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HEARING TO REVIEW THE POTENTIAL

ECONOMIC IMPACTS OF CLIMATE CHANGE 

ON THE FARM SECTOR

HEARING

BEFORE THE

SUBCOMMITTEE ON CONSERVATION, CREDIT, 

ENERGY, AND RESEARCH

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED ELEVENTH CONGRESS

FIRST SESSION

DECEMBER 2, 2009

Serial No. 111–38

(

Printed for the use of the Committee on Agriculture 

agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania, 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

STEVE KAGEN, Wisconsin 

KURT SCHRADER, Oregon 

DEBORAH L. HALVORSON, Illinois 

KATHLEEN A. DAHLKEMPER, 

Pennsylvania 

ERIC J.J. MASSA, New York 

BOBBY BRIGHT, Alabama 

BETSY MARKEY, Colorado 

FRANK KRATOVIL, JR., Maryland 

MARK H. SCHAUER, Michigan 

LARRY KISSELL, North Carolina 

JOHN A. BOCCIERI, Ohio 

SCOTT MURPHY, New York 

EARL POMEROY, North Dakota 

TRAVIS W. CHILDERS, Mississippi 

WALT MINNICK, Idaho 

FRANK D. LUCAS, Oklahoma, Ranking 

Minority Member 

BOB GOODLATTE, Virginia 

JERRY MORAN, Kansas 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

ROBERT E. LATTA, Ohio 

DAVID P. ROE, Tennessee 

BLAINE LUETKEMEYER, Missouri 

GLENN THOMPSON, Pennsylvania 

BILL CASSIDY, Louisiana 

CYNTHIA M. LUMMIS, Wyoming 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

APRIL SLAYTON, Communications Director 

NICOLE SCOTT, Minority Staff Director 

(II) 

SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, AND RESEARCH

TIM HOLDEN, Pennsylvania, Chairman

STEPHANIE HERSETH SANDLIN, South 

Dakota 

DEBORAH L. HALVORSON, Illinois 

KATHLEEN A. DAHLKEMPER, 

Pennsylvania 

BETSY MARKEY, Colorado 

MARK H. SCHAUER, Michigan 

LARRY KISSELL, North Carolina 

JOHN A. BOCCIERI, Ohio 

MIKE MCINTYRE, North Carolina 

JIM COSTA, California 

BRAD ELLSWORTH, Indiana 

TIMOTHY J. WALZ, Minnesota 

ERIC J.J. MASSA, New York 

BOBBY BRIGHT, Alabama 

FRANK KRATOVIL, JR., Maryland 

SCOTT MURPHY, New York 

WALT MINNICK, Idaho 

EARL POMEROY, North Dakota 

BOB GOODLATTE, Virginia, Ranking 

Minority Member 

JERRY MORAN, Kansas 

SAM GRAVES, Missouri 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

RANDY NEUGEBAUER, Texas 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

ROBERT E. LATTA, Ohio 

BLAINE LUETKEMEYER, Missouri 

GLENN THOMPSON, Pennsylvania 

BILL CASSIDY, Louisiana 

NONA DARRELL, Subcommittee Staff Director

(III) 

(V)

C O N T E N T S 

Page 

Boccieri, Hon. John A., a Representative in Congress from Ohio, submitted 

report ..................................................................................................................... 98

Goodlatte, Hon. Bob, a Representative in Congress from Virginia, opening 

statement .............................................................................................................. 3

Prepared statement .......................................................................................... 4

Holden, Hon. Tim, a Representative in Congress from Pennsylvania, opening 

statement .............................................................................................................. 1

Prepared statement .......................................................................................... 2

Latta, Hon. Robert E., a Representative in Congress from Ohio, prepared 

statement .............................................................................................................. 6

Peterson, Hon. Collin C., a Representative in Congress from Minnesota, prepared statement ................................................................................................... 5

Smith, Hon. Adrian, a Representative in Congress from Nebraska, prepared 

statement .............................................................................................................. 6

Walz, Hon. Timothy J., a Representative in Congress from Minnesota, prepared statement ................................................................................................... 6

Submitted report .............................................................................................. 163

WITNESSES

Glauber, Ph.D., Joseph, Chief Economist, U.S. Department of Agriculture, 

Washington, D.C. ................................................................................................. 8

Prepared statement .......................................................................................... 10

Outlaw, Ph.D., Joe L., Co-Director, Agricultural and Food Policy Center; 

Professor and Extension Economist—Farm Management and Policy, Department of Agricultural Economics, Texas A&M University, College Station, TX ................................................................................................................. 49

Prepared statement .......................................................................................... 51

Submitted report .............................................................................................. 216

Westhoff, Ph.D., Patrick, Co-Director, Food and Agricultural Policy Research 

Institute; Research Associate Professor, Department of Agricultural Economics, University of Missouri-Columbia, Columbia, MO ................................ 54

Prepared statement .......................................................................................... 56

Antle, Ph.D., John M., Professor of Agricultural Economics and Economics, 

Montana State University; Courtesy Professor of Agricultural and Resource 

Economics, Oregon State University; University Fellow, Resources for the 

Future, Bozeman, MT .......................................................................................... 60

Prepared statement .......................................................................................... 61

Capper, B.S.c., Ph.D., Judith ‘‘Jude’’ L., Assistant Professor of Dairy Science, 

Department of Animal Sciences, Washington State University, Pullman, 

WA ......................................................................................................................... 67

Prepared statement .......................................................................................... 68

Pottorff, Richard C., Chief Economist, Doane Advisory Services, Rochester, 

MN ......................................................................................................................... 78

Prepared statement .......................................................................................... 79

SUBMITTED MATERIAL

National Oilseed Processors Association, submitted statement .......................... 90

West, Ford B., President, The Fertilizer Institute, submitted statement ........... 89

(1)

HEARING TO REVIEW THE POTENTIAL

ECONOMIC IMPACTS OF CLIMATE CHANGE 

ON THE FARM SECTOR 

WEDNESDAY, DECEMBER 2, 2009

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CONSERVATION, CREDIT, ENERGY, AND

RESEARCH, 

COMMITTEE ON AGRICULTURE, 

Washington, D.C. 

The Subcommittee met, pursuant to call, at 10:00 a.m., in Room 

1300 of the Longworth House Office Building, Hon. Tim Holden 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Holden, Herseth Sandlin, 

Dahlkemper, Markey, Schauer, Kissell, Boccieri, Costa, Ellsworth, 

Walz, Kratovil, Murphy, Goodlatte, Moran, Rogers, Schmidt, 

Smith, Latta, Luetkemeyer, Thompson, Cassidy, and Minnick. 

Staff present: Christy Birdsong, Nona Darrell, Tony Jackson, 

Craig Jagger, Tyler Jameson, John Konya, Scott Kuschmider, 

James Ryder, Anne Simmons, April Slayton, Debbie Smith, Rebekah Solem, Patricia Barr, Tamara Hinton, Josh Maxwell, Mary 

Nowak, Ben Veghte, and Sangina Wright. 

OPENING STATEMENT OF HON. TIM HOLDEN, A 

REPRESENTATIVE IN CONGRESS FROM PENNSYLVANIA 

The CHAIRMAN. This hearing of the Subcommittee on Conservation, Credit, Energy, and Research to review the potential economic 

impacts of climate change on the farm sector will come to order. 

I would like to welcome our witnesses and guests to today’s hearing, the first of two hearings on the topic of climate change as it 

pertains to agriculture. Today, our witnesses will provide testimony 

on the impacts of climate change on the farm sector, and tomorrow’s panel will discuss the cost and benefits of agriculture offsets. 

The intent of these hearings is not to cover all issues related to climate change, but to cut through the talking points and rhetoric 

used to distort the conversation to suit special interests. 

Over the next 2 days we will hear testimony from researchers 

with different areas of expertise, backgrounds, and perspectives to 

find out what climate change and legislation related to climate 

change really means for agriculture. I hope they can provide a complete and realistic analysis of the two biggest areas of concerns, impacts and offsets. The Committee on Agriculture took a first step 

in March of this year by issuing a climate change questionnaire 

that was sent to over 400 agriculture-related organizations to soVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
2

licit input on greenhouse gas emissions. Their responses and other 

related issues were further discussed at a hearing in June during 

the debate of the American Clean Energy and Security Act. 

It became clear after these efforts that there is much interest 

from the agriculture community, and from Members of this Committee, in the way agriculture fits into the climate change debate. 

Regardless of what side of the debate we are on everyone can agree 

there is much more work to be done in this area. More information 

is needed to determine what we can be doing better. The 2007 Supreme Court decision has left us all in a state of confusion. We do 

not yet know the implications of what kind of domino effect this decision will have on all industries. We do know that EPA will likely 

take actions to regulate greenhouse gases under the Clean Air Act. 

No matter what your position is on climate change, I don’t believe having EPA regulating emissions on farms is the way any of 

us want to proceed. The successful efforts of Chairman Peterson 

during the debate of the climate change bill to prevent EPA regulation of greenhouse gases under the Clean Air Act ensures that 

there should be no cow tax or EPA regulations of agriculture. The 

bill passed by the House, however, is a long way from the President’s desk. There is still a lot of work to do and more information 

to be gathered. These hearings may produce more questions than 

answers, but they will allow us all the opportunity to hear from the 

distinguished panelists who have the knowledge and expertise on 

these issues, the researchers, economists, educators and analysts. 

I look forward to their testimony and the opportunity to listen, 

learn, and question those who have been doing the actual work on 

agriculture and climate change. 

[The prepared statement of Mr. Holden follows:]

PREPARED STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN CONGRESS FROM

PENNSYLVANIA

I would like to welcome our witnesses and guests to today’s hearing, the first of 

two hearings on the topic of climate change as it pertains to agriculture. Today, our 

witnesses will provide testimony on the impacts of climate change on the farm sector, and tomorrow’s panel will discuss the costs and benefits of agriculture offsets. 

The intent of these hearings is not to cover all issues related to climate change, 

but to cut through the talking points and rhetoric used to distort the conversation 

to suit special interests. Over the next 2 days, we will hear testimony from researchers with different areas of expertise, backgrounds and perspectives, to find out what 

climate change and legislation related to climate change really means for agriculture. I hope they can provide a complete and realistic analysis of the two biggest 

areas of concern: impacts and offsets. 

The Committee on Agriculture took a first step in March of this year by issuing 

a climate change questionnaire that was sent to over 400 agriculture-related organizations to solicit input on greenhouse gas emissions. Their responses and other related issues were further discussed at a hearing in June during debate of the American Clean Energy and Security Act. 

It became clear after these efforts that there is much interest from the agriculture 

community, and from Members of this Committee, in the way agriculture fits into 

the climate change debate. Regardless of which side of the debate we are on, everyone can agree there is much more work to be done in this area. More information 

is needed to determine what we can be doing better. 

The 2007 Supreme Court decision has left us all in a state of confusion. We do 

not yet know the implications or what kind of domino effect this decision will have 

on all industries. We DO know that EPA will likely take actions to regulate greenhouse gases under the Clean Air Act. No matter what your position is on climate 

change, I don’t believe having EPA regulating emissions on farms is the way any 

of us want to proceed. 

3

The successful efforts of Chairman Peterson during debate of the climate change 

bill to prevent EPA regulation of greenhouse gases under the Clean Air Act ensure 

that there should be no cow tax or EPA regulation of agriculture. The bill passed 

by the House, however, is a long way from the President’s desk. There is still a lot 

of work to do and more information to be gathered. 

These hearings may produce more questions than answers, but they will allow us 

all the opportunity to hear from distinguished panelists who have the knowledge 

and expertise on these issues—the researchers, economists, educators and analysts. 

I look forward to their testimony and the opportunity to listen, learn and question 

those who have been doing the actual work on agriculture and climate change.

The CHAIRMAN. I now recognize the Ranking Member of the Subcommittee, the gentleman from Virginia, Mr. Goodlatte. 

OPENING STATEMENT OF HON. BOB GOODLATTE, A 

REPRESENTATIVE IN CONGRESS FROM VIRGINIA 

Mr. GOODLATTE. Thank you, Mr. Chairman. I want to thank you 

for holding today’s hearing to review the potential economic impacts of climate change on the agriculture sector. The House has 

passed H.R. 2454, but by a very close margin, with the overwhelming majority on my side of the Committee, including myself, 

voting no. And many questions still remain on the impact that capand-trade will have on our economy, and this Committee should 

continue to intensely review how these proposals will affect farmers 

and ranchers, as well as consumers of agricultural products. The 

Senate is considering similar legislation to the American Clean Energy and Security Act or ACES, as its authors like to call it. 

I have another name for this legislation, the Agriculture Can’t 

Exist Standards. There are many studies that model the effects of 

cap-and-trade on our economy. I am very interested to hear from 

our witnesses today who will discuss their cap-and-trade analyses 

for the agriculture industry. Although each model uses different assumptions and has different end results, the conclusions of these 

studies remain the same. Cap-and-trade legislation has the potential to devastate the agriculture community with higher energy 

prices and lower farm income. As these higher energy prices ripple 

throughout the economy, producers will pay more for fertilizer, pesticides, seed, equipment, machinery, steel, and other supplies needed for their agriculture operations. 

This is expected to increase operating costs, anywhere from 10– 32 percent. Studies show a decrease in farm income from $5 billion 

to $50 billion per year. According to ERS, net farm income will be 

down $30 billion in 2009. Additionally, grain and meat processing 

and food production facilities will be hit with the same costs as producers. Rural America cannot afford the economic stifling effects of 

a cap-and-trade policy. Proponents of cap-and-trade may point to 

the agriculture offsets provision that is supposed to create potential 

for farm revenue, but this provision picks winners and losers by ignoring certain commodities and regions and by excluding early actors of conservation practices. 

In essence, not every farmer and rancher will be able or even eligible to participate. Although we are still anxiously waiting to see 

USDA’s regional analysis for the potential of agricultural offsets, 

the EPA analysis of offsets shows that farmers best and only 

chance to participate in an offset program would come from taking 

land out of production to plant trees. Congress is creating another 

government mandate that will result in an artificial competition 

4

between food, feed, fuel, and now carbon. This will undoubtedly 

change cropping patterns, which will reduce our domestic supply of 

agricultural products and ultimately increase commodity prices. 

This policy will reduce exports and move our agriculture production overseas forcing other countries to clear land for agriculture 

production to meet their food, feed, and fiber needs. Mr. Chairman, 

you are absolutely correct when you refer to the problem we are 

confronting with the Environmental Protection Agency, and the 

possibility, in fact, right now the likelihood that they will take action absent Congressional action in this area. However, there is a 

simple solution that the Members of this Committee should take 

the lead on in pushing since Members on both sides of the aisle in 

large numbers opposed the cap-and-trade legislation, and that 

would be to simply push for legislation that restrains the authority 

of the EPA to take the action that they are threatening to take. 

That to me would be the simplest way to set the standards for the 

Congress in how we will proceed from here. 

If were to do that, the Congress would be retaking control of this 

important policy area from the Environmental Protection Agency, 

an agency that is acting based upon a Court decision that was rendered; notwithstanding the fact that when the Clean Air Act standards were set that they are operating on had no one in the Congress, or for that matter in the EPA thinking that back in the 

1970s that that would be an appropriate thing to do to regulate 

carbon dioxide emissions. What this all means for the American 

consumer is higher food costs or worse, a dependency on foreign nations for our food supply. 

Mr. Chairman, I again thank you for holding the hearings this 

week. The impact that cap-and-trade will have on the ag sector and 

our economy and our very lives is extensive. We should make sure 

that we fully vet its impact, particularly at a time when our economy is struggling and unemployment is at 10.2 percent. It is no 

time to further cripple our economy with the burdens of a cap-andtax policy. I hope that we can continue these discussions at the full 

Committee so that all our Members have the opportunity to review 

cap-and-trade policy and the effects it will have on their constituents. 

[The prepared statement of Mr. Goodlatte follows:]

PREPARED STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS

FROM VIRGINIA

Mr. Chairman, thank you for holding today’s hearing to review the potential economic impacts of climate change on the agriculture sector. 

The House has passed H.R. 2454, but many questions still remain on the impact 

that cap-and-trade will have on our economy. And, this Committee should continue 

to intensely review how these proposals will affect farmers and ranchers, as well 

as consumers of agricultural products. The Senate is considering similar legislation 

to the American Clean Energy and Security Act or ACES as its authors like to call 

it. I have another name for this legislation: the Agriculture Can’t Exist Standards. 

There are many studies that model the effects of cap-and-trade on our economy. 

I am very interested to hear from our witnesses today who will discuss their capand-trade analyses for the agriculture industry. Although each model uses different 

assumptions and has different end results, the conclusions of these studies remain 

the same: cap-and-trade legislation has the potential to devastate the agriculture 

community with higher energy prices and lower farm income. 

As these higher energy prices ripple throughout the economy, producers will pay 

more for fertilizer, pesticides, seed, equipment, machinery, steel, and other supplies 

5

needed for their agriculture operations. This is expected to increase operating costs 

anywhere from 10–32 percent. Studies show a decrease in farm income from $5 billion to $50 billion per year. According to ERS, net farm income will be down $30 

billion in 2009. Additionally, grain and meat processing and food production facilities will be hit with the same costs as producers. Rural America cannot afford the 

economic-stifling effects of a cap-and-trade policy. 

Proponents of cap-and-trade may point to the agriculture offsets provision that is 

supposed to create potential for farm revenue. But this provision picks winners and 

losers by ignoring certain commodities and regions, and by excluding early actors 

of conservation practices. In essence, not every farmer and rancher will be able or 

even eligible to participate. 

Although we are still anxiously waiting to see USDA’s regional analysis for the 

potential of agriculture offsets, the EPA analysis of offsets shows that farmers’ best 

and almost only chance to participate in an offset program would come from taking 

land out of production to plant trees. Congress is creating another government mandate that will result in an artificial competition between food, feed, fuel, and now 

carbon. This will undoubtedly change cropping patterns, which will reduce our domestic supply of agricultural products and ultimately increase commodity prices. 

This policy will reduce exports and move our agriculture production overseas forcing 

other countries to clear land for agriculture production to meet their food, feed, and 

fiber needs. 

What this all means for the American consumer is higher food costs or worse a 

dependency on foreign nations for our food supply. 

Mr. Chairman, I again thank you for holding the hearings this week. The impact 

that cap-and-trade will have on the ag sector, and our economy, and our very lives 

is extensive. We should make sure that we fully vet its impact. Particularly, at a 

time when our economy is struggling and unemployment is at 10.2%. It is no time 

to further cripple our economy with the burdens of a cap-and-tax policy. 

I hope that we can continue these discussions at the full Committee so all our 

Members have the opportunity to review cap-and-trade policy and the effects it will 

have on their constituents.

The CHAIRMAN. The chair thanks the gentleman, and asks all 

other Members of the Subcommittee to submit their statements for 

the record. 

[The prepared statements of Messers. Peterson, Walz, Smith, and 

Latta follow:]

PREPARED STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE IN

CONGRESS FROM MINNESOTA

Thank you, Chairman Holden, for holding the hearings today and tomorrow to 

look more closely at the impact of climate change and climate change legislation on 

the farm sector. 

I am going to keep my remarks brief so that we can get to the substance of today’s 

hearing. In fact, the very reason for today’s hearing is to cut through all the rhetoric 

and talking points and focus on the reality of how agriculture is involved in climate 

change and proposals to regulate greenhouse gas emissions. 

When it became clear that Congress was going to act on climate change legislation 

and that EPA was prepared to act if Congress did not, we realized that the Agriculture Committee needed to be engaged in this process or else we would be left 

with much of the burden and none of the potential benefits of climate change legislation. The bottom line for me was that we needed to be sure that EPA would not 

be coming onto farms to regulate greenhouse gas emissions. I don’t want to turn 

around in a year or 2 and find that we’re fighting an uphill battle against EPA on 

whatever regulatory scheme they come up with to hold agriculture responsible for 

greenhouse gas emissions. 

H.R. 2454 is far from perfect, and more protections for the agriculture and forestry sectors are needed before I will vote for final passage of the conference report. 

But, everyone agreed that the changes we made for agriculture in the House-passed 

bill were necessary and good. 

Moving forward, we are here today to listen and learn about the economic analysis that has been done on climate change and agriculture, which will help us understand what the potential impacts might be, whether we act or fail to act on climate change legislation. I look forward to learning more from our witnesses and the 

discussion we will have here today. 

6

PREPARED STATEMENT OF HON. TIMOTHY J. WALZ, A REPRESENTATIVE IN CONGRESS

FROM MINNESOTA

Chairman Holden, Ranking Member Goodlatte, thank you for holding this hearing 

to look at the objective research surrounding the effects of climate change and climate change legislation on the agriculture sector. I further appreciate that this 

hearing is coupled with the hearing tomorrow to look at agriculture offset programs, 

for we must look at how these issues are coupled together. 

Climate change is a real and serious problem, and we’re simply hurting ourselves 

every day we don’t act to change the way we emit greenhouse gas. We have an obligation to fix this problem, to set an example for the world, to strengthen our economic security and energy independence. However, we must do it wisely, it must 

make sense, and it must not do more harm than good. 

I firmly believe our agriculture producers can and want to be a part of the solution. I understand much of the testimony today will focus on how H.R. 2454, the 

American Clean Energy and Security Act, will increase energy prices for farmers. 

