multilateral emissions reduction
  agreement with the United States
• Must have the technical capacity to monitor,
  measure, report and verify forest carbon fluxes
  resulting from deforestation
• Must have the capacity to reduce emissions from
  deforestation, including strong forest governance
• The international offset project itself must be
  shown to result in permanent verifiable
  reductions that are net of any leakage measures

Source ISU, Dermot Hayes presentation, Oct. 2009
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Allowances
Source Congressional Research Service, June 2009
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Carbon Prices Increase Over Time
Source EPA Analysis of H.R. 2454, June 23, 2009
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Prices Are Sensitive to Offsets
Source EPA Analysis of H.R. 2454, June 23, 2009
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Energy Price Paths
Source EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on an Average Household
Source EPA Analysis of H.R. 2454, June 23, 2009
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Impacts on Tillage Practices
Source EPA Analysis of H.R. 2454, June 23, 2009
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Comparison of Results
Allowance Price
Source ISU, Dermot Hayes presentation, Oct. 2009
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USDA Estimates
2012-2018 Production Costs Changes
Source USDA, Office of Chief
Economist Statement of Joseph Glauber, before
House Ag Committee, 12/2/09
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Crop Production Changes
Source USDA, Office of Chief Economist,
The Impacts of the American Clean Energy and
Security Act of 2009 On U.S. Agriculture
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Crop Price Changes
Source USDA, Office of Chief Economist,
The Impacts of the American Clean Energy and
Security Act of 2009 On U.S. Agriculture
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Livestock Production Impacts
Source USDA, Office of Chief Economist,
The Impacts of the American Clean Energy and
Security Act of 2009 On U.S. Agriculture
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Livestock Price Impacts
Source USDA, Office of Chief Economist,
The Impacts of the American Clean Energy and
Security Act of 2009 On U.S. Agriculture
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Offsets and Revenues
Source USDA, Office of Chief Economist,
The Impacts of the American Clean Energy and
Security Act of 2009 On U.S. Agriculture
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Not The Only Game in Town

• The House bill has not gained traction in the
  Senate
• Senate proposals have stalled in committee
• Very little committee action up to this point
• A bipartisan effort (Kerry D-Mass., Graham R-S.
  Car., and Lieberman I-Conn.) is underway
• No legislative language yet, but that may come
  soon
• Expected to be more business-friendly
• One trial balloon carbon fee on transportation
  fuels (suggestion from oil companies)

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Concluding Thoughts

• The potential for cropland conversion points to
  higher crop prices and feed costs
• Crop prices will likely track carbon prices
• Cropland conversion will benefit landowners
  through higher rents
• Agriculture will experience the benefits and the
  costs of climate change legislation

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Thank you for your time!Any questions?