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STATEMENT OF JOSEPH GLAUBER,CHIEF ECONOMIST, U.S. DEPARTMENT OF AGRICULTUREBEFORE THE HOUSE AGRICULTURE COMMITTEE,SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, ANDRESEARCHDecember 2, 2009
Mr. Chairman, members of the Subcommittee, thank you for the opportunity toreview the potential economic impacts of proposed climate change legislation to the farmsector. Specifically, my comments today focus on how changes in energy prices under acap-and-trade system for greenhouse gas (GHG) emissions would likely affect farmersand ranchers based on analyses of the American Clean Energy and Security Act of 2009(H.R. 2454), which included a cap-and-trade system for GHG emissions. The economicimpacts of climate change on the farm sector are broad, complex and will evolve slowlyover the next decades. Impacts will be influenced by the timing and extent of climatechange, the efficacy of actions to mitigate emissions and adapt to changes, the form of the actions taken within the United States and in other countries, and the extent to whichmitigation within the farm sector can be compensated through GHG offsets or othermechanisms.We have not been able to quantify all of these factors and their influence on thefarm economy. Our preliminary analysis of H.R. 2454, published in July
1
, focused on theeconomic impacts of changes in energy prices associated with the cap imposed ondomestic emissions.
1
U.S. Department of Agriculture, Office of the Chief Economist and Economic Research Service. “APreliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture” July 22, 2009. Available athttp://www.usda.gov/oce/newsroom/archives/releases/2009files/HR2454.pdf  
 
 2We have refined and expanded that analysis and my comments today willsummarize preliminary findings focusing on the effects of higher energy prices. Thefindings suggest that under the energy price scenario estimated by the EnvironmentalProtection Agency, price and income effects due to higher production costs will berelatively small, particularly over the short run (2012-25) when fertilizer producers willbe eligible for significant rebates. Separate testimony will address the role of GHG offsetmarkets and their effects on farm income, the analysis of which suggest that the cap-and-trade as a whole likely will have a positive effect on net farm income.Agriculture and forestry are not covered sectors under the cap-and-trade system of H.R. 2454. Therefore producers in these sectors are not required to hold allowances forGHG emissions. Nonetheless, U.S. agriculture would be affected in a variety of ways.Energy providers’ compliance with GHG emissions reductions legislation will likelyincrease energy costs. Higher prices for fossil fuels and inputs would increaseagricultural production costs, particularly for more energy-intensive crops. This would,in turn, affect plantings and production, which would affect the livestock sector throughhigher feed costs. Higher energy prices could also result in increased biofuel production.It is worth noting that fertilizer prices will likely show little effect until 2025 because of the H.R. 2454’s provision to help energy-intensive, trade exposed industries mitigate theburden that the emissions caps would impose.Though the effects are not incorporated into the main findings of this testimony,H.R. 2454 would also provide opportunities for farmers and ranchers to receive paymentsfor carbon offsets. Revenue from offsets for changes in tillage practices, reductions in
 
 3methane and nitrous oxide emissions, and tree plantings, for example, could mitigate theeffects of higher energy prices for many producers.Lastly, H.R. 2454 could have significant land use effects. Though this analysisdoes not include bioenergy production effects or changes in land use due to added biofuelproduction or carbon sequestration through afforestation, both could further affect outputprices and farm income..
Energy Use by U.S. Agriculture
Agriculture is an energy intensive sector with row crop production particularlyaffected by energy price increases. Direct energy consumption in the agricultural sectorincludes use of gasoline, diesel fuel, liquid petroleum, natural gas and electricity.Indirect use involves agricultural inputs such as nitrogen and other fertilizers which havea significant energy component associated with their production. Over 2005-08, ERSdata show that expenses from direct energy use averaged about 6.7 percent of totalproduction expenses in the sector, while fertilizer expenses represented another 6.5percent. With the more recent increases in energy costs, the combined share of theseinputs reached nearly 15 percent in 2008.In general, energy costs as a percent of total operating costs are highest for wheatand feed grains. Based on cost of production data for 2007 and 2008, wheat, sorghum,corn, barley and oats have energy input shares between 55 and 60 percent (table1).Cotton and soybeans are among the least energy intensive crops, with total energy costsrepresenting only about 30 percent of total production costs.A somewhat different distribution of energy costs by commodity results if lookedat in terms of per-acre costs for energy-related inputs rather than shares of operating
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