However, I believe we must also focus on the cost of inaction. 

Do the costs associated with H.R. 2454 outweigh the costs of inaction? The Institute for Policy Integrity at New York University’s School of Law has done an analysis showing the benefits of H.R. 2454 will exceed costs by 9:1. Of course, this is 

looking at climate change across all sectors. What I want to know is if the agriculture economists here today have done similar studies looking at the cost of inaction on the agriculture sector and how those costs compare to the cost of H.R. 2454. 

I look forward to the testimony today. 

PREPARED STATEMENT OF HON. ADRIAN SMITH, A REPRESENTATIVE IN CONGRESS

FROM NEBRASKA

Thank you, Mr. Chairman. I appreciate the Subcommittee holding this hearing to 

review the economic impact of climate change policy on the farming sector. 

Recent efforts to reduce greenhouse gas (GHG) emissions by implementing a ‘‘capand-trade’’ system add up to a national energy tax at a time when both producers 

and consumers are struggling. While I support investment in clean, renewable energy, the infrastructure needed to employ this approach is not realistic. The farming 

sector is one of the most energy-intensive industries, both directly and indirectly. 

The Third District of Nebraska is one of the leading agricultural districts in the 

country, home to more than 30,000 farmers and ranchers who would suffer from 

even a slight increase in operating cost. 

Assumptions about cap-and-trade’s potential impact are being made on all sides 

of this debate. Forecasting cropland changes, weather patterns, and energy and 

commodity prices, while useful, is not exact. But one thing is certain: forcing a capand-trade mandate will create greater challenges for our rural economy. As a Member of this Subcommittee, I would like to see more thoughtful deliberation on such 

far-reaching policy, which is why I voted against the American Clean Energy and 

Security Act when it came before the House in June of this year, and more recently 

joined a number of my colleagues in sending a letter to the Chairmen and Ranking 

Members of the House Energy and Commerce, Agriculture, and Small Business 

Committees requesting a joint hearing to examine climate change legislation and its 

effects on manufacturing, agriculture, and small business in the Midwest. 

Over the past decade, improved agricultural practices such as no-till cropping, targeted chemical applications through global positioning satellite technology, and 

methane digesters have reduced emissions from the agricultural sector. Strategies 

which involve a voluntary offset program could allow for farmers and ranchers to 

reduce emissions and recover a portion of their increased input costs. Federal policy 

should reward—not punish—our producers who are responsible stewards of the 

land. 

Again, thank you, Mr. Chairman. I appreciate the opportunity to hear the testimony of these experts and look forward to moving ahead in a bipartisan, productive 

manner. 

PREPARED STATEMENT OF HON. ROBERT E. LATTA, A REPRESENTATIVE IN CONGRESS

FROM OHIO

Good Morning. Chairman Holden and Ranking Member Goodlatte.

Thank you for having this hearing today to examine Climate Change legislation 

and its economic impacts on the farm sector. H.R. 2454, the misleading titled 

7

‘‘American Clean Energy and Security Act of 2009,’’ otherwise known as cap-andtax was the vehicle used in the House of Representatives early this July. While narrowly passing the House by 219–212 margin, there was strong bipartisan opposition 

to this bill, which will be detrimental to our economy. 

I represent Ohio’s Fifth Congressional District, the largest agricultural and largest manufacturing district in Ohio. Recently, I sent a letter to the Chairmen and 

Ranking Members of the House Agriculture, Energy and Commerce, and Small 

Business Committees, as well as Democratic Leadership asking them to hold a joint 

hearing on the impact which climate change legislation will have on the agriculture, 

manufacturing, and small business sectors. The Midwest is dependent on agriculture, manufacturing and small businesses, and I hear daily from my constituents 

regarding this issue and what negative effect it will have upon them. I was joined 

on the letter by Republican Leader John Boehner and Republican Conference Chairman Mike Pence, both also from the Midwest, along with 29 other Members of Congress. 

Unfortunately, only 0.8 percent of Ohioans are actively employed in the agriculture sector. The farmers in my district are not solely farmers; they are producers 

who farm full time and many of whom also have full time jobs in industries such 

as manufacturing. Ohio boasts over 618,000 manufacturing jobs according to most 

recent Bureau of Labor Statistics data. These are people who work in energy intensive industries that will be hit the hardest if this proposed climate change legislation is signed into law, or if the proposed Federal regulations are made final. These 

current pieces of legislation and proposed Environmental Protection Agency regulations will not only kill jobs in the United States, but will destroy the agriculture, 

manufacturing and small business jobs in my Congressional District and throughout 

the country. These are the same small businesses that make roughly 70–80 percent 

of all new jobs in the United States each year. 

My district’s main crops are corn, soybeans, and wheat. All of these crops have 

a significant operating cost for fuel, seed, electricity, fertilizers, and chemicals, all 

of which will increase heavily under current climate change legislation in the House 

and Senate. Operating costs amount to 71 percent for corn, 50 percent for soybeans, 

and 72 percent for wheat. Farmers in my district will not be able to sustain their 

farms and support their families with these increased costs. According to the Heritage Foundation, farm income is expected to drop $8 billion in 2012, $25 billion in 2024 and over $50 billion in 2035 if H.R. 2454 is enacted 

or similar legislation. This represents decreases of 28, 60, and 94 percent, respectively. In addition, I have farmers in my district that strongly believe in domestic 

energy production to reduce our costs at the pump and our dependency on foreign 

oil, all the while helping to bring back American jobs. With gasoline and diesel 

prices continuing to rise, the only thing this legislation will reduce is the size of individuals’ pocketbooks, especially with gasoline and diesel costs projected to be at 

least 58 percent higher under current climate change legislation. Under the current 

climate change legislation being proposed, economic impacts are severe, with job 

loss predicted at an astounding 1.1 million with peak unemployment projected at 

2.5 million. This legislation will have an even more devastating effect by 2035, as 

by that time this legislation is projected to have reduced our gross domestic product 

by $9.6 trillion. This legislation will result in higher energy costs for consumers, 

particularly in areas such as mine, where coal is the primary energy source. 

Over 86 percent of Ohio’s electricity is generated by coal. The costs incurred from 

this legislation on electricity generators will be passed along to the consumers. Not 

only will farmers in my district, and throughout the country, be burdened with not 

being able to afford to operate their farms, this legislation will raise their electric 

rates, gasoline rates and place an even larger burden on their family. A family of 

four could incur costs anywhere from $1,500 to $4,300 per year. In these tough economic times, this is an unbearable cost on the taxpayer. 

The Fifth District’s rural community relies on eleven different electric cooperatives to supply electricity throughout the district. Rural utility companies such as 

the ones in Ohio are more dependent on coal for electricity generation than utilities 

in urban areas. According to data from the National Rural Electric Cooperative Association, eighty percent of electricity production by a rural electric co-op is generated by coal compared to fifty percent nationally. 

In 2006, China surpassed the United States as the world’s largest carbon dioxide 

emitter. According to date from the Global Carbon Project, from 2000 through 2007, 

global total greenhouse gas emissions increased by 26 percent. During that same period, China’s carbon dioxide emissions increased 98 percent, India’s increased 36 

percent, while the United States’ carbon dioxide emissions only increased by three 

percent. If the United States were to completely cease using fossil fuels, the increase 

from the rest of the world will replace United States’ emissions in less than 8 years. 

8

We have an Administration that has stated they do not want to burden tax increases on anyone making under $200,000 per year. However, Americans who make 

under this amount still use electricity and gas, they still go the service station to 

fill their gasoline tanks, and they purchase things that have to be manufactured, 

processed and transported. With each of these respective items, cap-and-trade will 

drive up prices. 

A 2008 study by Doane Advisory Services, who is testifying today, has calculated 

the per-acre production cost increases under current climate change legislation. 

With my district’s main crops being corn, soybeans, and wheat, we would see an increase in production costs of each by 27 percent, 15 percent and 27 percent, respectively. These are direct prices only, and do not take into account the high costs of 

transportation, manufacturing, and processing of these crops. 

Just as burdensome as proposed climate change legislation will be, the 2009 

United Nations’ Conference on Climate Change in Copenhagen is projected to 

produce an agreement similar to the one passed in 1997 in Kyoto. Just like Kyoto, 

Copenhagen will be an agreement that will be detrimental to the U.S. economy and 

its energy intensive industries. This agreement will be a legally binding, comprehensive threat to America, especially detrimental to the Midwest. 

Copenhagen will be a multi-nation agreement with 192 countries participating in 

this process, which makes the United States and its efforts to control its outcome 

very difficult to agree on the final terms. America will be expected to show leadership at Copenhagen and succumb to the European Union and the group of 77 developing countries to agree to a legally-binding document. The U.S. will be required 

to reduce their greenhouse gas emissions significantly even though countries such 

as China and India will not be forced to comply. The U.S. has had little if no increase in greenhouse gas emissions since 1997, yet we will be expected to further 

reduce ours to make up for other countries non-participation. This will do nothing 

but further decrease jobs, reduce our GDP, drive up the costs of energy, and increase our national debt. This agreement will force our taxpayers’ hard-earned dollars to go to developing nations to develop their clean energy programs. The U.S. 

will be forced to redesign their energy policy, as well as help fund other countries’ 

energy policies including sending billions of dollars every year to China. 

As if U.S. Government regulation is not enough, U.S. companies and small businesses would be forced into investigations and decisions to be cast down upon them 

by foreign entities and governments. Just like cap-and-trade legislation, the Copenhagen Agreement will be a pure transfer of wealth not from the heart of the Midwest to the East and West Coasts, but from the entire United States to the rest 

of the world. The Energy Information Administration in the Department of Energy 

released a study which projected costs of U.S. compliance between $100 and $397 

billion annually. Between legislation, regulations, and a potential treaty, American 

farmers, manufacturers and small businesses are facing severe consequences. 

It is time for Congress to take a strong look at climate change legislation and the 

effects it will have on our economy, especially how hard it will affect the midwestern 

states that rely heavily on agriculture, manufacturing, and small businesses. I am 

still requesting that a joint hearing be held between the House Committees on Agriculture, Energy and Commerce, and Small Business. I do not want to see the Midwest be unfairly penalized, and we must ensure that our hard-working Americans 

have job security in farming and manufacturing. We need to keep American farmers 

feeding the world, our manufacturers in operation to keep our citizens employed by 

making American-made products, and our small businesses given incentives to create jobs and expand operations to new markets. I look forward to working with my 

colleagues on both sides of the aisle on this critically important matter.

The CHAIRMAN. And we would like to welcome our first witness, 

Dr. Joseph Glauber, Chief Economist, United States Department of 

Agriculture, Dr. Glauber, you may begin. 

STATEMENT OF JOSEPH GLAUBER, PH.D., CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C. 

Dr. GLAUBER. Mr. Chairman, Congressman Goodlatte, and Members of the Subcommittee, thank you for the opportunity to review 

the potential economic impacts of proposed climate change legislation to the farm sector. Specifically, my comments today focus on 

how changes in energy prices under a cap-and-trade system for 

greenhouse gas emissions would likely affect farmers and ranchers. 

9

The economic impacts of climate change on the farm sector are 

broad, complex, and will evolve slowly over the next decades. Impacts will be influenced by the timing and the extent of climate 

change; the efficacy of actions to mitigate emissions and adopt 

changes, and the forms of actions taken within the United States 

and in other countries; and the extent to which mitigation within 

the farm sector can be compensated through greenhouse gas offsets 

or other mechanisms. 

Our preliminary analysis of H.R. 2454, published last July, focused on the economic impacts of changes in energy prices associated with the cap imposed on domestic emissions. We have refined 

and expanded that analysis and my written testimony summarizes 

preliminary findings focusing on the effects of higher energy prices. 

Agricultural producers are not affected uniformly by the rise in energy prices and not all agricultural producers have the same opportunities to provide offsets. How changes in energy prices and the 

ability to provide offsets affect different parts of the agricultural 

sector relate to the relative and absolute magnitude of the changes 

in production costs and ability to change farming practices. 

Energy-related inputs and the ability to generate and provide offsets have a different importance across the sector and impacts reflect those different roles, both by commodity and region of the 

country. Energy consumption in the agricultural sector can either 

be direct, such as gasoline, diesel, petroleum, natural gas, electricity, and energy used for operating irrigation equipment; or indirect such as the energy used to produce fertilizer. Over 2005 to 

2009, using data collected by the Economic Research Service, shows 

that expenses from direct energy use averaged about 6.7 percent of 

total production expenses in this sector, while fertilizer expenses 

represented another 6.5 percent. With the more recent increase in 

energy costs, the combined share of these inputs reached nearly 15 

percent in 2008. 

In general, energy costs as a percent of total operating costs are 

highest for wheat and feed grains with energy input shares of some 

50 to 60 percent of total operating cost. On a per-acre basis energy 

costs are generally highest for rice, corn, and cotton. Direct energy 

costs make up a small share of total operating costs on livestock 

operations comprising less than ten percent of total operating cost 

for dairy, hog, and cow-calf operations. However, these operations 

also experience energy costs indirectly through higher feed costs. 

Feed costs average from less than 11 percent of a cow-calf total operating cost to almost 77 percent for dairy. 

Agriculture and forestry are not covered sectors under the capand-trade system of H.R. 2454. Therefore, producers in these sectors are not required to hold allowances for greenhouse gas emissions. Nonetheless, U.S. agriculture would be affected in a variety 

of ways. Energy providers’ compliance with greenhouse gas emission reduction legislation will likely increase energy costs. Higher 

prices for fossil fuels and inputs would increase agricultural production costs, particularly for more energy intensive crops. This 

would in turn affect planting and production, which would affect 

the livestock sector through higher feed costs. Higher energy prices 

could also result in increased biofuel production. 

10

1 U.S. Department of Agriculture, Office of the Chief Economist and Economic Research Service. ‘‘A Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture’’ July 22, 2009. 

Available at http://www.usda.gov/oce/newsroom/archives/releases/2009files/HR2454.pdf.

Using energy price scenarios estimated by the Environmental 

Protection Agency and the Energy Information Administration, we 

found that farm level price and income effects due to higher production costs will be relatively small, particularly over the short 

run, that is, over the next—from 2012 to 2025, when fertilizer producers will be eligible for significant rebates under the so-called energy intensive export or the trade-affected industries. In the longer 

term, the energy price effects grow larger and the impact on production costs are roughly proportional in magnitude. This assumes 

no change in technology or production practices which could mitigate some of the impact. 

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 payments for carbon offsets. Revenue from offsets for changes in tillage practices, reductions in 

methane and nitrous oxide emissions in tree plantings, for example, could mitigate the effects of higher energy prices for many producers. Last, H.R. 2454 could have significant land effects. Though 

this analysis does not include bioenergy production effects or 

changes in land use due to added fuel production, or carbon sequestration through afforestation, both could further affect output 

prices and farm income. 

I will deal with this tomorrow in more depth—our analysis does 

include this, and I will presenting this in tomorrow’s testimony. 

Again, thank you, Mr. Chairman, for holding these hearings on climate change. I think it is important to spend the time to understand the effects on agriculture, and I hope my testimony today 

and tomorrow is useful in that regard. I am certainly happy to answer any questions. 

[The prepared statement of Dr. Glauber follows:]

PREPARED STATEMENT OF JOSEPH GLAUBER, PH.D., CHIEF ECONOMIST, U.S. 

DEPARTMENT OF AGRICULTURE, WASHINGTON, D.C. 

Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to 

review the potential economic impacts of proposed climate change legislation to the 

farm sector. Specifically, my comments today focus on how changes in energy prices 

under a cap-and-trade system for greenhouse gas (GHG) emissions would likely affect farmers and 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 economic impacts of climate change on the farm sector are broad, 

complex and will evolve slowly over the next decades. Impacts will be influenced by 

the timing and extent of climate change, 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 which mitigation within the farm sector can 

be compensated through GHG offsets or other mechanisms. 

We have not been able to quantify all of these factors and their influence on the 

farm economy. Our preliminary analysis of H.R. 2454, published in July,1 focused 

on the economic impacts of changes in energy prices associated with the cap imposed on domestic emissions. 

We have refined and expanded that analysis and my comments today will summarize preliminary findings focusing on the effects of higher energy prices. The findings suggest that under the energy price scenario estimated by the Environmental 

Protection Agency, price and income effects due to higher production costs will be 

relatively small, particularly over the short run (2012–2025) when fertilizer producers will be eligible for significant rebates. Separate testimony will address the 

11

role of GHG offset markets 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 for GHG emissions. Nonetheless, U.S. agriculture would be affected in a variety of ways. Energy providers’ compliance with GHG emissions reductions legislation will likely increase energy costs. Higher prices for fossil fuels and inputs would 

increase agricultural production costs, particularly for more energy-intensive crops. 

This would, in turn, affect plantings and production, which would affect the livestock sector through higher 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 the burden 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 payments for carbon offsets. Revenue from offsets for changes in tillage practices, reductions in methane and nitrous oxide emissions, and tree plantings, for example, could 

mitigate the effects of higher energy prices for many producers. 

Last, H.R. 2454 could have significant land use effects. Though this analysis does 

not include bioenergy production effects or changes in land use due to added biofuel 

production or carbon sequestration through afforestation, both could further affect 

output prices and farm income. 

Energy Use by U.S. Agriculture 

Agriculture is an energy intensive sector with row crop production particularly affected by energy price increases. Direct energy consumption in the agricultural sector includes use of gasoline, diesel fuel, liquid petroleum, natural gas and electricity. 

Indirect use involves agricultural inputs such as nitrogen and other fertilizers which 

have a significant energy component associated with their production. Over 2005–

2008, ERS data show that expenses from direct energy use averaged about 6.7 percent of total production expenses in the sector, while fertilizer expenses represented 

another 6.5 percent. With the more recent increases in energy costs, the combined 

share of these inputs reached nearly 15 percent in 2008. 

In general, energy costs as a percent of total operating costs are highest for wheat 

and 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 

(table 1). Cotton and soybeans are among the least energy intensive crops, with total 

energy costs representing only about 30 percent of total production costs. 

A somewhat different distribution of energy costs by commodity results if looked 

at in terms of per-acre costs for energy-related inputs rather than shares of operating costs. Rice, corn, and cotton have the highest per-acre expenses for these inputs. Again, energy-related costs for soybean production are low among these crops. 

There is also variation in the regional distribution of energy-input costs. Figure 

1 illustrates this for wheat and soybeans, two sectors at the opposite end of the energy-input share spectrum. For wheat, the regions with the largest share of input 

costs allocated to energy are the Fruitful Rim and the Heartland (71 percent), followed by the Prairie Gateway (69 percent). 

Wheat production cost relationships for the Northern Great Plains and the Prairie 

Gateway, where the majority of the crop is grown, present an interesting contrast 

in operating expenses. While the two regions have a similar share of production 

costs attributable to fertilizer expense in 2008 (44–45 percent), the shares of costs 

that are for fuel, lubrication, and electricity are much different (25 percent for the 

Prairie Gateway, while only 11 percent for the Northern Great Plains). This is likely 

due to the high level of irrigation used in the Prairie Gateway. 

For soybeans, the region with the largest share of input costs allocated to energy 

is the Southern Seaboard (54 percent), followed by the Eastern Uplands (45 percent). The region with the largest soybean plantings is the Heartland, which has 

the second lowest share of energy inputs in total operating expenses, at 36 percent. 

Direct energy costs make up a small share of total operating costs on livestock 

operations, comprising less than ten percent of total operating costs for dairy, hogs 

and cow-calf operations (table 2). However, these operations experience higher energy costs indirectly through higher feed costs. Feed costs ranged from less than 11 

percent of a cow-calf operator’s total operating costs to almost 77 percent for dairy. 

Trends in energy-related inputs could themselves change in the future in response 

to climate change impacts, as shifts in temperature and precipitation alter the need 

for fertilizer, pesticides, and irrigation. USDA’s production cost modeling framework 

does not reflect these future changes in agroclimatic conditions.

12

2For the June EPA H.R. 2454 analysis, scenario 2 was used. The EPA analysis of H.R. 2454 

can be found at:

http://www.epa.gov/climatechange/economics/economicanalyses.html. For the EIA analysis, 

the basic case was used. The EIA analysis of H.R. 2454 can be found at: http://

www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html. 3 Under Subtitle B of Title IV, ‘‘energy-intensive, trade exposed entities’’ (EITE) covers industrial sectors that have: (1) an energy or greenhouse gas intensity of at least 5% and a trade 

intensity of at least 15%; or (2) an energy or greenhouse gas intensity of at least 20%. Without 

Figure 1. Total energy input costs as a percentage of total operating costs, 

2008, by ERS Farm Resource Region (soybeans and wheat).

Effects of Higher Energy Costs on U.S. Agriculture 

To represent the effects on the U.S. agricultural sector of higher energy costs resulting from the emissions cap-and-trade system in H.R. 2454, estimated energy 

price changes from EPA’s (June 2009) and EIA’s (August 2009) analyses were used 

to derive implications for crop-specific production costs.2 Cost categories in the 

USDA–ERS cost of production framework included in this analysis were fertilizer 

and fuel, lube, and electricity. As shown in the previous section, these production 

inputs represent a significant portion of operating expenses for major field crops. We 

use the Food and Agricultural Policy Simulator Model (FAPSIM) to analyze the effect of H.R. 2454 on national level production costs. This model allows farmers to 

change acreage decisions in response to higher energy prices, but does not allow for 

changes in input mix. Though FAPSIM is only designed to examine short-term impacts, we extrapolate to the intermediate and long-term to make an initial assessment of how higher energy prices in those years would affect farmers if they made 

identical decisions to those modeled in the short term. We know this is not the case 

due to changes in productivity over time as well as farmers ability to adapt to higher energy prices by shifting away from energy-intensive inputs. Regional effects are 

discussed only for the short-term impacts. 

For the short-term scenarios, agricultural sector impacts were derived for 2012–

2018 based on energy price changes from the EPA and EIA analyses. While most 

of the direct energy price increases would be felt immediately by the agricultural 

sector, fertilizer costs would likely be unaffected until 2025 due to provisions in H.R. 

2454 that would distribute specific quantities of emissions allowances to ‘‘energy-intensive, trade exposed entities’’ (EITE).3 Additionally, EPA analysis indicates that 


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these allocations, firms in EITE industries would incur energy-related costs that foreign competitors would avoid; hence, putting them at significant market disadvantage. The bill sets a 

maximum amount of allowances that can be rebated to EITE industries at, 2% for 2012 and 

2013, 15% in 2014, and then declining proportionate to the cap through 2025. Beginning in 

2026, the amount of allowance rebates will begin to be phased out and are expected to be eliminated by 2035. The phase-out may begin earlier or be delayed based on Presidential determination. 

the allocation formula would provide enough allowances to cover the increased energy costs of all presumptively eligible EITE industries. Based on these considerations, the USDA analysis assumes H.R. 2454 imposes no uncompensated costs on 

nitrogen fertilizer manufacturers related to increases in the price of natural gas 

through 2024. These allocations are terminated beginning in 2025. This reflects an 

assumption that enough foreign countries have adopted similar GHG controls to 

largely eliminate the cost advantage for foreign industries. These assumptions are 

consistent with the treatment of EITE industries, including nitrogen fertilizer manufactures, in the EPA analysis of H.R. 2454. 

Medium-term and long-term impacts are based on EPA estimated changes in energy prices. Years covered in this analysis for these periods are 2027–2033 and 

2042–2048. Since EPA results were presented in 5 year increments, results for other 

years covered in the analyses were derived by interpolation and extrapolation. EITE 

rebate scenarios are not covered for these periods since the rebates are assumed to 

end after 2025 in the EPA analysis. Because of the time horizons considered in the 

medium and long term analyses, there is much uncertainty surrounding the effects 

estimated here. Factors such as yield productivity, development of energy-saving 

technologies and weather can all have major effects on supply, demand and price 

outcomes, thus mitigating or exacerbating the effects estimated here. 

As emission caps become more stringent over time, allowance prices and corresponding energy price impacts become larger. Results for these scenarios illustrate 

some of these larger impacts. Table 3 shows selected energy-related impacts from 

the EPA and EIA analyses of H.R. 2454 that were used for the agricultural sector 

scenarios across each of the time periods. EIA results were available on an annual 

basis out to 2030. 

Using the EPA and EIA results shown in the previously mentioned tables, 

changes in measures of energy-related agricultural inputs were estimated. Fuel 

price impacts are based on the EPA petroleum price changes and the EIA diesel fuel 

(transportation) price changes. Fertilizer price impacts in the EPA scenarios reflect 

price changes for natural gas and petroleum, while those in the EIA scenarios are 

based on price changes for natural gas (feedstock) and industrial distillate fuel oil. 

Table 4 shows the average percent changes in the indexes of prices paid by farmers for fuels and fertilizer across the various time periods and scenarios analyzed. 

Reflecting the differences in the relative sizes of the EPA and EIA energy price impacts, effects on producer input prices during 2012–2018 are about twice as large 

for the EIA-based scenarios compared to the EPA scenarios. The exception is the 

net fertilizer cost increase, reflecting in part different rebate sizes and inclusion 

within the EIA scenario of a greater shift from coal to natural gas under H.R. 2454. 

National Impacts of Higher Energy Prices 

The discussion of national impacts on the agricultural sector resulting from higher 

energy prices associated with the proposed emissions cap-and-trade policy is divided 

into two parts. First, an assessment of the impacts on major field crops and the livestock sector is discussed. This is followed by a discussion of impacts of higher energy 

costs on production expenses for the fruit and vegetable sector. Both discussions 

cover multiple short-term scenarios, as well as a medium-term and a long-term scenario, as discussed above. The analysis and discussion below does not include the 

effects of GHG offsets or other mechanisms to compensate farmers for emissions reductions and carbon sequestration. It also does not include the effect of other countries enacting policies mitigate GHG emissions. When revenues from offsets are considered in conjunction with production costs, net farm income is expected to be positive. These effects of offsets will be discussed briefly today, and in more detail in 

my testimony tomorrow. 

To assess impacts on major field crops and the livestock sector, changes in agricultural production costs arising from higher energy prices are used as inputs to 

FAPSIM. This model covers commodity markets for corn, sorghum, barley, oats, 

wheat, rice, upland cotton, soybeans (including product markets for soybean meal 

and soybean oil), cattle, hogs, broilers, turkeys, eggs, and dairy. Fruit and vegetables are not modeled in FAPSIM but are analyzed using a separate model below. 

FAPSIM calculates the impacts of changes in production costs on supply, demand, 

and prices in each of these markets over the years 2009–2018. At the aggregate 

14

4 A more detailed description of FAPSIM is given in Appendix A. 

level, the model also computes associated changes in production expenses in the sector and net farm income. The model simulations for the different scenarios and time 

periods assume no changes in technology or production practices (such as fertilizer 

application rates) beyond those implicit in the reference scenario’s trends.4

Short-term Scenarios—EPA and EIA Energy Prices 

Higher prices for energy-related agricultural inputs (fertilizer and fuel) raise the 

cost of production for all major crops. Table 5 shows the average nominal dollar impacts on variable production costs per acre for major field crops over 2012–2018. For 

the EPA scenario (based on energy price increases consistent with EPA’s CO2-equivalent allowance prices for 2015 and 2020), the largest changes in per-acre production costs from baseline levels are for crops that use more energy-related inputs, 

most notably rice, corn, and cotton. However, compared with overall crop-specific 

production costs, high-cost rice and cotton are relatively less affected by the energyrelated input changes (each up by less than two percent), while sorghum production 

costs are relatively more affected at 2.2 percent. This is due to the lower energyinput share relative to production costs for rice and cotton producers (as shown earlier in table 1). Whether looked at on a cost per acre basis or on a cost as share 

of production costs basis, soybean production costs are less affected than those of 

most other crops. 

For the EIA scenario, energy-related production cost impacts for all crops are generally on the order of twice as large as those for the EPA scenario. However, the 

relative impacts among the crops are similar to those identified for the EPA scenario. For both price scenarios, the EITE rebates for fertilizer producers result in 

a significant reduction in potential costs since most of the impacts are limited to 

the increase in fuel costs. 

Acreage effects, without offsets, are modest (table 6). Under the EPA price scenario, overall acreage planted to major field crops decreases by 133,000 acres, a less 

than 0.1 percent change from baseline levels over 2012–2018. However, relative net 

returns among cropping alternatives, along with differences in producer responses 

to changes in economic incentives, result in varying impacts for each crop. Wheat 

acreage is down the most at 63,000 acres. While corn acreage also declines (less 

than 0.1 percent decline), its impacts are sharply reduced because of the importance 

of the EITE rebates in determining fertilizer costs. Also, the net shift of acres to 

soybean production is reduced relative to baseline levels as the relative cost advantage of the low-fertilizer input crop is diminished with the rebate. 

Similarly, for the EIA scenario, a larger absolute decline in total acreage results, 

though still modest, with planted acreage down 354,000 acres. This represents a 0.1 

percent decline in planted acreage. Wheat and corn acreage still experience the largest reductions. Again, there is a net switch in acreage to soybeans as their returns 

are affected the least among crops. 

In general, crop production is down slightly, leading to higher prices (table 7). 

However, since production changes are small under the EITE rebates, price impacts 

are minimal, with no price change greater than 0.4 percent (0.2 percent and 0.4 percent are the highest price changes under the EPA and EIA scenarios, respectively). 

Under both scenarios, slightly higher corn prices, which are partially offset by lower 

soybean meal prices, lead to a a small increase in feed costs for the livestock sector 

(table 8). As a result, livestock production declines slightly. The impacts on livestock 

production vary across livestock species reflecting the relative shares of corn and 

soybean meal in the typical feed ration. Because corn is large part of their feed ration, pork and beef are affected more than poultry. Feed costs under the EIA scenario experience a larger increase than those from the EPA scenario, resulting in 

slightly larger livestock production declines. 

Net farm income in the agricultural sector declines from the FAPSIM baseline on 

average by $0.76–$1.72 billion (0.9–2.1 percent) over 2012–2018 (table 9). This 

change is due primarily to higher production expenses, although higher cash receipts partly offset the increases in production expenses. These income effects do not 

reflect revenues from GHG offsets nor do they reflect the related effects of land use 

changes associated with GHG offsets. These effects will be examined in more detail 

in tomorrow’s testimony. 

Effects on Production Expenses for the Fruit and Vegetable Sector 

Fruits and vegetables are not included in FAPSIM. Instead, data from USDA’s 

2007 Agricultural Resources Management Survey (ARMS) were used to estimate the 

effects of H.R. 2454 on the fruit and vegetable sector. Average per farm effects on 

15

5Farm businesses are defined as family and non-family operations that report farming as their 

principal occupation. 

variable costs of production were estimated based on the increased input prices for 

fuels, electricity and fertilizer estimated under the FAPSIM runs described above. 

Unlike for most row crops and livestock production, labor is the single largest 

variable cost for vegetable, melon, fruit and tree nut farms. However, the second 

largest expense component is fertilizer and agricultural chemicals. In 2007, fertilizer 

and agrichemicals accounted for about 18 percent of the variable cash expenses of 

vegetable and melon farms and 13 percent for fruit and tree nut farms. Motor fuels 

and oil used to run tractors, generators, and irrigation pumps accounted for five percent of vegetable cash costs and four percent of cash costs for fruits and tree nuts. 

In this analysis, per-acre fertilizer application rates are assumed to remain unchanged. Over the medium- and long-run, this is unrealistic since most growers 

would adjust application methods, amounts, timing, or the mix of crops produced to 

reduce expenses. 

In addition, electricity is required by these farms to run irrigation pumps, ice 

makers, lights, and sorting and packing equipment in packing sheds. Although the 

exact share is not certain, electricity likely accounts for a significant share of the 

4–5 percent of cash costs accounted for by expenditures for utilities. This analysis 

for the fruit and vegetable sector assumes that the entire utility expense category 

consists of electricity costs since there was no way to break out electric costs from 

telephone, water, and other utility expenses. Like fertilizer and other fuel expenses, 

no adjustments were assumed in electricity use; thus, the results for energy costs 

assumed here are likely high estimates. 

Impacts of higher fertilizer, fuel, and electricity prices on variable costs within the 

fruit and vegetable complex are generally small in terms of percentages (table 10). 

Across the EPA and EIA short-term scenarios, impacts on costs for all fruits and 

vegetables were two percent or less. Over the long-term, the total impact under the 

EPA energy price scenarios was estimated to be 3.8 percent, or $7,747 per farm that 

specializes in fruits and vegetables (farm for which more than half of all sales come 

from fruits and vegetables). 

Impacts Across Farm Types and Regions 

Regional and farm type impacts are based on results from the Farm-Level Partial 

Budget Model. The model operates on individual farm data for farm businesses from 

ARMS. The model reflects historic production patterns and farm structure within 

each region. Any potential structural or production responses by farms are not included within the model. 

The model uses results from the FAPSIM scenarios discussed earlier as inputs to 

derive regional and farm type impacts consistent with the national outcomes. Results can be summarized across various groupings of farms such as by resource region, commodity specialization, or farm size categories. Nonetheless, since farm 

business performance varies within these groupings, results do not indicate performance of individual farms within a group. 

The overall impacts reported in this section can differ from those in the national 

farm income accounts due to a number of factors. This section reflects, in part, on 

farm businesses 5 so the concentration of expenses is higher than for all farms. Further, part of the differences relates to the treatment of rent—the national accounts 

use net rent, while rent comes directly out of net cash income at the farm level. 

A simulation of how the legislation will impact agriculture by farm type reveals 

that some segments of agriculture will be more impacted by the legislation than others. The analysis focuses on results for 2014 and this 1 year analysis serves as an 

example of regional and commodity differences in the short run. 

Rebates to the fertilizer industry as an EITE to compensate for higher natural 

gas prices significantly lessens the impact of the higher energy prices across all 

farm types. With EITE rebates, 2014 net cash income for all farm businesses is estimated to be 1–4 percent lower than in the 2014 baseline level compared to the 1–

2 percent decline in net farm income presented in the previous section. Wheat, cotton, rice, and ‘‘other crop’’ producers have a decrease in net income of 2–8 percent 

across the EPA-based and EIA-based scenarios (figure 2). Except for ‘‘other livestock’’ producers, most other farm types have a net income decrease of around 1–

3 percent. As in the previous sections, these impacts do not include revenue from 

GHG offsets or increased biomass production. 

The impact of higher energy prices under a fertilizer rebate scenario is not evenly 

distributed. Other cash grains, wheat, corn, soybeans, cotton, rice, specialty crops, 

and hogs account for nearly 49 percent of all farms, but these farms also account 

for over 63 percent of the projected decrease to net cash income relative to 2014 

16

baseline levels. As was the case in analyzing farm types, net cash farm business 

incomes under both the EPA and the EIA-energy price scenarios are reduced across 

all regions. All regions can expect a decrease in net cash income, ranging from less 

than two percent to about seven percent (figures 3 and 4), with the biggest decrease 

in the Mississippi Portal region under the EIA scenario. Again, it is important to 

note that these estimated income effects do not reflect management decisions about 

changes in inputs, revenues from GHG offsets nor do they reflect the related effects 

of land use changes.

Figure 2—Reduction in farm business net cash income by farm production 

specialty, 2014, with EITE rebate.


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Figure 3—Reduction in farm business net cash income by resource region, 

EPA-based results, 2014, with EITE rebates.

Figure 4—Reduction in farm business net cash income by resource region, 

EIA-based results, 2014, with EITE rebates.

Medium-term and Long-term Impacts 

As cap levels become more stringent over time, allowance prices and corresponding energy price impacts become larger. FAPSIM is designed to evaluate 

short-term impacts. It is therefore difficult to make accurate statements about the 

medium and longer-term. Nonetheless, to make some initial assessment of the effects of higher energy prices on agriculture beyond the initial short-term focus, the 

estimated impacts of energy prices for selected periods from the EPA analysis were 


11138003 11138004
18

6The results presented in table 13 reflect simulation output from March 2009. A more complete description of FASOM modeling framework and a complete list of commodities can be 

found at: http://agecon2.tamu.edu/people/faculty/mccarl-bruce/FASOM.html.

used to look at two additional time periods using the FAPSIM framework. First a 

medium-term scenario was based on EPA estimated changes in energy prices for 

2027 33. Then a long-term assessment was based on EPA results for 2042–2048. 

The methodological approach used was similar to that used earlier. However, 

given the assumptions necessary to extrapolate beyond the FAPSIM time frame, 

these should be viewed with full acknowledgement of the limitations of this analysis. Since these two additional time periods are beyond the horizon of the FAPSIM 

model, results were generated within the FAPSIM time horizon based on percent 

changes for affected variables and then inflated to the medium- and long-term time 

periods based on the annual inflation rate from the EPA analysis, 1.8 percent. This 

implies a constant real price assumption for those two additional time periods. Additionally, no additional changes in production practices beyond those implicit in underlying trend yields between now and these time periods is assumed. While these 

assumptions are analytical simplifications, they provide a vehicle for simulating representative impacts were they to occur in the short run. For the medium-term and 

long-term periods, there are no EITE rebate simulations included as those rebates 

are assumed to end after 2025 in the EPA analysis. For comparison purposes, results shown in this section repeat some of the earlier short-term impacts. 

This approach has limitations given the observation that energy per unit of output 

has drastically declined over the last several decades. These estimates are likely an 

upper bound on the costs because they fail to account for farmer’s proven ability to 

innovate in response to changes in market conditions. 

Table 11 presents the impacts of higher energy prices on average annual production costs in the medium and long term along with those from the short-term (norebate case) discussed earlier. The medium- and long-term impacts on production 

costs have a relatively larger impact on fertilizer intensive crops such as corn compared to less fertilizer intensive crops such as soybeans. In the long-term, corn production costs are estimated to increase by more than $25 per acre (in $2005), representing an increase of almost ten percent. In comparison, soybean production costs 

rise by $5.19 per acre, on average, 4.6 percent. Wheat, sorghum, barley, and oats 

would see increases similar to corn in percentage terms. Rice is estimated to have 

the largest average per-acre increase in the long term at $28.08 per acre, although 

its percentage increase would be less than that for wheat, corn, and the other feed 

grains. Likewise, cotton has a relatively high absolute increase in production costs, 

but this represents a smaller share of operating expenses. Soybean production costs 

remain the least affected. 

Resulting adjustments in the agricultural sector to these higher production expenses follow the same dynamics as discussed earlier for the short-term results. 

Acreage shifts would lead to changes in commodity prices and adjustments through 

the livestock sector. 

Table 12 presents the projected impacts of the higher energy costs across the different time periods for farm cash receipts, production expenses, and net farm income. In the long-term results, fuel, oil, and electricity expenses are estimated to 

increase, on average, 22 percent above baseline levels, while fertilizer and lime expenses are estimated to rise, on average, by almost 20 percent. While total receipts 

increase marginally—due to higher crop and livestock prices—they only partly offset 

the increase in expenses. As a result, higher energy prices associated with H.R. 

2454 would lower net farm income by as much as 7.2 percent from baseline levels 

in the long term scenario. These results do not include the effects of GHG offsets. 

Last, it is important to note that the medium to long term analyses are conservative given that energy use per unit of output has declined significantly over the 

past several decades. Because of this, the estimates in table 11 are likely an upper 

bound estimate on the costs because they fail to account for farmers’ ability to fully 

respond to changes in market conditions. In addition, the analysis is also conservative because it does not account for revenues provided by GHG offsets, expanded 

renewable energy markets, or the effects GHG offsets and biofuel production have 

on land use, production and prices. 

In my testimony tomorrow I will address the effects of GHG offsets on the U.S. 

agriculture, including effects on farm income. The results are drawn from modeling 

results provided by EPA from an economic model, developed by Bruce McCarl at the 

Texas A&M University.6 Table 13 provides a summary of those findings on farm income. Modeling results provided by EPA show the annuity value of changes in proVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
19

7The EPA model estimates the impact on producer surplus, a concept similar to net farm income. 

ducer surplus over the entire simulation period.7 When the effects of GHG offsets 

are taken into account, it is estimated that the annuity value of the change in producer surplus is expected to be almost $22 billion higher; an increase of 12 percent 

compared to baseline producer surplus. About 78 percent of this increase is due to 

higher commodity prices as a result of the afforestation of cropland, with the remainder due to GHG related payments. Almost 30 percent of the gains would occur 

in the Corn Belt followed by the South East region (16 percent of the gains), Great 

Plains region (13 percent), and South Central region (ten percent). 

The producer surplus impacts exclude earnings from the sale of carbon from 

afforestation. The annuity value of the gross revenues associated with the sale of 

afforestation offsets would result in approximately $3 billion of additional farm revenue. About 90 percent of that additional revenue would be generated in four regions of the country: the Corn Belt (40 percent), Lake States (25 percent), South 

Central (14 percent), and Northeast (11 percent). However, part of that increase in 

revenue will be offset by the continued costs associated with maintaining 

afforestation projects. 

Conclusions 

Mr. Chairman, I appreciate the opportunity to discuss how a cap-and-trade system would likely affect farmers and ranchers. In today’s testimony I have focused 

almost exclusively on how higher energy prices would affect the agriculture sector. 

Separate testimony will discuss the role of GHG offsets in much greater detail and 

how a properly designed offset program can both mitigate energy price impacts of 

a cap-and-trade system and provide significant benefits to farmers and ranchers. I 

am happy to answer any questions. 

TABLES

Table 1—Energy Related Inputs Relative to Total Operating Expenses for Selected Crops, 2007–

2008

Commodity 

Fuel Fertilizer 

$/acre 

Percent of 

operating 

costs 

$/acre 

Percent of 

operating 

costs 

Corn 37.11 14.1 116.16 44.3

Soybeans 17.71 15.1 20.22 17.2

Wheat 22.51 20.6 42.60 39.0

Cotton 54.98 12.6 76.88 17.6

Rice 122.28 27.7 93.35 21.2

Sorghum 48.83 34.3 38.02 26.7

Barley 26.06 20.5 44.31 34.8

Oats 20.26 20.8 38.97 40.0

Peanuts 76.88 16.6 88.04 19.0

Source: Economic Research Service. Available at http://www.ers.usda.gov/data/

CostsandReturns/.

Table 2—Energy Related Inputs Relative to Total Operating Expenses for Selected Livestock, 

2007–2008

Commodity Unit 

Fuel Feed 

$/unit 

Percent of 

operating 

costs 

$/unit 

Percent of 

operating 

costs 

Milk Per cwt sold 0.76 5.2 11.16 76.5

Hogs Per cwt gain 1.81 3.5 29.61 57.6

Cow-calf Per bred cow 66.42 10.1 71.52 10.8

Source: Economic Research Service. 

20

Table 3—Estimated Impacts of H.R. 2454 on Energy Prices 

2015 2020 2025 2030 2035 2040 2045 2050

$ per ton CO2e (2005 $)

Allowance price: 

EPA 1 12.64 16.31 20.78 26.54 33.92 43.37 55.27 70.40

EIA 2 20.96 29.95 42.80 61.16

Percent change from baseline

Electricity price: 

EPA 10.7 12.7 14.0 13.3 16.9 24.0 29.1 35.2

EIA 6.1 4.1 2.7 19.7

Natural gas price: 

EPA 7.4 8.5 8.6 10.4 14.3 18.9 24.1 30.9

EIA 2.2 4.7 6.2 17.1

Petroleum price: 

EPA 3.2 4.0 4.7 5.6 7.2 9.0 11.4 14.6

EIA 7.3 8.4 10.0 13.8

1Source: EPA, June 23, 2009. The EPA analysis of H.R. 2454 can be found at: http://

www.epa.gov/climatechange/economics/economicanalyses.html. 2Source: EIA, August 4, 2009. The EIA analysis of H.R. 2454 can be found at: http://

www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html.

Table 4—Prices Paid By Farmers, Energy Related Agricultural Inputs, Various Scenarios 

Item 

EPA short 

term

(2012–18) 

EIA short 

term

(2012–18) 

EPA medium 

term

(2027–33) 

EPA long 

term

(2042–48) 

Average annual percent change from reference scenario

Fuel 2.6 5.3 4.6 9.3

Fertilizer 0.3 1.7 8.4 17.6

Table 5—Effects of Energy Price Increases on Nominal Per-Acre Costs of Production, 2012–2018 

Averages 

(Percent Change Shown in Parentheses) 

Commodity EPA price scenario EIA price scenario 

Corn 1.44

(0.4%) 

4.72

(1.5%) 

Sorghum 1.52

(0.9%) 

3.71

(2.2%) 

Barley 0.85

(0.6%) 

2.41

(1.6%) 

Oats 0.69

(0.6%) 

1.97

(1.7%) 

Wheat 0.80

(0.6%) 

2.31

(1.7%) 

Rice 3.74

(0.7%) 

9.14

(1.7%) 

Upland cotton 1.76

(0.3%) 

4.56

(0.9%) 

Soybeans 0.55

(0.4%) 

1.43

(1.0%) 

Table 6—Effects of Energy Price Increases on Planted Acres, 2012–2018 Averages 

(in 1,000 Acres, Percent Change Shown in Parentheses) 

Commodity EPA price scenario EIA price scenario 

Corn ¥27

(¥0.0%) 

¥89

(¥0.1%) 

21

Table 6—Effects of Energy Price Increases on Planted Acres, 2012–2018 Averages—Continued

(in 1,000 Acres, Percent Change Shown in Parentheses) 

Commodity EPA price scenario EIA price scenario 

Sorghum ¥26

(¥0.3%) 

¥48

(¥0.7%) 

Barley ¥2

(¥0.1%) 

¥6

(¥0.1%) 

Oats ¥10

(¥0.3%) 

¥25

(¥0.7%) 

Wheat ¥63

(¥0.1%) 

¥176

(¥0.3%) 

Rice ¥3

(¥0.1%) 

¥8

(¥0.3%) 

Upland cotton ¥7

(¥0.1%) 

¥20

(¥0.2%) 

Soybeans 4

(0.0%) 

19

(0.0%)

Total ¥133

(¥0.1%) 

¥354

(¥0.1%) 

Table 7—Effects of Energy Price Increases on Farm Level Prices, 2012–2018 Averages 

(Percent Change Shown in Parentheses) 

Commodity EPA price scenario EIA price scenario 

Corn ($/bu) 0.00

(0.1%) 

0.01

(0.3%) 

Sorghum ($/bu) 0.01

(0.2%) 

0.01

(0.4%) 

Barley ($/bu) 0.00

(0.1%) 

0.01

(0.3%) 

Oats ($/bu) 0.00

(0.1%) 

0.01

(0.4%) 

Wheat ($/bu) 0.01

(0.1%) 

0.02

(0.3%) 

Rice ($/cwt) 0.01

(0.1%) 

0.03

(0.3%) 

Upland cotton (¢/lb) 0.04

(0.1%) 

0.11

(0.2%) 

Soybeans ($/bu) 0.00

(0.0%) 

0.00

(0.0%) 

Soybean meal ($/ton) 0.00

(0.0%) 

0.03

(0.0%) 

Soybean oil (¢/lb) 0.00

(0.0%) 

0.01

(0.0%) 

Table 8—Effect of Energy Price Increase on Feed Costs and Livestock Production, 2012–2018 

Average 

(Percent Change From Baseline) 

Commodity EPA price scenario EIA price scenario 

Beef: 

Feed costs 0.1% 0.1%

Production ¥0.0% ¥0.1%

Pork: 

Feed costs 0.1% 0.2%

Production ¥0.0% ¥0.0%

Young chickens: 

Feed costs 0.0% 0.2%

Production ¥0.0% ¥0.0%

Milk 

22

Table 8—Effect of Energy Price Increase on Feed Costs and Livestock Production, 2012–2018 

Average—Continued

(Percent Change From Baseline) 

Commodity EPA price scenario EIA price scenario 

Feed costs 0.1% 0.3%

Production ¥0.0% ¥0.0%

Table 9—Effects of Energy Price Increase on Farm Income, 2012–2018 Average 

(Billion Dollars, With Percent Change From Baseline in Parentheses) 

Commodity EPA price scenario EIA price scenario 

Cash receipts: 

Crops 0.02

(0.0%) 

0.08

(0.0%) 

Livestock 0.03

(0.0%) 

0.12

(0.1%)

Total cash Receipts 0.05

(0.0%) 

0.20

(0.1%)

Total production expenses 0.80

(0.3%) 

1.91

(0.6%)

Net farm income ¥0.76

(¥0.9%) 

¥1.72

(¥2.1%) 

Table 10—Effects of Energy Price Increases on Per-Farm Variable Cash Production Expenses for 

Fruit and Vegetable Sector 

Scenario 

Vegetable and melons Fruit and tree nuts Fruits, tree nuts, and 

vegetables 

Dollars Percent Dollars Percent Dollars Percent 

Short term: 

EPA, with rebate 1,275 0.44 758 0.45 909 0.44

EIA, with rebate 2,616 0.91 1,398 0.82 1,754 0.86

Medium term 6,134 2.13 2,933 1.72 3,869 1.89

Long term 12,387 4.29 5,831 3.42 7,747 3.78

Table 11—Estimated Impacts on Per-Acre Variable Costs of Production of Higher Energy Prices 

Under an Emissions Cap-and-Trade System 

($2005/Acre, Percent Change From Baseline in Parentheses) 

Crop Short-term

(with rebate) 

Medium-term

(no rebate) 

Long-term

(no rebate) 

Corn 1.19

(0.4%) 

12.02

(4.6%) 

25.19

(9.6%) 

Sorghum 1.26

(0.9%) 

5.45

(3.9%) 

11.30

(8.0%) 

Barley 0.70

(0.6%) 

5.00

(4.1%) 

10.44

(8.5%) 

Oats 0.57

(0.6%) 

4.12

(4.4%) 

8.66

(9.3%) 

Wheat 0.66

(0.6%) 

4.94

(4.5%) 

10.34

(9.5%) 

Rice 3.09

(0.7%) 

13.48

(3.1%) 

28.08

(6.5%) 

Upland cotton 1.46

(0.3%) 

7.90

(1.8%) 

16.44

(3.7%) 

23

8Salathe, Larry E., Price, J. Michael, and Gadson, Kenneth E. ‘‘The Food and Agricultural 

Policy Simulator.’’ Agricultural Economics Research, (34(2)): 1–15, 1982. 

Table 11—Estimated Impacts on Per-Acre Variable Costs of Production of Higher Energy Prices 

Under an Emissions Cap-and-Trade System—Continued

($2005/Acre, Percent Change From Baseline in Parentheses) 

Crop Short-term

(with rebate) 

Medium-term

(no rebate) 

Long-term

(no rebate) 

Soybeans 0.45

(0.4%) 

2.50

(2.2%) 

5.19

(4.6%) 

Table 12—Estimated Impacts on Net Farm Income of Higher Energy Prices Under an Emissions 

Cap-and-Trade System 

($2005 Billion, Percent Change From Baseline in Parentheses) 

Item Short-term Medium-term Long-term 

Total receipts 0.0

(0.0%) 

0.4

(0.2%) 

0.9

(0.3%) 

Total expenses 0.7

(0.3%) 

2.7

(1.1%) 

5.6

(2.2%) 

Fuel, oil and electricity 0.7

(6.4%) 

1.3

(11.1%) 

2.6

(22.2%) 

Fertilizer and lime < 0.1

(0.3%) 

2.0

(9.5%) 

4.3

(19.9%)

Net farm income ¥0.6

(¥0.9%) 

¥2.4

(¥3.5%) 

¥4.9

(¥7.2%) 

USDA data based on EPA results, selected time periods. 

TABLE 13. ANNUITY IMPACTS ON PRODUCER SURPLUS/FARM INCOME, BY REGION. 

Region billion (2004) dollars annualized annuity value 

Corn Belt 6.4

Great Plains (no forestry) 2.9

Lake States 1.6

Northeast 0.4

Rocky Mountains 1.5

Pacific Southwest 0.7

Pacific Northwest 0.7

South Central 2.3

Southeast 3.4

South West (no forestry) 1.9

U.S. Total 22

USDA analysis based on FASOM simulations provided by EPA. 

APPENDIX A—THE FOOD AND AGRICULTURAL POLICY SIMULATOR (FAPSIM) 

The Food and Agricultural Policy Simulator (FAPSIM) is an annual, dynamic 

econometric model of the U.S. agricultural sector. The model was originally developed at the U.S. Department of Agriculture during the early 1980s.8 Since that 

time, FAPSIM has been continually re-specified and re-estimated to reflect changes 

in the structure of the U.S. food and agricultural sector. The model includes over 

800 equations. 

The model contains four broad types of relationships: definitional, institutional, 

behavioral, and temporal. Definitional equations include identities that reflect mathematical relationships that must hold among the data in the model. For example, 

total demand must equal total supply for a commodity at any point in time. The 

model constrains solutions to satisfy all identities of this type. 

24

Institutional equations involve relationships between variables that reflect certain 

institutional arrangements in the sector. Countercyclical payment rates calculations 

are example of this type of relationship. 

Definitional and institutional equations reflect known relationships that necessarily hold among the variables in the model. Behavioral equations are quite different because the exact relationship is not known and must be estimated. Economic 

theory is used to determine the types of variables to include in behavioral equations, 

but theory does not indicate precisely how the variables should be related to each 

other. Examples of behavioral relationships in FAPSIM are the acreage equations 

for different field crops. Economic theory indicates that production should be positively related to the price received for the commodity and negatively related to 

prices of inputs required in the production process. Producer net returns are used 

in the FAPSIM acreage equations to capture these economic effects. Additionally, 

net returns for other crops that compete with each other for land use are included 

in the acreage equations. While the model covers the U.S. agricultural sector, trade 

for each commodity is included through econometrically-based export equations. 

For the most part, FAPSIM uses a linear relationship to approximate the general 

functional form for each behavioral relationship. Generally, the parameters in the 

linear behavioral relationships were estimated by single equation regression methods. The large size of the model precludes the use of econometric methods designed 

for systems of equations. Ordinary least squares were used to estimate the majority 

of the equations. If statistical tests indicated the presence of either autocorrelation 

or heteroscedasticity in the error structure of an equation, maximum likelihood 

methods or weighted least squares were used. 

Temporal relationships are empirical equations that describe the inter-relationships between variables measured using different units of time. For example, not 

all of the variables in FAPSIM are measured using the same concept of a year. 

Commodity data are reported on a marketing year basis; budgetary data are reported on a fiscal year basis; and farm income data are reported on a calendar year 

basis. As a result, empirical equations are sometimes needed to establish relationships among variables in these different temporal categories. For example, cash receipts for crops are reported on a calendar year basis, but production and price information for crops are on a marketing year basis. Equations are used in FAPSIM 

to estimate cash receipts using information from both marketing years that overlap 

the calendar year. 

Commodities included in FAPSIM are corn, sorghum, barley, oats, wheat, rice, 

soybeans, (including product markets for soybean meal and soybean oil), upland cotton, cattle, hogs, broilers, turkeys, eggs, and dairy. The dairy model contains submodels for fluid milk, evaporated and condensed milk, frozen dairy products, cheese, 

butter, and non-fat dry milk. Each commodity submodel contains equations to estimate production, prices, and different demand components. FAPSIM also includes 

submodels to estimate the value of exports, net farm income, government outlays 

on farm programs, retail food prices, and consumer expenditures on food. All of the 

submodels are linked together through the variables they share in common.

The CHAIRMAN. Thank you, Doctor. I understand the information 

presented today is an expanded and refined version of an earlier 

study done by USDA. Can you walk us through the differences in 

modeling assumptions and underlying input data that is used here 

and not in your previous examination, and why did you decide to 

focus on increased energy costs? 

Dr. GLAUBER. Well, primarily the most significant impact, at 

least—this bill will affect agriculture in several ways, and if you 

focus on the cost side, because of the emissions caps that are in 

this bill that will raise energy prices. There are several analyses 

of what the impacts will be. EIA has put out an analysis, and there 

have been several private analyses as well. Those will affect energy 

prices. A lot depends on our assumptions in terms of what the estimated effects on fuel prices will be. We also know what the effects 

would be on natural gas. Natural gas can potentially affect fertilizer prices. And because of that, we can then translate that 

into—and what we do in our modeling is look at these increased 

price effects and look at what the impact will be on agricultural 

production. 

25

Higher energy prices, in general, raise the cost for these producers, which cause them either to grow less of a particular crop, 

or switch to other crops. When you have those sorts of production 

impacts then prices rise partially offsetting the impact, because the 

higher prices will increase revenue, but it has another impact in 

the sense that it increases feed costs for livestock producers. Now 

that is all on the cost side, and I dare say that looking at some of 

the other studies that have been done, certainly, most people go 

about the modeling in a very similar way. That is they look at 

what the impacts on the energy prices are going to be, and then 

translate those into the production cost impacts. 

The other side of this, though, is in part what will be discussed 

tomorrow, which I think is as, if not more, significant, and that is 

the offset side. It is significant because offsets, one, are important 

for reducing the cost of the cap-and-trade emissions by having offsets. It mitigates the impact on energy prices so that is important, 

not just for agriculture, but, obviously, for all sectors of the economy. The second thing is that offsets have a potential income 

source for producers although, as I mentioned in my opening statement, that will differ across regions and across commodities. 

And, third, are the land use implications. If offsets are—if the 

practice is used to gain offset credits through afforestation, for example, that is putting agricultural land or pasture land and planting forests then obviously that is taking land out of production and 

has potential implications for prices that way. 

The CHAIRMAN. What are your initial thoughts on the other analyses that are out there? Is there any of them that you can think 

that are completely off base? 

Dr. GLAUBER. Well, I have—and I can’t say I have seen all of 

them. Certainly some of my colleagues behind me—I am very familiar with the FAPRI modeling results and very familiar with the 

Texas A&M modeling results, and Doane’s modeling results, and I 

would say that by and large they are very similar to the way we 

approached the problem. The differences, largely, are in what the 

assumptions are on the energy price impacts. Again, we used the 

Environmental Protection Agency’s impacts, estimated impacts, on 

fuel prices like gasoline, natural gas, electricity. In this analysis, 

we broadened the analysis to also include EIA impacts. That was 

not available to us when we put out the preliminary report in July, 

but EIA has since come out with analyses. 

But, if, for example, you consider scenarios that have far higher 

price impacts then those will have far larger impacts on production 

costs. But I would say, generally, the modeling that was used that 

is looking at production cost data and looking at those impacts how 

higher energy prices will affect production costs, I think that we 

pretty much share a common modeling framework there. 

The CHAIRMAN. Thank you, Doctor. And, last, do you think the 

agriculture sector would be disproportionately affected by higher 

energy costs compared to other sectors? 

Dr. GLAUBER. Well, there is no question that agriculture is an 

energy intensive sector, and in that sense they will be affected. 

There are other sectors, obviously, that are highly energy intensive 

as well. I do think the offsets provide opportunities, however, to offset the production cost increases. So, agriculture, while it will be 

26

hit by higher energy costs, I also think it has unlike a number of 

other—because it is an uncovered sector, it does have opportunities 

to provide offsets which could result in income for producers. 

The CHAIRMAN. Thank you, Doctor. The chair recognizes the gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Dr. Glauber. Those farmers and 

ranchers who will be able to have some of those offsets are hit or 

miss, right? Some will be able to take advantage but some won’t? 

Dr. GLAUBER. It is certainly true that a lot depends on where you 

are in the country, what sort of commodity you would grow, what 

sort of opportunities you would have that way. 

Mr. GOODLATTE. So this legislation is really massive picking of 

winners and losers by government fiat as opposed to allowing farmers to fend for themselves and compete for themselves. They will 

be put at the mercy of this legislation depending upon what crops 

they grow, what area of the country they operate in, what climates 

they operate in, and what types of energy sources they use. 

Dr. GLAUBER. Well, I would just say, and, unfortunately, just the 

way the testimonies are broken out here, I don’t have a lot of the 

information on offsets in the current testimony, but in tomorrow’s 

testimony you will see I have provided a table that shows potential 

offsets from a variety of agricultural practices that would be, potentially, available to not just someone using no-till, but also for livestock producers or others using—would reduce greenhouse gas 

emissions through reductions in methane. 

Mr. GOODLATTE. These analyses you provided us are preliminary 

on the effects of higher energy prices. Can we expect a complete 

analysis on all agriculture production inputs such as pesticides, 

seed, equipment, machinery, steel, and other supplies needed for 

agricultural operations? Is USDA conducting any studies of H.R. 

2454’s effect on ag processors or manufacturers? 

Dr. GLAUBER. We have not. Certainly as you go down or up the 

marketing chain one way or the other, there are a lot of energy 

costs imbedded in those industries and, unfortunately, we don’t 

have a lot of data on that. USDA doesn’t. Our data mainly is at 

the farm level. 

Mr. GOODLATTE. And I am also aware that there have been requests for state by state analysis or more detailed analysis for livestock and specialty crops, so what is the status of those economic 

assessments? 

Dr. GLAUBER. Well, we do include a number of regional breakouts here. Certainly if you are looking at production cost data in 

the aggregate that is available by state. That is pretty easy to put 

together, and we have that and we are more than happy to provide 

it to the Committee. We also, using the Economic Research Service, 

their survey data on cost production, were able to break out the energy cost by farm, various sorts of farming operations by region, 

not down to the state level but down to a regional level. That would 

give a pretty good indication for your area or anyone’s, and some 

of that is in this material summarized in maps, et cetera, but we 

have the raw data that we certainly would be happy to provide in 

tabular form. 

27

Mr. GOODLATTE. And if they have been completed, how many 

acres will move from crop and pasture production into forestry, and 

what impact will that have on grain prices? 

Dr. GLAUBER. Well, there again there are a number of models out 

there that have looked at this issue. What I will do as a brief preview of what I am going to do tomorrow, we do look at the analysis 

that was provided to us from EPA that was based on the Texas 

A&M so-called FAPSIM model, and in that analysis, the analysis 

that was done back in March of 2009, they show a substantial 

number of acres going into forestland, some 60 million by the year 

2050. Now in our own studies of sequestration, some of which were 

done by the Economic Research Service, you get a very different 

pattern over the near term. With low carbon prices you see a lot 

of land going into—or a lot of farmers adopting no-till practices, a 

number of what I would consider less disruptive practices in terms 

of their effect on production. 

With higher carbon prices then the real issue at that point is 

where would the carbon come from, and is that sufficient enough 

to—with carbon prices say at $50 or $60 a ton, is that sufficient 

enough to have a producer devote land and put in a long-term setaside by planting trees. 

Mr. GOODLATTE. I take it that the long-term prognosis is that 

tens of millions of acres are headed into forests. 

Dr. GLAUBER. Well, that is certainly the case with the EPA analysis, and they show that some——

Mr. GOODLATTE. And I take it that the incentives are not going 

to be there since wood is a carbon-based source of energy, the incentive is not going to be there to be able to burn those trees to 

use that as a source of energy in the future. They are just a carbon 

sink. At some point in time, we are going to have to figure out 

what to do with all those trees. They are going to die and release 

that carbon back into the atmosphere at some point. 

Dr. GLAUBER. The whole idea of a carbon sink would be permanent to put that in trees. 

Mr. GOODLATTE. But it is a very problematic thing for farmers 

to lose the productive use of their land. The last question, if I 

might, Mr. Chairman, will Secretary Vilsack travel to Copenhagen 

to represent U.S. agriculture interests during the climate change 

discussions, and since we are still learning so much about the effects of H.R. 2454, I am curious what his message might be on behalf of agriculture. 

Dr. GLAUBER. Congressman, I can tell you that he is traveling to 

Copenhagen. I think what he will—I can’t speak for the Secretary 

here, but I know that, just based on what he has said in the past, 

that he believes there is a real good possibility for agriculture in 

the climate change legislation and he will be promoting the offsets 

and the mechanisms that producers can potentially gain from this. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Ohio, Mr. Boccieri. 

Mr. BOCCIERI. Thank you, Mr. Chairman. I had some specific 

questions for you, Doctor. I don’t claim to be a climatologist or a 

scientist. In fact, I graduated with a degree in baseball and minor 

in economics when I was in college, but we have to pay attention 

to what our national security experts are suggesting. I am interVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00033 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
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ested, after serving now for 15 years in the military, why the Department of Defense and why the CIA are saying that we need to 

elevate this from a debate on—a national debate to a matter of national security, and where, in fact, every candidate running for the 

highest office in this country last year suggested that this is a 

threat to national security. Did you take that into account in your 

analysis? 

Dr. GLAUBER. The short answer is no. What we don’t look at, and 

it is a legitimate issue, is what the effects of climate change itself 

are on agriculture. I believe that you will have the opportunity to 

ask one of the panelists on the next panel on that issue. But let 

me just say briefly, there have been a lot of studies on what the 

potential costs of agriculture will be or potential cost of climate 

change on agriculture, or global warming, as it were. And certainly 

if you look at in the short run, particularly, with the small increases in global temperatures of the 1° to 2° centigrade level that 

you can actually see growth in agriculture that is actually for 

things like grains, which are highly adaptable to climate. They actually do thrive and do pretty well. 

But at the same time, most of these studies then show that as 

global warming increases that you begin to see a sharp deterioration in yields. And more disturbing is the variability, and that is 

what is expected. What most are showing, most of these studies 

show a lot of variability in climate, and we know what that does 

for agriculture. 

Mr. BOCCIERI. I know USDA has conducted analysis of the possible effects to U.S. farmland from increasing climatic variability. 

Has the USDA concluded that climate change is real and that it 

is affecting farmlands across the international spectrum? 

Dr. GLAUBER. I think certainly the USDA believes that climate 

change is a problem that needs to be addressed. 

Mr. BOCCIERI. Well, I would like to reiterate some of the remarks 

some of our retired generals who have served under both Presidents, Democratics and Republicans alike, they said that climate 

change would provide the conditions that will extend the war on 

terror. It is fairly interesting that we are having this discussion because the farmer and the landowner that we are trying to protect 

we also have to take into account the national security aspects of 

this as well. I want to know, specifically, if you believe and the 

USDA believes that the offsets that are provided to the landowner 

and farmers will offset if there are marginal increases. In Ohio we 

have regulated utilities. And the industry is heavily regulated so 

any cost increases has to go before a nonpartisan board, and so I 

hope that those were taken into account in your study as well. But 

I want to know, specifically, from you if you think that the offsets 

will significantly reduce any of your projected increases. 

Dr. GLAUBER. The answer is yes. I think offsets will certainly 

provide an income source for producers that will allow them to offset the impacts of——

Mr. BOCCIERI. Would that be greater? Will the income be greater 

than the cost? 

Dr. GLAUBER. Yes, and our analysis shows that the income will 

be greater. I think the most important or the more important question is how the offset—how any offset provisions are set up and esVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
29

tablished and administered because the concerns that have been 

expressed by others about potential impacts on food prices, et 

cetera, you want to make sure you are setting up an offset program 

the right way. 

Mr. BOCCIERI. Okay. Thank you, Mr. Chairman. 

Mr. GOLDEN. I thank the gentleman, and recognizes the gentleman from Louisiana, Mr. Cassidy. 

Mr. CASSIDY. Thank you. Page 18, your graph shows that the 

Mississippi Portal is going to be particularly affected by decreases 

in farm business net cash income. Why is the Louisiana, Mississippi, Arkansas, Tennessee area particularly affected? 

Dr. GLAUBER. One reason is because on a per-acre basis the impacts for cotton and rice are high. As you know, they are both high 

input cost and they are also both energy intensive——

Mr. CASSIDY. Now this analysis, I don’t mean to interrupt——

Dr. GLAUBER. No, go ahead. 

Mr. CASSIDY. In this analysis, do you include aquaculture, the 

crawfish and cat fish farming operations? 

Dr. GLAUBER. We did not explicitly analyze aquaculture. However, I can say because obviously they consume—they will be affected much like other livestock producers would be affected. 

Mr. CASSIDY. Now it is my concern since those particular operations are low margin and they are facing stiff competition from 

countries like China, which have basically said they are not going 

to follow this, they are going to decrease their rate of increase sort 

of thing, but we can’t monitor unless we pay for it, that the margins will be terribly affected. Clearly, it is going to be hard to reforest aquaculture. It is going to be more difficult to—I guess you 

grow cypress trees. So I guess my question is, do we know what 

is going to happen to their farm income and what that will do, specifically, as regards their ability to compete with their foreign competitors? 

Dr. GLAUBER. Well, once again we say, and it is important to recognize that because of the provisions that would essentially give rebates to fertilizer producers that the price increases for things like 

nitrogen are going to be very muted through 2025, so you are talking about a pretty long way out where the price impacts, in general, from any sort of cap-and-trade system would be fairly small. 

Mr. CASSIDY. But as you point out though that the costs are still 

not insignificant and also the transportation cost would be still unaffected by this, correct? 

Dr. GLAUBER. To the extent that fuel costs were, yes. 

Mr. CASSIDY. Which I gather those are fairly fuel intensive operations as well. So, okay, the intrinsic, intensive or the EITE, the 

energy-intensive and trade exposed industries, that presumes that 

other states, other nations, will actually adopt something such as 

cap-and-trade or a carbon tax or whatever, but the example we just 

used, China, they probably won’t if we listen to what they are saying now. So is there a provision to extend the rebates to fertilizer 

producers if the energy-intensive and trade exposed industries are 

continually exposed? 

Dr. GLAUBER. I believe the House bill has some border tax adjustments beyond the year 2030 that could potentially take that 

into——

30

Mr. CASSIDY. Border tax? 

Dr. GLAUBER. Border tax adjustment. 

Mr. CASSIDY. Now that sounds like a tariff. 

Dr. GLAUBER. It sounds like a tariff. 

Mr. CASSIDY. Now that sounds illegal according to WTO. Do we 

know that those provisions would pass muster with WTO? 

Dr. GLAUBER. I do not. That has been—I will say that the WTO 

had been very concerned about that. There has been a lot of talk 

in the WTO recognizing that a climate treaty is likely, and the 

WTO has been looking at that issue and published a report just 

last year or earlier this year talking about the potential of border 

tax adjustments and how they should be treated. 

Mr. CASSIDY. Frankly, if I was a crawfish farmer or a rice farmer, I may be planting cypress trees right now, which brings me to 

my next point. Just in the aggregate, we are talking about the offsets having an offsetting affect upon the loss in farm income, but 

it is important to note that there are some regions of the country 

which are more easily reforested and others that are less easily reforested. So, again, if we are speaking about the areas in which we 

are flooding fields, coastal Louisiana, for example, to grow rice, it 

will be more difficult to reforest those. So I just want to make the 

point that we do ourselves a disservice in this conversation to lump 

the offsets from reforestation with the net income loss from the 

other measures of this bill. Would you agree with that or disagree? 

Dr. GLAUBER. Well, as I said earlier, there is no question that 

some producers are going to have greater opportunities than others 

to take advantage of particular offset provisions. I don’t think that 

necessarily means that one is excluded just because one can’t grow 

trees, for example. There are other things, changes in diets for animals, that can result in fewer greenhouse gas emissions, and those 

could be potential offset sources. 

Mr. CASSIDY. If I could have 30 more seconds. Will you be able 

to provide us with something specific for the aquaculture industries 

in terms of the impact upon net income? 

Dr. GLAUBER. I would be more than happy to do that in a follow 

up. 

Mr. CASSIDY. That would be great. Thank you. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentlewoman from Colorado, Ms. Markey. 

Ms. MARKEY. Yes, thank you, Mr. Chairman. Thank you, Dr. 

Glauber, for this update. I have some questions on your modeling 

for future energy prices. Have you analyzed whether or not a capand-trade system with ag offsets would actually help to stabilize 

energy prices for ag in the future? It looks like from table 3 that 

electricity, that input cost will continue to increase. Does this take 

into account the increased use, whether it is nuclear or natural 

gas, wind, energy, on how they will stabilize our energy prices in 

the future, so what can you say about the future of energy costs? 

And then, second, did your modeling take into consideration the 

cost of doing nothing, particularly given the volatile swings in energy costs that we have now? Look just last year when we were 

paying for $4.00 a gallon gas. Did you take into consideration what 

would be the increased cost for agriculture if we do nothing? 

31

Dr. GLAUBER. Thanks. Insofar as the first question is concerned 

what we did is we utilized the energy price impacts that were estimated by EPA and EIA. Now both of those have specific scenarios 

that they considered, and I believe both of these scenarios that we 

looked at have a development of nuclear power and development of 

other renewables that will help meet these goals. In regards to 

your second question, no, what we considered was sort of the current environment and I assume current what we have under our 

baseline in terms of energy price. And we didn’t look at any variability or probabilistic model there. We just considered what our estimates are for energy price increases over the next 10 years. 

Ms. MARKEY. So just to be clear then, on table 3 then according 

to EPA the impact on energy prices continues to really increase 

dramatically until 2050, which is where your modeling went up to 

2050. 

Dr. GLAUBER. Absolutely. They are increasing in tandem, in lock 

step with the allowance prices, and because allowance prices are 

soon to be increasing because of—allowance prices are increasing 

by roughly five percent per year and so because of that energy 

prices are increasing accordingly. 

Ms. MARKEY. Thank you. 

The CHAIRMAN. The chair thanks the gentlewoman and recognizes the gentleman from Ohio, Mr. Latta. 

Mr. LATTA. Thanks, Mr. Chairman. Thank you very much for 

being with us today. If I could just go over to your figure 3 on the 

graph on page 17. I am kind of interested in this. I represent, to 

just kind of give you an idea, northwest and north central Ohio. I 

represent across northern Ohio underneath Michigan. I represent 

about halfway down Indiana, and then I go about 140 miles east. 

And I look at this, and it shows only according to EPA, it says 

there is only one percent decline or less in income and then getting 

into another part of my district it says 1–2 percent. But I am kind 

of curious about this because all of the different figures and facts 

that we have examined and seen since the debate started on capand-tax that we are going to get hit a lot harder. And one of the 

figures that we saw was through the Heritage Foundation when 

they put together—since Ohio uses about 86 to 87 percent of all of 

our energy is coal-based, Indiana next door is around 94, I believe, 

and I believe it is 80 percent of all my rural electric co-ops in Ohio 

are co-generated where they get their energy from. 

And when I look at these numbers especially with the—that I 

represent the largest ag district in Ohio, and also interestingly 

enough I represent the largest manufacturing district in Ohio, that 

farmers in this area are only going to be affected by a one percent 

decline or less in net cash income when we see all these other statistics showing that because of our high coal usage for energy 

usage on the farms we are going to be affected a lot more. So I am 

just kind of curious on that to begin with. 

Dr. GLAUBER. Sure. One, realize that we are looking at our shortterms results, at price increases that will essentially be seen for 

the electricity sector and the petroleum sector. Fertilizer producers, 

which is a big component of your producers costs, energy-related 

costs, will be exempt because of the rebates provided under H.R. 

2454. So in that case the main source is coming from higher fuel 

32

costs, and again based on EPA and EIA estimates, EIA being 

roughly or a little bit higher than EPA, in some cases about twice 

that, you are talking about four percent sort of increase for electricity under the EIA when petroleum prices are up around eight 

percent by 2020. 

And so over the near term those are pretty small costs. That is 

an increase—again if you look at total cost of production remember 

that fuel costs are about 5–6 percent, so you are increasing what 

is an increase in energy prices on the order of 5–10 percent. Energy 

prices there only comprise for the total production cost of these producers in the ten percent range, 10–15 percent range, so it is small 

when it is worked through that way. Now if you add fertilizer, of 

course it roughly doubles that impact. 

Mr. LATTA. Well, again, I guess when you look at different statistics because we are looking at some of the areas where we are seeing maybe an increase with fuel prices in gasoline and diesel because, of course, when these have to be refined, and I have refineries right around my district, that you are looking at in some 

cases about a 50 percent increase predicted into the long term. At 

the same time when you figure into this is that, I have like probably a lot of other folks that are on this Committee, a lot of my 

farmers not only farm full time but they have to work off the farm 

full time. When you look at the job hit on and off the farm my concern is we have a lot of farmers that rely on that off-farm income 

to make sure they can keep farming. When you put these two 

things together with the loss of income on the farm and then the 

question—we have been hit tremendously. According to the National Association of Manufacturers we have the ninth largest manufacturing district in the country. Now I am down to 15. I don’t 

even want to see what the next number is going to be. 

But what I am really concerned about is that we are just seeing 

the net cash farm income going down and with these increased 

costs because again we have to have both in our area for a lot of 

these people to survive. 

Dr. GLAUBER. Well, again, insofar as agriculture is concerned 

where we did our estimations the energy price impacts over the 

short run should be small. I think that, again, over the longer run, 

as you say, if you look at the EPA and EIA analyses, as one goes 

out to 2030, for example, one begins to see price impacts, the energy price impacts out at the that level or at 2030, more in the 

range of 10–14 percent. If you go out to 2050, at least with the 

EPA analyses they are up more in the 30–35 percent range for at 

least natural gas and electricity. But, in the short run, particularly 

with the fertilizer rebates, that the impacts are—again, our estimates would show that those impacts are actually quite small. 

Mr. LATTA. Mr. Chairman, if I can just ask one last question. 

Okay. If you go in your farthest out-years of a 30 percent increase, 

I guess my question is on the smaller family farms. How are they 

going to sustain because I am just thinking about those like my 

family and my wife’s family, they have been on the same farm 

since the 1830’s, and my brother-in-law’s farm, my father-in-law is 

pretty much retired, but my nephews are looking at whether they 

want to farm in the future. My question is with this 30 percent, 

33

when you are looking at these cost increases, how is the smaller 

farmer going to survive in the future? 

Dr. GLAUBER. Well, if you translated the cost, those price increases directly into the production cost for 2050, they would be 

large costs. Again, if you are talking about as a percent of total production cost of being some 10–15 percent and increasing 10 percent 

or 30 percent, you are talking three, four, five percent potential hit 

on production costs, which is substantial. That said, that analysis 

is—we are talking about something in 2050, and we know that if 

you look back to the 1970’s and look at the current situation, we 

know our energy efficiency has improved dramatically over that 

time. So, again, one presumes—we didn’t assume it in our analysis 

because we were conservative in that regard. 

But the issue is whether or not you have switched to more energy efficient technologies and things that would lessen that impact, switch to less energy intensive crops. And then, because of 

the offset side of the equation there is potential for making up 

those costs, particularly for Ohio where there would be a lot of potential things that could be done, tillage practices, et cetera. Mr. LATTA. I thank the Chairman. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Michigan, Mr. Schauer. 

Mr. SCHAUER. Thank you, Mr. Chairman. Dr. Glauber, as I was 

looking at your testimony, I didn’t find that the analysis took into 

account impacts of increased bioenergy production. I wonder if you 

could talk about that. 

Dr. GLAUBER. In the analysis that was presented here, we did 

not. You are right. With higher energy prices that can potentially 

bring in more biofuel production, particularly for things like 

cellulosics, where I think people have talked about how the technologies there, the costs of producing cellulosic ethanol is quite 

high currently, but relative to higher energy prices it could potentially bring in production. And I think that some of the models that 

have been done show that. Now, remember, in the long run that 

most of our models in our baseline show higher biofuel production 

and because of the mandates, et cetera, under the Energy Act there 

are limits to what, for example, could potentially be produced by 

starch-based ethanols. But, on the cellulosic side it could potentially speed development of some of those technologies. 

Mr. SCHAUER. Do you have any sense of the positive job impacts 

from that increased bioenergy production? 

Dr. GLAUBER. I don’t offhand. I can certainly—we have done 

studies on employment effects of biofuels, et cetera, and could certainly provide those. 

Mr. SCHAUER. I come from the Midwest, as did the previous 

speaker, so I am very concerned, ultimately, about the impact on 

jobs. Agriculture is the second largest industrial sector in Michigan 

that is growing. That is a very positive sign. We have a very diverse agricultural sector as well. I wonder, you used some of the 

EPA’s data. I want to make sure that we are looking at this in a 

relative and dynamic way. EPA, if we don’t pass legislation, is 

going to be implementing carbon reductions across the economy. I 

wonder if you have that kind of relative comparison or whether you 

take that into account. Again, sort of the question is what if we do 

34

nothing given the EPA is going to be moving forward. I am not 

sure the public really understands that. 

Dr. GLAUBER. It is a good question, and, frankly, in our baseline 

we did not—what our baseline assumes is sort of business as usual 

relative to current world, and so we haven’t looked at a regulatory 

structure and what those potential effects would be. 

Mr. SCHAUER. Candidly, I am very afraid of what would happen 

if the EPA goes forward, and I think that is something that we 

need an addendum to this report to take your best guess of what 

the impact would be on agriculture if the EPA went ahead on their 

own. I am very, very concerned about that. 

Dr. GLAUBER. Well, just offhand, if I may, one of the key issues 

is what would happen to offsets, and if this were just in terms of 

the regulatory side in terms of providing restrictions and imposing 

costs that would ultimately be translated through the energy cost 

side of this. The flip side is would there be benefits on the other 

side, on the offset side, and I think there is where the problems 

would lie. 

Mr. SCHAUER. And this Committee worked very hard to protect 

agriculture and make sure the cap-and-trade program didn’t apply 

to farms, and we want to keep the USDA fully in its present position to oversee and support farming activity. Just also under the 

theme of sort of looking at this in a relative and dynamic way, we 

also need to take into account what some of our international competitors are doing. This is a global industry and some of our competitors are setting voluntary carbon caps. I wonder if you would 

take that into account in terms of looking at pricing. 

Dr. GLAUBER. There again, we did not take into account what is 

going on internationally. I think that is an issue. It certainly affects not just the cost side of the equation. That is what competitors might be paying but it would also potentially affect the offset 

side. That is, if we are looking at international offsets, which is 

again a big part of H.R. 2454, that too would have obviously a big 

impact. 

Mr. SCHAUER. And the gentleman from Louisiana brought up the 

issue of sort of border adjustments or border protections. I strongly 

supported that within this bill and clearly we can’t allow our farmers and our economy to be at a disadvantage, because in some form 

or fashion there will be a reduction in greenhouse gases in this 

country. If our competitors are not doing likewise—that will cost us 

jobs—so I just wanted to editorialize on that point. 

Dr. GLAUBER. And the key thing there is just to follow up as well 

is being able to do this in a WTO compliant way. 

Mr. SCHAUER. Thank you. I yield back. 

The CHAIRMAN. The chair thanks the gentleman. The chair 

would ask all Members to try to stay to the 5 minute rule. We 

have, obviously, a lot of Members with interest here, so we have 

a second round if anyone has further questions. I now recognize the 

gentleman from Pennsylvania, Mr. Thompson. 

Mr. THOMPSON. Thank you, Mr. Chairman. Dr. Glauber, thank 

you for your testimony. I want to start with a real basic and then 

go to something—my next question is very specific. Recently, the 

term global warming has been widely rebranded climate change.

35

Dr. Glauber, could you please explain that phenomenon and also 

define climate change.

Dr. GLAUBER. Well, I guess I don’t have great definitions for climate change, just in the sense that we would see significant 

changes in climatic patterns, things like temperature and precipitation, variability of climate and moving to where we would see distributions of temperature and precipitation that would adjust—that 

would change over time, either favorable or unfavorable, I would 

characterize. 

Mr. THOMPSON. Which sounds like something we have always experienced, I would say. 

Dr. GLAUBER. Yes. 

Mr. THOMPSON. I promised a real specific question then. Obviously, agriculture has many different elements in that industry. I 

want to talk about one that is—well, just one of the elements, an 

important one, though, in my district and important in that it 

meets a strategic need in our country in terms of dairy. And I will 

be real specific. I am trying to look at the impact—my average 

dairy herd is family-owned, 85 head. They have enough acreage to 

grow just enough corn for most of them to feed their herd. And 

some of the things that they are living with are transportation cost, 

which for the milk—and our dairymen pay that. I think you mentioned 5–10 percent is the number I heard for an increase in cost 

there. 

Diesel and gas prices because our equipment, that is what it 

runs on, whether it is tractors, generators, whatever. Again, 5–10 

percent was your number. Electricity costs, the Pennsylvania Public Utility Commission looked at the Waxman-Markey bill. They estimated electricity cost in Pennsylvania going up 30 percent. 

Equipment cost, in terms of knowing what this would do to manufacturers in Pennsylvania, and our farmers can’t afford to buy new 

equipment too often, but when they can it even drives up the cost 

to use equipment. Fertilizer costs, I think your numbers you gave, 

I heard in your earlier testimony, was ten percent in terms of getting as much corn production as possible to feed their herd. 

The processor cost, which, unfortunately, many of those can pass 

along to the producer in the short run. A simple question for you. 

How would these dairy farmers survive under this? 

Dr. GLAUBER. Well, again, I think for most of the—you are talking about dairy producers in your region, which are effectively crop 

producers and dairy producers. 

Mr. THOMPSON. But the crops they are producing are corn to feed 

their cows. 

Dr. GLAUBER. That is right. 

Mr. THOMPSON. They are not planting trees. 

Dr. GLAUBER. That is right. And so in general one can talk about 

the cow side of it, as it were. Essentially the big impact there is 

on feed. Feed is very big component of a dairy producer’s cost, and 

to the degree that feed cost will be affected dairy producers would 

be affected as well. Now, again, I think on the feed side because 

of the rebates, et cetera, under this bill, at least in the short run 

would be small. So the impact on that side of the equation would 

be, and certainly our analyses of dairy production, et cetera, don’t 

show very large changes in herd size or profits from that industry. 

36

Mr. THOMPSON. Let me say though right now the average farmer 

is losing $100 per cow per month in terms of dairy, so I would encourage you to go back and look at the competencies of whoever is 

doing your numbers on terms of impact on dairy. And I realize that 

feed is one component, and it is important, but the numbers that 

you in your testimony today, in your written testimony and what 

you have shared, transportation cost, diesel and gas operation cost. 

We really didn’t get into the manufacturing side or what the hell 

it is going to drive up the cost of equipment in terms of new milking parlors, tractors, all the things that our farmers use. 

I mean feed is obviously important, but I don’t think we have the 

luxury of this—of just looking at one element. We have to look at 

the whole picture. I want to move on just a little bit to—well, actually I am not going to move on at this point. Maybe we will do a 

second round. I would appreciate it. 

The CHAIRMAN. The chair thanks the gentleman, and we will do 

a second round. The chair recognizes the gentleman from Maryland. 

Mr. KRATOVIL. Thank you, Mr. Chairman. Thank you, Doctor, for 

your testimony. Your analysis distinguishes among farm types and 

regions. My question is does your analysis distinguish between 

farmers from states that are already participating in cap-and-trade 

programs in terms of regional programs? 

Dr. GLAUBER. Well, it does in the sense that the regional cost 

structures are imbedded in this model, so we take into account 

what producers in a given region, what those current costs of production are. 

Mr. KRATOVIL. And what is the impact on cost, comparatively, 

between states that are already participating in regional cap-andtrade programs and those that are not? 

Dr. GLAUBER. There I would—just looking at the data, we don’t 

see large discrepancies between regions, in general. Where we see 

the biggest impact, at least it was pointed out, in one of the earlier 

questions is that for those crops that are highly energy intensive 

that they tend to be affected. 

Mr. KRATOVIL. But the argument for the increase in cost under 

the proposed legislation is that having a cap-and-trade program 

would indeed increase costs, correct? 

Dr. GLAUBER. Having a cap-and-trade program, well, in the sense 

that it affects, yes, in the sense that it affects utility prices. 

Mr. KRATOVIL. So for states that were already participating in a 

regional program, presumably, if that is true their costs would 

have already gone up? 

Dr. GLAUBER. Well, under this bill I am not sure. If you look at 

H.R. 2454 in looking at given the specifics of what the energy price 

impacts are estimated by EPA and EIA, then all regions will see 

some increases in energy prices. 

Mr. KRATOVIL. Are you aware of any study that specifically is 

looking at the issue of those already existing cap-and-trade programs and the impact for those states as related to other states 

that are not? 

Dr. GLAUBER. I am not aware of any—I would be happy to get 

back with you on that. I am not personally aware of any. That 

37

doesn’t mean that there aren’t studies out there, so we will look 

into that. 

Mr. KRATOVIL. Let me go back to sort of follow up on Mr. 

Schauer’s question. Without specifically excluding ag from EPA 

regulation as was done in the energy bill, is it possible that EPA 

could and would, in fact, regulate ag? 

Dr. GLAUBER. That is better directed at EPA. 

Mr. KRATOVIL. Let me ask it this way. Without such a specific 

exclusion, what would prohibit EPA from doing so? 

Dr. GLAUBER. Well, you are right in that sense that any regulations could be structured to affect all parties. That would be at the 

discretion of how EPA would interpret the legislation and Court decision. 

Mr. KRATOVIL. You mentioned the cost of fertilizer. What is the 

percentage of fertilizer that would be imported and so would not 

be subject to the additional cost that you are talking about? 

Dr. GLAUBER. I think currently about 50 percent—we are at 

about 50 percent or so imported. 

Mr. KRATOVIL. And 80 percent of it would not be subject to those 

additional costs that we are referring to? 

Dr. GLAUBER. That is right. 

Mr. KRATOVIL. Having spent significant time evaluating the proposed legislation given the fact that ag currently is not subject to 

the cap but can, in fact, participate in the offset program, what additional amendments would you suggest that we could do to further 

protect ag? 

Dr. GLAUBER. Well, again, in my view the single most pressing 

important issue in this whole debate is how the offset programs 

would be structured. It is a very careful balance of ensuring a program that would provide ample offset opportunities across a wide 

range of regions and commodities, but in a way that wouldn’t have 

those sort of unintended consequences of extremely high consumer 

prices, food prices, for example. 

Mr. KRATOVIL. Thank you, Doctor. I will yield back. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Alabama, Mr. Rogers. 

Mr. ROGERS. Thank you, Mr. Chairman. I just want to ask two 

quick questions. One is a follow-up to Ms. Markey’s question when 

you were talking about your modeling and you included development of nuclear power in that modeling. Tell me more about that. 

We haven’t built a new nuclear facility in over 30 years in this 

country. 

Dr. GLAUBER. Let me clarify. We don’t have a nuclear industry 

modeled in the agricultural sector models that we are using. What 

I was saying is that we use the projections for the impacts on energy prices that were done by EPA and EIA, and we use those scenarios that—we took the so-called reference scenarios both by EIA 

and EPA that assumed that nuclear capacity would be built. I 

might add both of them have done analyses of if it weren’t built 

what the effects would be. I can say at least for 2030 if one looks 

at allowance prices, and remember that allowance prices are a 

rough indicator of what the energy prices would be, under the EPA 

scenario some $26 under the case we were looking at, and with a 

modified nuclear option some $30 under EIA was more like $61 

38

under the reference price or under the reference scenario increasing to $72, so an increase if that capacity is not built in. 

Mr. ROGERS. And I think that is the more realistic projection as 

a practical matter. The 2030 option, even if we were to start construction on some new facilities, we would be stretching it to get 

to that. The only other thing I wanted to ask about was when Mr. 

Goodlatte was talking to you, you mentioned that—you were talking about offsets in the uncovered sector that could generate some 

revenue for farmers. Tell me more about what you meant about 

how they would generate revenue. 

Dr. GLAUBER. Well, in the sense that farmers can undertake 

practices that they would be essentially sequestering carbon under 

a variety of practices. It could be something like conservation, tillage or no-tillage where you would earn ‘‘X’’ tons per acre for undergoing a practice. Because industries in affected sectors are going to 

be interested in reducing their reduction commitments, they will be 

willing to pay and so there would be a transfer there. 

Mr. ROGERS. That is all I needed. Thank you, Mr. Chairman. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Minnesota, Mr. Walz. 

Mr. WALZ. Thank you for being here, Dr. Glauber. I really appreciate it. It is important for us to keep a couple things in mind. The 

first thing I would says is the title of this hearing was going to be 

the potential economic impacts of climate change on the farm sector, not H.R. 2454 but of climate change. In this argument, if I 

could reduce and take care of two things that I didn’t have to be 

concerned about, one is if I did not believe against the preponderance of every single, every single major scientific organization, that 

human impact is leading to climate change. If I could exclude that 

from my reasoning and exclude that oil is at $78 a barrel at the 

worse recession since the 1930s, and demand is at its lowest and 

it is not going to go up, then we could make some debates that 

there is going to be a negative economic impact on farming. 

The fact of the matter is when I hear people talk about what 

about tillable land, what about picking winners and losers, what 

about flooding in Louisiana, the bill won’t do that, the climate will 

do that. I think we need to have a honest discussion. If that is not 

part of what you believe then that needs to be put forward to 

where it is, and not go after where the data shows where EPA is 

at, not go after the data that shows where the projections are at 

based on baseline data. If you want to reject the scientific preponderance of this, that is absolutely correct. I don’t think we need to 

pick winners and losers, and I don’t think it needs to be a choice 

in this. I think we can exercise leadership, protect the farm economy, protect the national security, and get to the heart of that. 

So my question is, coming from USDA what studies are out there 

to show, as I have seen some, part of the climate change is not fictional global warming for the entire globe, it is the instability of 

climate and unpredictability which is the farmer’s worse enemy. 

One of the things we see is a concentration of precipitation in much 

larger amounts in smaller days. Have you taken that into consideration? 

Dr. GLAUBER. It is not taken into account in the modeling itself, 

in part, because to understand that a lot of these effects are—most 

39

of these studies that you mentioned, and there has been a number 

of studies that conclude very similar effects on agriculture. Most of 

those occur out in the——

Mr. WALZ. We don’t have that data, and we don’t have that data 

from USDA. How can we make a good assumption? If the world 

were going to stay exactly the same as it is today, as I said, no climate change is going to be a negative effect other than the usual 

swings or there is no change in oil prices, we might be able to determine that. I do have a study that shows, and it was one for agriculture in Illinois alone, about a 1.2° centigrade increase in climate there will show a difference of about $9.3 billion in projected losses. 

Now is that a scenario that is every bit as plausible as oil prices 

staying stable or nothing happening? Those are things we need to 

look at. Another study found that the value of rain-fed non-irrigated farmland in the central United States will fall 69 percent in 

the next 75 years because of its ability to be able to produce. 

Those are part of the equation we need to come up with and decide, and I would ask and see if, Mr. Chairman, I could submit to 

the record—Dr. Glauber, are you familiar with the study that came 

out of New York University Institute for Quality and Integrity, the 

Other Side of the Coin, that talks about and looked at these things 

not specifically for agriculture but the economy as a whole a 9:1 

cost basis. One of the best investments we can make is to get a 

handle on this, control our own energy needs. Like the gentleman 

from Virginia said, the generals understand there is a national security need, and they project it to be a positive on the investment, 

a 9:1 return. 

Are those the type of things that should be studied in particular 

and in specific towards agriculture because, if I could, I would like 

to submit this one to the record. 

[The document referenced is located on p. 163.] 

The CHAIRMAN. Without objection. And then tomorrow I am 

going to submit one from the University of Tennessee that does 

start to do this. My question is does USDA with its resources attempt to duplicate or find out what this one is the analysis of the 

implications of climate change and then energy legislation? 

Dr. GLAUBER. Congressman, I don’t want to leave you with the 

wrong impression. We have done work on climate change and done 

numerous studies over the years that have looked at the impacts 

of climate change on agriculture, and I would be happy to provide 

those. 

Mr. WALZ. Is any of it positive? 

Dr. GLAUBER. No. I mean in the sense—no, they all conclude 

very similar results, that is——

Mr. WALZ. Are my nieces and nephews going to be able to farm 

if we do nothing? 

Dr. GLAUBER. It will depend on the crop. The more adaptable 

crops, there is potential—the bigger concerns are for the crops that 

are very specific to——

Mr. WALZ. Rice and——

Dr. GLAUBER. Or fruits and vegetables and some of the crops 

that have a very definite niche with ecological demands——

Mr. WALZ. Well, I look forward—I know tomorrow, and I sure 

don’t want to steal your thunder on this, tomorrow’s hearing may 

40

be a more appropriate place to talk about a little some of the 

positives and some of the opposites as it goes in. But I would like 

to say, Mr. Chairman, I believe that all of us here, it behooves us 

to look at evidence on all sides of this and a short term view of 

this, a short term view of what is going to happen, is not going to 

secure this nation’s food, fiber, fuel and national security, and I 

yield back. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Nebraska, Mr. Smith. 

Mr. SMITH. Thank you, Mr. Chairman, and thank you, Dr. Glauber, for your service and for your time here today. You did talk or 

you mentioned changing the diet, or the diet in livestock. Could you 

elaborate on that? 

Dr. GLAUBER. Well, the numerous studies done or some studies 

done at least in terms of greenhouse gas emissions and whether or 

not under the current feed ration mix that cattle, hogs, and poultry, and looking at switches in diets to more—I believe it is more 

oils, is that right? Some shifts in diet, studies have been done that 

show that there are potential greenhouse gas reductions. Those 

could be, potentially under some offset program, credited. I can get 

you more information on that. In terms of feed rations and things 

like that, they are not exactly my specialty, but we certainly have 

information on that. 

Mr. SMITH. In light of the fact that margins in livestock, in the 

livestock industry today are narrow to non-existent and even 

worse, I hope that we can have some balance there, but I appreciate that. On the transactional costs of purchasing credits, for example, what do you see as the average cost there? What would go 

to the brokers and certainly the traders, so to speak? 

Dr. GLAUBER. I think that is a great question, and a lot will depend—I mean there are a whole host of issues when you are talking about an offset program in terms of how verifiable the offset 

is, how permanent it is, and to the degree that there is less reliability, then you are talking about potential discounts in the transactions. Just transaction cost themselves, those could—I would anticipate those would be pretty low just looking at other markets, 

contingency markets, that we see, things like the permits for acid 

rain and other sorts of things. I think the bigger concern is getting 

an offset market where you are crediting here a ton for this operation that you can verify that it actually is a ton, and it will be—

you will be doing what you say you are going to be doing. And that 

is important not just for domestic legislation, it is also important, 

obviously, for international accounting. 

Mr. SMITH. The gentleman from Minnesota certainly pointed out 

with some passion on the issue as well that there is great harm 

and danger looming due to climate change, and are you confident 

that the cap-and-trade bill would mitigate that harm? 

Dr. GLAUBER. The issue, ultimately, will be what can be done 

internationally, clearly. I mean this is not something that one 

country can do in terms of global warming. I think it is important 

for—it speaks to the bigger issue of getting international agreement on greenhouse gas emissions. 

Mr. SMITH. But you would say that we need to move forward 

first before other rather large emitters of carbon would participate? 

41

Dr. GLAUBER. I think that, yes, I think that the climate bill 

itself, to me the key thing about the climate bill is doing it correctly in terms of things like the offset program and having that 

established——

Mr. SMITH. In terms of international participation? 

Dr. GLAUBER. Yes, both for that and also that we ensure that we 

have sufficient offsets to mitigate the cost of the legislation itself. 

But, also in terms of, as I mentioned earlier, not causing unintended consequences of sequestering or pulling large swaths of land 

out of production. 

Mr. SMITH. And do you believe that enactment of a cap-and-trade 

bill would or would not lead to higher food prices worldwide? 

Dr. GLAUBER. I think, again, depending how the offset provisions 

are accomplished, that there is potential there for higher food 

prices if a lot of land is taken out of production. I think the energy 

cost side, again, is relatively small, ultimately. 

Mr. SMITH. But do the offsets depend on taking land out of production? 

Dr. GLAUBER. Not necessarily. There are other ways of acquiring 

carbon and again it depends on where the land is taken out of production, whether or not it is pasture land which obviously has an 

effect as opposed to prime corn land. So, there are real concerns 

there in terms of getting that part of it right, but there is obviously 

great potential there for the agricultural sector. 

Mr. SMITH. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman and recognize the gentlewoman from Pennsylvania, Mrs. Dahlkemper. 

Mrs. DAHLKEMPER. Thank you, Dr. Glauber. I want to ask if you 

believe that the peer reviewed economic literature regarding the 

impact of cap-and-trade has a generally settled opinion on the likely impacts of the legislation. 

Dr. GLAUBER. I think that—well, the economic literature on capand-trade, there is—there are a lot of studies out there that show 

estimates. I certainly looked at the EIA and EPA numbers, and 

they are fairly consistent. EIA is a little higher in terms of their 

overall impacts, and I would say in terms of translating that into 

the impacts on agriculture. I mentioned at the outset, I think that 

most of the models that have been done on the agricultural side 

show fairly similar, if one uses the same estimated impacts on energy prices, the impacts on agriculture that these models would derive are fairly similar. 

Mrs. DAHLKEMPER. And do these economic models adequately incorporate, do you think, a fair array of opinions from different climate scientists? 

Dr. GLAUBER. Well, again, I want to be careful here because I 

don’t think—most of these models have not really looked at the sort 

of counter-factual case of what would happen if we had large 

changes in the climate, what about those costs, because then you 

would have to look at both what the impacts of the legislation are 

in terms of costs and offsets on producers, but also the impact on 

climate itself and how that is mitigated. I think that was alluded 

to by the previous questioner. I think that one way or the other 

that has not been done, and I am not aware of any model that has 

42

looked at that whole array of issues, and it is important, as was 

mentioned earlier. 

Mrs. DAHLKEMPER. Certainly in my region in northwestern Pennsylvania we have a grape industry that could be very much affected 

as well as certain nursery stock and other specialty crops. Thank 

you. I yield back. 

The CHAIRMAN. I thank the gentlewoman and recognize the gentleman from Missouri. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. I appreciate the 

opportunity, and thank you, Dr. Glauber, for being here today. In 

your testimony you start out by saying that you are reviewing the 

potential economic impacts of the proposed legislation on the farm 

sector, and the cap-and-trade legislation is based on the fact that 

we have man-made global warming. As a result of the revelations 

over the last week with regards to the U.N. Intercontinental Panel 

on Climate Change and how those folks have been able to skew 

some of the data and to withhold some of the information with regards to actual global warming trends and what have you, I am curious as to whether we are going to continue down this path or not. 

I have a couple quotes here just this morning from Tim Wirth, 

President of the U.N. Foundation, ‘‘We have to right this global 

warming issue. Even if the theory is wrong, we will be doing the 

right thing in terms of economic environmental policy.’’ Christine 

Stewart, the former Canadian Minister of the Environment who led 

that country’s delegation to Kyoto said, ‘‘No matter if the science 

of global warming is all phony, climate change provides the greatest opportunity to bring about justice and equality in the world.’’

These folks are out there with an agenda that doesn’t include the 

facts. Based on this, what do you at the USDA, do you believe 

that—are you going to continue to support this position? 

Dr. GLAUBER. Congressman, all I can tell you is I am asked to 

do analyses of what things like the legislation would have on agriculture, and I think there we try to be as objective as we can be. 

We try to be as transparent as we can be in terms of what the assumptions are. We look at how this legislation would affect a variety of agricultural producers and ranchers and on a regional basis. 

I haven’t looked at the broader literature on global warming. I am 

aware of the controversies that have arisen over the last——

Mr. LUETKEMEYER. Excuse me, but my question is if we are 

aware that this is based on unsound science, it is based on a political agenda versus actual belief that there is man-made global 

warming, why are you pursuing this at all? Shouldn’t you be going 

out here and disclosing the correct information and trying to get 

something done that is correct and that is going to be impactful 

and helpful to our farmers instead of wallowing around in something that is not right? 

Dr. GLAUBER. I think the issue again for me is how would this 

legislation affect agriculture. I can’t address this controversy. It 

will get resolved hopefully. I don’t know what the answer is. 

Mr. LUETKEMEYER. Okay. You are saying that you are going to 

address the impact on the farming community. One of the individuals that is going to testify shortly is Dr. Westhoff, from the University of Missouri, which happens to be in my district. He heads 

up or is Co-Director of Missouri’s Food and Agricultural Policy ReVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00048 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
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search Institute, which studies these type of things. His study, and 

I assume his testimony this morning will include that the costs for 

Missouri wheat producers are going to go up over ten percent by 

2050 and over nine percent for corn producers in Missouri. How are 

they going to survive between now and then? 

Dr. GLAUBER. Well, again, as I said in my opening comments, 

certainly in the short run through 2025 most of the costs that 

would otherwise affect wheat producers in Missouri would be 

things like nitrogen fertilizer costs which will be——

Mr. LUETKEMEYER. Forgive me for interrupting, but I have only 

a minute left here. But my question is this, and you have been 

asked three times now and you have never answered it, how are 

farmers going to exist between now and then, whenever you think 

the markets are going to turn or they can afford this. The gentleman from Nebraska just asked the same question as well, how 

are they going to be able to afford an increased cost when they are 

already in a negative position with their cash flow and with their 

income? How can they continue to absorb increased costs if they 

don’t get to price their products, sir? 

Dr. GLAUBER. If you look at the size of the energy price impacts, 

again you are talking about impacts that are out at 2050, and I 

might add our numbers aren’t all that different from what we——

Mr. LUETKEMEYER. They are immediate that take place over a lot 

of time. They are going to be immediate with regards to the impact 

on the farming community from now on for the next 15, 20, 30 

years. How are they going to survive between now and then? 

Dr. GLAUBER. My point is they are gradual impacts. These are 

very gradual impacts, and for the first 12, 15 years they are very 

small, very small. And we are assuming—and Pat does the same 

thing I do when I look at these analyses. We assume essentially 

that the current technologies in place are going to remain in place. 

Mr. LUETKEMEYER. Sir, if you have a wound and you bleed a certain level of blood all the time eventually you are going to pass out 

and you are going to die, and that is exactly what has happened 

to our farmers. They are wounded right now and they are bleeding, 

and they need some help, and this does not help. Thank you, Mr. 

Chairman. 

The CHAIRMAN. The chair thanks the gentleman, and recognizes 

the gentleman from California, Mr. Costa. 

Mr. COSTA. Have you had time to check out the differential as 

it relates to energy costs as it relates to specialty crops? It seems 

to me there is a limited evaluation in the analysis that you provided on the impacts of specialty crops in comparison to other—the 

program crops that we see in other parts of the country. Obviously, 

I am speaking California specific where we have the largest, in 

terms of farm gate agricultural production, approximately $37 billion last year, in almost 300+ specialty crops. And, of course, we 

have high energy costs there as you know as we look at alternatives. Could you please respond? 

Dr. GLAUBER. You are right in the sense that, frankly, we don’t 

have the detailed cost of production data that we would like to 

have on fruits and vegetables that we have on our row crops. Most 

of the row crops and livestock, things like cow-calf operators, hog 

operations, and dairy, we do periodic surveys where we take very 

44

detailed—collect very detailed data on cost of production. That is 

one of the reasons we are able to do the sort of simulations, et 

cetera, that we do. For fruits and vegetables, what we do is we 

have an annual survey that surveys farms across the U.S., including fruit and livestock—or, excuse me, fruit and vegetable producers. And the analysis that we did there or that we presented 

in this report breaks out those producers in the aggregate, again 

showing fairly small cost as affects total production costs, largely 

because labor is such a large—such a big individual component for 

fruits and vegetables. 

Mr. COSTA. Well, labor is a big estimate, and we will get to that 

in a moment, but you indicate in your testimony, and correct me 

if I am wrong, I noted $7,747 increase in energy costs for fruit and 

vegetable farms. 

Dr. GLAUBER. On average. 

Mr. COSTA. Right. This is an annual increase? 

Dr. GLAUBER. This would be the increase for that year relative 

to the baseline in the year, yes. It is looking over the average for 

2012 to 2018 looking at the average annual increase. 

Mr. COSTA. Well, given the horrific challenges U.S. agriculture is 

facing and in California, I can tell you it is just difficult, and then 

I am going to ask you the next question. Do these numbers take 

into account the notion that in places that I am talking about 99 

percent of our agriculture is irrigated and agriculture depends 

upon irrigation. It adds to those energy costs. 

Dr. GLAUBER. Two things. One is my colleague corrects me that 

that was the long run impact that is out—closer to 2040, 2050, that 

$7,000 number. But you are right, the energy costs are imbedded 

in things like irrigation. We do take that into account in terms of 

the potential increase, and when we were doing the analysis we 

also looked at surcharges on electricity prices and natural gas 

prices that are used for irrigation. 

Mr. COSTA. And when did this—dairies as well are very energy 

intensive, and while the example that my colleague talked about 

from his constituent, or smaller dairies, with dairies in California 

that average 600 cows or 1,000 cows milking, those are much larger dairies, I can tell you they are energy intensive. 

Dr. GLAUBER. You are right. Obviously, when you are looking at 

any producer, it is hard to—we tend to look at just the nature of 

it. We have to do averages so——

Mr. COSTA. I know, but these numbers are somewhat false. You 

are not taking into account the other larger problem. I voted 

against cap-and-trade because I just don’t think it works for some 

of the same reasons that was mentioned here earlier. But that 

aside in the drought conditions that we are transporting water at 

enormous cost, have you taken any snapshot to look into the impact that droughts are having in certain key areas of the country, 

especially the regulatory drought that we have in California? 

Dr. GLAUBER. In the sense that the cost of production data was 

based on 2007, it does not reflect the more recent increases due to 

the regulatory——

Mr. COSTA. Then a lot of this information then is no longer valid 

in terms of our current——

Dr. GLAUBER. Well, it may not be valid for a specific——

45

Mr. COSTA. I mean this drought has lasted 3 years and in other 

parts of the Southwest, and God forbid it lasts a fourth year, but 

it seems to me you need to go back and update your information 

at the very least if this is going to be of any value to us. 

Dr. GLAUBER. Well, again, Congressman, I would be happy to 

look at some follow-up and get back to you on it. 

Mr. COSTA. All right. We will follow up. Thank you very much. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentleman from Kansas. 

Mr. MORAN. Mr. Chairman, thank you. Dr. Glauber, thank you 

for the opportunity to question you today. And again I apologize for 

the last time we were together in this room in which I didn’t give 

you a chance to respond to my question. I even heard from your 

predecessor that I was rude to you, so again I apologize for my 

manners. 

Dr. GLAUBER. That is quite all right. 

Mr. MORAN. It was unbecoming of me and hopefully out of character. I would say that the legislation passed by the House of Representatives now a few weeks ago in my mind remains the most 

damaging piece of legislation ever passed by the House of Representatives during my time in Congress, as far as it affects agriculture. And I indicated that in this Committee and I indicated 

that on the House floor and urged my Agriculture colleagues to oppose that legislation despite the efforts by this Committee to 

refocus some of the jurisdiction of the issue from the EPA to the 

Department of Agriculture. 

One of the things that I think we have not talked about, and I 

am interested in knowing whether your study has considered at 

least this theory of mine, and that is while agriculture producers 

will not move their operations abroad due to increasing cost, the 

land is here in the United States, farming will continue as long as 

it is conceivably profitable, but I have a great concern about agricultural processors. It seems to me that with increasing costs 

caused by cap-and-trade, and other issues, agriculture processors 

can move their operations abroad which then not only has an employment consequence to the United States but has a cost effect 

upon agriculture producers. The farmer ultimately is damaged by 

the industry that he or she deals with being countries away around 

the globe as compared to down the road. 

And, again, my premise is based upon the belief that the increased cost to agriculture processors whether it is an ethanol 

plant or a processing facility, a chemical company, a livestock processor, a packing plant, we have to have real concern that that sector of the agriculture economy departs this country as it becomes 

less and less competitive in a global economy. Any comments or response to my thoughts? 

Dr. GLAUBER. Congressman, frankly, we haven’t looked at the 

processing sector. One of the difficulties is we just don’t have cost 

data on it, and I know just in speaking to some of the people that 

have come through my office, and I presume have also been up to 

see you too, are processors who are concerned about this aspect. 

Again, a lot will depend on what the individual price impacts are 

on these individual firms. Again, in the near term it is less of an 

issue. Over the longer run, the bigger issue is going to be on effiVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00051 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
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ciencies and things like that. But you are right. For some processing firms, they may be very energy intensive, and those will 

take—just like in agriculture there will be differential——

Mr. MORAN. Would it be safe to assume that refining capacity, 

if it moves abroad, is more expensive, the end product is more expensive to agricultural and other consumers in the United States? 

And my assumption is that it is better to have the packing plant 

down the road buying your cattle than in South America. That has 

to have a price consequence, a cost consequence upon the actual 

farmer or stockman in the United States, true? 

Dr. GLAUBER. Yes. There is no question. If there is added cost 

at the processing level that has some effect both in terms on the 

retail side and also on the other side on the purchasing side. 

Mr. MORAN. Thank you, Dr. Glauber. 

Dr. GLAUBER. Thank you. 

Mr. MORAN. Thank you, Mr. Chairman. 

The CHAIRMAN. The chair thanks the gentleman. Doctor, you 

have been very generous with your time, but I believe Mr. Thompson had a follow-up comment or question. 

Mr. THOMPSON. Just real quickly. First of all, let me in the spirit 

of apology, let me apologize for questioning the competence of the 

folks who have done the analysis on dairy farming. Let me encourage them to go back to the books and look at the statistics you 

shared today in terms of diesel, gas, and electricity cost and all 

those things that, frankly, farmers have to figure out how to write 

the check out for on a monthly basis, because it is all part of the 

picture, and they are drowning, they are dying today. As my colleague from Missouri talked about, in general about farmers, the 

dairy farmers are really taking it hard. 

Just briefly, natural gas is the cleanest fossil fuel, and we certainly have vast amounts of on tap resources right here on and off 

shore in the Outer Continental Shelf. Natural gas, we have already 

established, is also a necessity in running our nation’s farms. In 

my view, if this debate is really about curbing our carbon emissions 

and we really wish to protect our farms and food supplies then natural gas should be encouraged. Natural gas to me is a bridge that 

buys us time until we have significant amounts of renewable energy and proper infrastructure in place. Not only will natural gas 

be a cleaner fuel and one that we can control the price of here at 

home, natural gas production will create a enormous number of 

skilled, good paying jobs. 

I know the Marcellus Shale that is in part of my district and 

New York and Ohio and West Virginia that created, I believe, 

somewhere around 28,000 jobs in 2008. Dr. Glauber, you discussed 

H.R. 2454 will necessarily increase energy costs in the agriculture 

sector and how the legislation attempts to lessen the burden. My 

question is why bother capping natural gas and offering all these 

offsets when we have huge amounts of natural gas that can be easily developed and in quantity. The Marcellus Shale plate alone is 

the single largest plate of natural gas in the world, and that is in 

addition to everything else we have on the continent and the Outer 

Continental Shelf, and also it is just clean, good clean energy. 

Dr. GLAUBER. Well, there are a lot of advantages for natural gas 

and certainly in terms of pollutants, et cetera. However, on a greenVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00052 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
47

house gas side, they do have substantial greenhouse gas emissions, 

and that is, at least in theory, why they were addressed specifically 

in the legislation. I would agree with you in many of the points you 

made insofar as, one, natural gas, we know a lot of producers use 

it already as a direct fuel cost for pumping for irrigation, et cetera, and there are a lot of advantages of natural gas. And certainly 

when we saw the increases in the prices over the last few years 

those producers had to make some pretty quick adjustments. 

Mr. THOMPSON. I yield back. 

The CHAIRMAN. I thank the gentleman. The gentleman from Louisiana, a follow-up question? 

Mr. CASSIDY. First a comment based on what you just said. Actually, you could probably show that natural gas has a lower carbon 

footprint than corn-based ethanol, and I think that would be fairly 

easily shown. But as I looked at your testimony on page 23, yes, 

page 23, and again I am looking at rice—energy inputs relative to 

total operating expenses for selected crops. Rice takes it on the 

chin. I think rice, if you add the cost of fuel and fertilizer, is the 

highest priced of any other among all the crops. 

Dr. GLAUBER. Absolutely, per acre. You are absolutely right. 

Mr. CASSIDY. Now really this kind of extends my argument regarding aquaculture to rice. Will they be able to compete absent 

WTO-defined tariffs with foreign importers if they have such an energy-intensive process? 

Dr. GLAUBER. Well, the flip side of it is looking at it on a percent 

of operating cost and there rice is not quite as high as some of the 

other commodities, but still quite high, in general. I think that a 

key for rice will be, potentially, whatever offsets can be generated 

on rice production by tillage practices, et cetera. Mr. CASSIDY. Now my next question is knowing that they flood, 

is there going to be some sort of carbon offset for flooding? They 

don’t till per se.

Dr. GLAUBER. My colleague here who knows a lot about offsets 

says that there are potentials on nutrient management, and what 

I would like to do is follow up with you with a more detailed response. 

Mr. CASSIDY. My next question is that clearly the Achilles’ heel 

behind this whole theory of this bill is the carbon leakage of energy 

intensive industries to other nationals, the Caribbean, China, 

India, et cetera, who just said they are not going to comply with 

this. So what about carbon leakage of our fertilizer? We are already 

importing some percentage you mentioned. Frankly, I can see a 

business plan you would not expand here. You would expand elsewhere because in 15 years this subsidy goes away and you would 

be at a competitive cost advantage by carbon leakage of the fertilizer manufacturers. 

Dr. GLAUBER. Well, again, with rebates that will take you 

through 2025, thereabouts, you are right. At that point, natural gas 

prices, if that is phased out, there are issues then about competition with foreign producers, and a lot will depend there in terms 

of what is done internationally. 

Mr. CASSIDY. So we know that it is the global emissions of carbon 

that is important, not just that which is produced in the United 

States. If we have carbon leakage of these energy intensive indusVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00053 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
48

tries then we are probably net going to be no better off, maybe 

worse, assuming they have lower environmental protections. My 

next question is the EITE, does that totally hold the producer 

harmless? For example, they are going to buy natural gas to make 

their fertilizer, but that natural gas price is already inflated because there is going to be someone else who is having to pay for 

emissions and tacking that on to the cost of the natural gas. And 

so there are several areas in the production line where the natural 

gas price will be elevated. Is the producer of the fertilizer totally 

held harmless or is it only for that which they themselves would 

be penalized for emitting? 

Dr. GLAUBER. My understanding is that they will be exempt from 

the additional surcharge that would be implied by the allowance 

price for carbon. 

Mr. CASSIDY. And is that the well head to their product going out 

the door, or is it just for the natural gas coming in to their product 

going out the door? 

Dr. GLAUBER. I think it is as a feedstock that that price will 

be——

Mr. CASSIDY. From the well head? 

Dr. GLAUBER. Yes. 

Mr. CASSIDY. So then the cost of that offset passes all the way 

down to the producer, the refiner, and then the intermediary, the 

pipeline guy, and then the fertilizer manufacturer itself? 

Dr. GLAUBER. Yes. That is my understanding. Now the other 

thing too is that don’t forget because natural gas prices are going 

up for others, those who aren’t protected, they are actually the demand. Demand would be affected a bit for natural gas prices, so 

if you take out the allowance price the price could be slightly smaller than it would have been otherwise. But again that is very conjectural. 

Mr. CASSIDY. One more thing. The industrial-owned rural utilities, they are going to be subject to both the renewable energy 

standard and they are going to be subject to their emissions standard. Many of them in the Southeast have limited access to renewable energy sources, but they are also going to have the carbon exemptions, and since they are investor-owned, they will not have the 

same for whatever megawatts exemption. What is going to be—did 

you break out the impact of investor owned utilities versus the municipalities or the co-ops as regard to what is going to happen to 

the rural people in their districts? 

Dr. GLAUBER. We did not, Congressman, but let me get back to 

you on that as a follow up. 

Mr. CASSIDY. It seems like that could be a significant difference. 

Dr. GLAUBER. I would be happy to look at it. 

Mr. CASSIDY. Thank you very much. I yield back. Thank you. 

The CHAIRMAN. The chair thanks the gentleman. Dr. Glauber, 

thank you very much. You have been more than generous with 

your time, so thank you very much. 

Dr. GLAUBER. And we will see you tomorrow. 

The CHAIRMAN. See you tomorrow. We now would like to welcome our second panel. I would like to yield to the gentleman from 

Missouri for an introduction of one of our panelists. 

49

Mr. LUETKEMEYER. Thank you, Mr. Chairman. As I get settled 

in, it is my privilege this morning to introduce to the Subcommittee, Dr. Pat Westhoff. He is Co-Director of the Food and Agricultural Policy Research Institute there at the University of Missouri. It is called FAPRI, an acronym. He is a Research Associate 

Professor in Agriculture Economics. FAPRI conducts some of the 

most respected objective agricultural research in the world. I am 

proud to represent this institution in Congress. Dr. Westhoff is a 

native of Manchester, Iowa, and he joined FAPRI in 1996. 

Prior to joining FAPRI Missouri, he served 4 years as the Chief 

Economist for the Democratic staff of the United States Senate 

Committee on Agriculture, Nutrition, and Forestry. From 1983 to 

1992 he worked at the Iowa State University Center for Agricultural and Rural Development for FAPRI at Iowa State. He obtained his Ph.D. in agricultural economics from Iowa State University. We don’t hold that against him. He is now at MU. We beat 

them in football this year so we are okay with that, right, Doc? 

Through the hard work of Dr. Westhoff and Dr. William Meyers, 

FAPRI has gained the respect of the agricultural industry from the 

much anticipated yearly baseline projection to the analysis conducted for Congress and outreach with farmers and agricultural organizations. FAPRI serves as a valuable asset for this industry 

helping both producers and policy makers develop smart decisions 

about the future of agriculture in Missouri, and throughout this nation. 

They are basically the Bible when it comes to agriculture in our 

state. Through fantastic research, we rely on them tremendously 

for their input and data that they come up with. Pat himself has 

been a tremendous asset to my district and to the American agricultural industry. I greatly appreciate his being here today and 

look forward to his testimony. Welcome. 

The CHAIRMAN. The chair thanks the gentleman. We also would 

like to welcome Dr. Joe L. Outlaw, Professor and Extension Economist—Farm Management and Policy, Department of Agricultural 

Economics, Texas A&M University; Dr. John M. Antle, Professor of 

Agricultural Economics and Economics, Montana State University; 

Dr. Judith Capper, Assistant Professor of Dairy Science, Department of Animal Sciences, Washington State University; Mr. Richard Pottorff, Chief Economist, Doane Advisory Services, St. Louis, 

Missouri. Dr. Outlaw, you may begin when you are ready. 

STATEMENT OF JOE L. OUTLAW, PH.D., CO-DIRECTOR,

AGRICULTURAL AND FOOD POLICY CENTER; PROFESSOR 

AND EXTENSION ECONOMIST—FARM MANAGEMENT AND 

POLICY, DEPARTMENT OF AGRICULTURAL ECONOMICS, 

TEXAS A&M UNIVERSITY, COLLEGE STATION, TX 

Dr. OUTLAW. Mr. Chairman and Members of the Committee, 

thank you for the opportunity to testify on behalf of the Agricultural and Food Policy Center at Texas A&M University on our research regarding the potential economic impacts of climate change 

on the farm sector. For more than 25 years we have worked with 

the Agriculture Committees in the U.S. Senate and House of Representatives providing Members and Committee staff objective reVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00055 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
50

* The document referred to is located on p. 216. 

search regarding the potential affects of agricultural policy changes 

on our database of U.S. representative farms. 

My testimony today summarizes the results of an analysis request from Senator Saxby Chamblis to analyze the impacts of the 

cap-and-trade provisions of the American Clean Energy and Security Act of 2009 on the farm sector. Our analysis, which I have provided for the record,* assessed the impacts of H.R. 2454 by including: the anticipated energy related cost increases directly experienced by agricultural produces for inputs such as fuel and electricity and indirectly experienced, such as higher chemical prices 

resulting from higher energy prices; the expected commodity price 

changes resulting from producers switching among agricultural 

commodities; afforestation of land previously employed in agricultural commodity production; and the estimated benefits to agricultural producers from selling carbon credits. 

AFPC currently does not maintain sector level economic models 

with the amount of detail required to develop estimates of all the 

impacts listed above along with their feedback effects. Therefore, 

we utilized the EPA estimated energy price changes, as well as estimates of carbon and agricultural commodity prices from McCarl’s 

FASOM–GHG model to evaluate the farm level effects of H.R. 

2454. The results of this analysis are dependent on the estimated 

outcomes contained in the EPA analysis of H.R. 2454. As additional 

sector level analyses are conducted and estimates are refined, 

AFPC will update the farm level analysis. 

AFPC has a history of maintaining a unique dataset of representative crop, livestock, and dairy farms and utilizing them to 

evaluate the economic impacts of agricultural policy changes. This 

analysis was conducted over the 2007–2016 planning horizon using 

FLIPSIM, our risk-based whole farm simulation model. The data 

described 98 farming operations in the nation’s major production 

regions came from producer panel interviews to gather, develop, 

and validate the economic and production information required to 

describe and simulate representative crop, livestock, and dairy 

farms. 

In our report we analyzed three scenarios relative to our baseline. Today these results are going to focus on the cap-and-trade 

with ag carbon credits scenario. Mr. Chairman, we have been doing 

policy analysis for the Congress for nearly 30 years and we have 

never had to make this many assumptions just to complete an 

analysis. Cropland requirements for carbon dioxide sequestration 

specify that land must be engaged in a minimum or no-till cropping 

program. Extension budgets from different states were used to determine changes in input and overhead costs typically experienced 

in converting from conventional tillage practices to no-till farming. 

Methane digesters may be beneficial to some confinement dairies, 

allowing them to generate electricity and reduce greenhouse gases. 

This study assumed a dairy size of 500 cows or more is necessary 

to make erecting a methane digester a viable economic option, 

which eliminates—we had 16 of 22 farms that would be able to do 

this. For this study, AFPC’s representative cattle ranches and rice 

farms were the only two categories of farms that were assumed not 

51

to participate in carbon sequestration activities. In terms of measuring performance, our report had five different measures. We have 

used average ending cash reserves in 2016 to highlight as the most 

appropriate measure to evaluate this type of long-run decision. In 

other words, will the farm be better off or worse off at the end of 

the period based on cash on hand at the end of the year? 

Table 2 provides a summary of the farms with higher and lower, 

relative to the baseline, average ending cash reserves in 2016. 

Twenty-seven out of 98 representative farms are expected to be 

better off at the end of the period in terms of their ending cash reserves. Most of the feedgrain/oilseed farms located in or near the 

Corn Belt and wheat farms located in the Great Plains, have higher average ending cash reserves under this scenario. Eight wheat 

farms are better off under this scenario, while one cotton and no 

rice farms or cattle ranches are better off. One dairy is better off 

because it produces and sells surplus corn and soybeans which are 

projected to see higher prices as a result of this program. 

While a few farms would be as well off as under the baseline 

with only slightly higher carbon prices each year, there are also 

several farms that would need carbon prices of $80 per ton per year 

or more to make them as well off as under the baseline. I would 

like to finish with a few points. These results are entirely dependent on the EPA analysis, however, we were only able to analyze the 

very beginning of the cap-and-trade implementation through 2016. 

Based on the projected carbon prices after 2025, producers would 

be much better off waiting for higher carbon prices to sell carbon 

credits. 

We based many of our assumptions regarding how the cap-andtrade program in H.R. 2454 would work on the Chicago Climate 

Exchange which may or may not be accurate. Mr. Chairman, that 

completes my statement. 

[The prepared statement of Dr. Outlaw follows:]

PREPARED STATEMENT OF JOE L. OUTLAW, PH.D., CO-DIRECTOR, AGRICULTURAL AND

FOOD POLICY CENTER; PROFESSOR AND EXTENSION ECONOMIST—FARM

MANAGEMENT AND POLICY, DEPARTMENT OF AGRICULTURAL ECONOMICS, TEXAS

A&M UNIVERSITY, COLLEGE STATION, TX 

Mr. Chairman and Members of the Committee, thank you for the opportunity to 

testify on behalf of the Agricultural and Food Policy Center at Texas A&M University on our research regarding the potential economic impacts of climate change on 

the farm sector. For more than 25 years we have worked with the Agricultural Committees in the U.S. Senate and House of Representatives providing Members and 

Committee staff objective research regarding the potential affects of agricultural policy changes on our database of U.S. representative farms. 

My testimony today summarizes the results of an analysis request from Senator 

Saxby Chamblis to analyze the impacts of the CAP and Trade Provisions of ‘‘The 

American Clean Energy and Security Act of 2009’’ (H.R. 2454) on the farm sector. 

Our analysis, which I have provided for the record, is entitled ‘‘Economic Implications of the EPA Analysis of the CAP and Trade Provisions of H.R. 2454 for U.S. 

Representative Farms’’. Our report assessed the impacts of H.R. 2454 by including:

• The anticipated energy related cost increases directly experienced by agricultural producers for inputs such as fuel and electricity and indirectly experienced, such as, higher chemical prices resulting from higher energy prices.

• The expected commodity price changes resulting from producers switching 

among agricultural commodities and afforestation of land previously employed 

in agricultural commodity production.

• The estimated benefits to agricultural producers from selling carbon credits.

52

AFPC currently does not maintain sector level economic models with the amount 

of detail required to develop estimates of all of the impacts listed above along with 

their feedback effects. Therefore, we utilized the EPA estimated energy price 

changes, as well as, estimates of carbon and agricultural commodity prices from 

McCarl’s FASOM–GHG model to evaluate the farm level impacts of H.R. 2454.

The results of this analysis are dependent on the estimated outcomes 

contained in the EPA analysis of H.R. 2454. As additional sector level analyses are conducted and estimates are refined, AFPC will update the farm 

level analysis.

AFPC has a 26 year history of maintaining a unique dataset of representative 

crop, livestock and dairy farms and utilizing them to evaluate the economic impacts 

of agricultural policy changes. This analysis was conducted over the 2007–2016 

planning horizon using FLIPSIM, AFPC’s risk-based whole farm simulation model. 

Data to simulate 98 farming operations in the nation’s major production regions 

come from producer panel interviews to gather, develop, and validate the economic 

and production information required to describe and simulate representative crop, 

livestock, and dairy farms. The FLIPSIM policy simulation model incorporates the 

historical risk faced by farmers for prices and production. 

Scenarios Analyzed 

• Baseline—Projected prices, policy variables, and input inflation rates from the 

Food and Agricultural Policy Research Institute (FAPRI) January 2009 Baseline.

• Cap & Trade without Ag Carbon Credits—Assumes H.R. 2454 becomes effective 

in 2010. Imposes EPA commodity price forecasts along with estimated energy 

cost inflation on representative farm inputs.

• Cap & Trade with Ag Carbon Credits—Assumes H.R. 2454 becomes effective in 

2010. Imposes EPA commodity price forecasts along with estimated energy cost 

inflation on farm inputs, converts farms to no-till production (if applicable) and/

or installs a methane digester on dairies over 500 head and sells carbon credits 

at EPA estimated market prices.

• Cap & Trade with Ag Carbon Credits and Saturation—Assumes no-till farmland reaches carbon saturation in 2014. This scenario represents the loss of revenues that will be experienced by farms at some point due to carbon saturation 

of the soil. This scenario is not relevant for the analysis of methane digesters 

on the dairies since saturation is not an issue.

This testimony will focus on the Cap & Trade with Ag Carbon Credits scenario. 

Assumptions 

Mr. Chairman, we have been doing policy analyses for the Congress for nearly 30 

years and we have never had to make this many assumptions—just to complete our 

analysis. 

Cropland requirements for carbon dioxide sequestration specify that land must be 

engaged in a minimum or no-till cropping program. Higher fuel and input costs have 

driven the majority of the AFPC representative crop farms to participate in some 

form of reduced tillage; however, very few are truly no-till operations. 

Extension budgets from different states were used to determine changes in input 

and overhead costs typically experienced in converting from conventional tillage 

practices to no-till farming. All AFPC farms with the potential to sequester carbon 

dioxide (based on Conservation tillage soil offset map available from the Chicago 

Climate Exchange) were converted to no-till operations using their respective state 

Extension budgets as a template. Crop yields were not changed when the switch to 

no-till was made. 

Methane digesters may be beneficial to some confinement dairies, allowing them 

to generate electricity and reduce greenhouse gases (GHG). The destruction of 

GHGs makes the dairies eligible to receive carbon credits for their efforts. This 

study assumed a dairy size of 500 cows or more is necessary to make erecting a 

methane digester a viable economic option. Sixteen of 22 AFPC representative 

dairies have sufficient cow numbers to justify a digester based on this assumption 

For this study, AFPC’s representative cattle ranches and rice farms were the only 

two categories of farms that were assumed not to participate in carbon sequestration activities. In order to participate in the grassland or pastureland carbon sequestration, the ranches would need to reduce their stocking rates substantially which 

would have substantially changed the economics of the ranches. Therefore, we assumed they would likely not participate for the purposes of this study. We are unaware of any carbon sequestration protocol in effect for rice farms therefore we assumed they would be unable to participate. 

53

Commodity Prices, Inflation Rates, and Interest Rates Assumed in the Analysis 

We developed annual estimates of commodity prices and inflation rates by interpolating between the 5 year time periods and alternative carbon price scenarios, and 

applying the percentage changes in the estimated economic variables from the EPA 

scenario estimates and EPA Baseline to the January 2009 FAPRI Baseline. 

The estimated gross and net-to-farmer carbon prices per ton utilized in this study 

are summarized in Table 1. AFPC assumed that a fee structure similar to that used 

by the Chicago Climate Exchange (CCX) would likely be utilized under H.R. 2454.

Table 1. Gross and Net-to-Farmer Carbon Prices Utilized in Representative Farm Analysis, 2010 to 2016.1

Year 2010 2011 2012 2013 2014 2015 2016

Gross ($/ton) 8.97 9.704 10.438 11.172 11.906 12.64 13.374

Net-to-farmer ($/ton) 7.75 8.41 9.07 9.73 10.40 11.06 11.72

1These prices were derived from EPA estimates for 2015 and 2020 and extrapolated and interpolated to provide annual estimates. 

Measures of Economic Performance 

Five alternative measures of economic performance are provided for each of the 

farms. These are:

• Average Annual Total Cash Receipts—Average annual cash receipts in 2010–

2016 from all sources, including market sales, carbon credit payments, countercyclical/ACRE, direct payments, marketing loan gains/loan deficiency payments, 

crop insurance indemnities, and other farm related receipts.

• Average Annual Total Cash Costs—Average annual cash costs in 2010–2016 

from all sources including variable, overhead, and interest expenses.

• Average Annual Net Cash Farm Income—Equals average annual total cash receipts minus average annual cash expenses in 2010–2016. Net cash farm income is used to pay family living expenses, principal payments, income taxes, 

self employment taxes, and machinery replacement costs.

• Average Ending Cash Reserves in 2016—Equals total cash on hand at the end 

of the year in 2016. Ending cash equals beginning cash reserves plus net cash 

farm income and interest earned on cash reserves less principal payments, Federal taxes (income and self employment), state income taxes, family living withdrawals, and actual machinery replacement costs (not depreciation).

• Average Ending Real Net Worth—Real Equity (inflation adjusted) at the end 

of the year in 2016. Equals total assets including land minus total debt from 

all sources. 

Results 

Average ending cash reserves in 2016 will be highlighted as the most appropriate 

measure to evaluate this type of long-run decision. In other words, will the farm 

be better off or worse off at the end of the period based on cash on hand at the 

end of the year? 

Table 2 provides a summary of the farms with higher and lower (relative to the 

Baseline) average ending cash reserves in 2016. Twenty-seven out of 98 representative farms are expected to be better off at the end of the period in terms of their 

ending cash reserves.

Table 2. Representative Farms by Type That Have Higher or Lower Ending Cash Reserves for the Cap & Trade 

With Ag Carbon Credits Scenario Relative to the Baseline. 

Farm Type Higher Lower Total 

Feedgrain/Oilseed 17 8 25

Wheat 8 3 11

Cotton 1 13 14

Rice 0 14 14

Cattle Ranches 0 12 12

Total 27 71 98

Results show that all of the crop farms and dairies are expected to realize slightly 

higher average annual cash receipts under the Cap & Trade scenarios due to slightly higher crop and milk prices resulting from instituting cap-and-trade. The lone exception is the 12 cattle ranches that realize slightly lower receipts due to lower calf 

54

prices. As one would expect, the Cap & Trade with Ag Carbon Credits scenario results in slightly higher cash receipts than the Baseline. The amount of the carbon 

credits is relatively small with many farms averaging less than $10,000 per year 

higher receipts. 

Costs differ from the Baseline and Cap & Trade with Ag Carbon Credits due to 

imposition of higher input costs and expenses incurred for conversion to no-till on 

farms eligible for carbon credits and construction of methane digesters on eligible 

dairy farms. 

Most of the feedgrain/oilseed farms located in or near the Corn Belt and wheat 

farms located in the Great Plains, have higher average ending cash reserves under 

the Cap & Trade with Ag Carbon Credits scenarios. In addition, all but a few of 

the feedgrain/oilseed farms end the analysis period with higher cash reserves. Eight 

wheat farms are better off under the Cap & Trade with Ag Carbon Credits scenario, 

while one cotton and no rice farms or cattle ranches are better off. One dairy 

(WID145) is better off because it produces and sells surplus corn and soybeans 

which are projected to see higher prices as a result of cap-and-trade. 

The average level of carbon prices necessary for the farms to be as well off as 

under the Baseline were estimated for farms who would be worse off under the Cap 

& Trade with Ag Carbon Credits scenario. Given the assumptions in this study, for 

some farms such as rice and the cattle ranches, no level of carbon prices would 

make them as well off as the Baseline. While a few farms would be as well off as 

the Baseline with only slightly higher carbon prices each year, there are also several 

farms that would need carbon prices of $80 per ton per year or more to make them 

as well off as the Baseline. 

I would like to finish with a few points:

• These results are entirely dependent on the EPA analysis, however, we were 

only able to analyze the very beginning of Cap & Trade implementation through 

2016.

• Based on the projected carbon prices after 2025, producers would be much better off waiting for higher carbon prices.

• We based many of our assumptions regarding how the Cap & Trade program 

in H.R. 2454 would work on the Chicago Climate Exchange which may or may 

not be accurate.

Mr. Chairman, that completes my statement.

The CHAIRMAN. Thank you, Dr. Outlaw. Dr. Westhoff. 

STATEMENT OF PATRICK WESTHOFF, PH.D., CO-DIRECTOR, 

FOOD AND AGRICULTURAL POLICY RESEARCH INSTITUTE; 

RESEARCH ASSOCIATE PROFESSOR, DEPARTMENT OF

AGRICULTURAL ECONOMICS, UNIVERSITY OF MISSOURICOLUMBIA, COLUMBIA, MO 

Dr. WESTHOFF. Thank you, Mr. Chairman, for the opportunity to 

speak with you and other Members of the Subcommittee, and 

thanks to Congressman Luetkemeyer for the very kind introduction. My name is Pat Westhoff, and I am the Co-Director of the 

Food and Agricultural Policy Research Institute at the University 

of Missouri. Today, I will discuss some of the reasons why there is 

so much uncertainty about the impacts of climate change legislation on the farm sector. As you know, legislation approved by the 

House would create a cap-and-trade system. And as Dr. Glauber 

talked about earlier, the Energy Information Administration has 

estimated possible impacts of the legislation on energy markets 

and the general economy. 

Translating these estimated changes in energy costs to changes 

in farm production expenses is not as easy as one might think. 

Given the EIA’s basic estimates of the House bill’s impact on energy cost, we estimate that operating costs for corn producers 

would increase by about 1.8 percent in 2020 compared to levels 

that would have prevailed in a reference scenario. Operating costs 

55

would increase by two percent for wheat, 2.2 percent for soybeans, 

and 2.3 percent for cotton. Using the EIA’s energy cost estimates 

for 2030, we estimate that nominal corn operating expenses would 

increase by 5.7 percent relative to a reference scenario. Soybean 

costs would increase a little bit less while the proportional increase 

in wheat and cotton cost would be actually larger than those for 

corn. 

Other estimates of energy costs would, of course, lead to different 

estimates of crop production cost impacts. In addition to its basic 

scenario, EIA has examined a number of other scenarios for how 

the House-passed bill would impact energy markets. Because these 

different scenarios result in different estimates of fuel costs, they 

result in different estimates of farm production expenses as well. 

In 2020, corn operating expenses increased by just .9 percent in 

one of those EIA scenarios, but as much as 2.5 percent in another 

one of those scenarios. In 2030, the corresponding changes ran 

from as little as 2.3 percent to as much as 8.4 percent, so just making the point again there is great uncertainly what the production 

cost impacts might be because of so much uncertainty of what the 

impacts might be on energy costs. 

I want to focus most of my remaining remarks on possible impacts on crop production patterns because I don’t think those have 

gotten enough attention so far. There are several reasons why crop 

production patterns could shift in response to climate change legislation. First, rising input costs could cause some shifts away from 

crops that experience the largest increases in production expenses. 

Second, the opportunity to earn offset income could encourage landowners to reduce the amount of land used to produce current crops 

and expand the area devoted to forestry or the production of energy 

crops, as we have heard about today already. 

If relatively little land shifts from cropland to forestry uses, climate change legislation may have only very small effects on crop 

production and crop prices, but if more significant amounts of cropland shift to forestry uses, the result would be larger production in 

crop production. This in turn would result in higher crop prices 

that would increase market revenue for farmers who continue to 

grow traditional crops. This increase in market revenues could offset some or even all of the increase that might occur in crop operating expenses. If large shifts in acreage do occur, they would have 

impacts that go far beyond possible effects on crop producer receipts. Higher crop prices would increase feed costs for the livestock industry. These higher feed costs, in turn, would result in reduced production and higher prices for meat and dairy products. 

Consumer food prices would increase. 

Higher crop prices would reduce the quantity of agricultural 

products exported by the United States. Forestry uses of land result in different patterns of rural employment and economic activity that result from current crop production patterns. Finally, it is 

important to distinguish the effects that result when one country 

changes its policies from effects that result when all countries 

change policy simultaneously. For example, much of the analysis 

conducted so far assumes that U.S. firms will be able to purchase 

large amounts of offsets from other countries for practices that reduce emissions or sequester carbon. Similar policies in other counVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00061 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
56

tries could increase competition for such offsets. This would tend 

to increase allowance prices, resulting in higher domestic energy 

prices and more demand for domestic offsets. 

In summary, there are five things we think we know and do not 

know. Number one, the House-passed legislation would raise energy costs, and this would translate into higher farm production expenses; two, just how large the increase in production costs would 

be is unknown. Alternative sets of reasonable assumptions result 

in very different estimates of crop production cost impacts; number 

three, the ability to earn offset income by changing production 

practices or planting trees or energy crops could have major impacts on agricultural production, commodity prices, farm income, 

consumer food costs, and rural communities; four, the greater the 

shift in acreage away from production of traditional crops to trees 

or energy crops, the larger the potential impact on crop production 

and prices. Resulting increases in revenues may offset some or 

even all of the increase in production expenses for crop producers, 

and, finally, unilateral U.S. changes in climate policy could have 

very different impacts than if there is a multilateral agreement to 

reduce greenhouse gas emissions. Again, thank you very much, Mr. 

Chairman, for your interest in our work. 

[The prepared statement of Dr. Westhoff follows:]

PREPARED STATEMENT OF PATRICK WESTHOFF, PH.D., CO-DIRECTOR, FOOD AND

AGRICULTURAL POLICY RESEARCH INSTITUTE; RESEARCH ASSOCIATE PROFESSOR, 

DEPARTMENT OF AGRICULTURAL ECONOMICS, UNIVERSITY OF MISSOURI-COLUMBIA, 

COLUMBIA, MO 

Thank you, Mr. Chairman, for the opportunity to speak with you and other Members of the Subcommittee. My name is Pat Westhoff, and I am a Co-Director of the 

Food and Agricultural Policy Research Institute at the University of Missouri 

(FAPRI–MU). For the last 25 years, our mission has been to provide objective analysis of issues related to agricultural markets and policy. 

Our institute is examining some of the possible impacts of climate change legislation on markets for agricultural products, farm income, and consumer food prices. 

So far, the research has raised many questions and provided few definitive answers. 

Today, I will discuss some of the reasons why there is so much uncertainty about 

the impacts of climate change legislation on the farm sector. Consistent with 

FAPRI’s mission, I will neither endorse nor oppose particular policy proposals, but 

hope to provide information that will be useful as you consider issues related to climate change. 

Legislation approved by the House (H.R. 2454) would create a cap-and-trade system. Such a policy would raise farm production expenses by increasing energy costs 

to users of fossil fuels. It would also encourage activities that reduce greenhouse gas 

emissions and sequester carbon. Some of these activities could have important impacts on agricultural production, which in turn would affect farm commodity prices. 

Production cost impacts 

The Energy Information Administration (EIA) has estimated possible impacts of 

the legislation on energy markets and the general economy. In its ‘‘basic’’ scenario, 

EIA estimates that the House-passed bill would raise the nominal cost of diesel fuel 

by about eight percent in 2020 from reference scenario levels. Electricity costs would 

increase by about four percent, and industrial users would pay 14 percent more for 

natural gas. 

Translating these estimated changes in energy costs to changes in farm production expenses is not as easy as one might think. Consider the case of fertilizer. Nitrogen fertilizer is produced in a very energy-intensive process that uses large quantities of natural gas. One might therefore expect that nitrogen fertilizer costs would 

increase in line with the estimated increase in natural gas costs. 

The story is more complex. First, much of the nitrogen fertilizer used in the 

United States is imported, and foreign fertilizer producers would not necessarily experience the same change in production costs as domestic manufacturers. Second, 

57

the House-passed legislation includes provisions to provide free emission allowances 

to energy-intensive, trade-exposed (EITE) industries, including the nitrogen fertilizer industry. This could hold down costs to nitrogen fertilizer producers, at least 

until EITE allowances are phased down beginning in 2025. Third, even if the result 

is a significant increase in fertilizer prices, farmers could reduce their fertilizer 

usage, thus limiting increases in expenditures. 

FAPRI–MU has prepared preliminary estimates of impacts on farm production expenses that try to consider all of these concerns. Given EIA’s basic estimates of the 

House bill’s impact on energy costs, we estimate that operating costs for corn producers would increase by about 1.8 percent in 2020 compared to levels that would 

have prevailed in a reference scenario. Operating costs would increase by 2.0 percent for wheat, 2.2 percent for soybeans, and 2.3 percent for cotton. 

These estimates of production cost impacts all depend on a particular set of EIA 

estimates of energy cost impacts for one particular year. As the cap on greenhouse 

gas emissions is reduced over time, EIA estimates that energy costs would increase 

by even larger proportions. In 2030, for example EIA’s basic scenario estimates that 

the House-passed bill would raise nominal diesel fuel costs by 15 percent, electricity 

costs by 22 percent, and industrial natural gas costs by 26 percent. Furthermore, 

the scheduled phase-down of free EITE allowances means that nitrogen fertilizer 

producers would be less insulated from increases in natural gas costs. 

Using EIA’s energy cost estimates for 2030, we estimate that nominal corn operating expenses would increase by 5.7 percent relative to a reference scenario. Because soybean production uses little nitrogen fertilizer, soybean costs would increase 

less (4.9 percent), while the proportional increase in wheat (6.3 percent) and cotton 

(6.4 percent) costs would actually be proportionally larger than the increase for corn. 

Other estimates of energy costs would, of course, lead to different estimates of 

crop production cost impacts. In addition to its basic scenario, EIA has examined 

a number of other scenarios for how the House-passed bill could impact energy markets. For example, in its ‘‘high offsets’’ scenario, EIA considers what might happen 

if it is very easy to find ways to reduce greenhouse gas emissions and sequester carbon. This would substantially reduce the cost of emission allowances and result in 

significantly lower energy costs. 

In contrast, EIA’s ‘‘high cost’’ scenario assumes that it is not as easy to reduce 

emissions in electric utilities as in the basic scenario, in part because it proves more 

difficult to expand production of nuclear energy. This raises the estimated costs of 

emission allowances and the costs to users of fossil fuels. 

Because these different scenarios result in different estimates of fuel costs, they 

result in different estimates of farm operating expenses. In 2020, corn operating expenses increase by just 0.9 percent in the high offset scenario, but by 2.5 percent 

in the high cost scenario. In 2030, the corresponding changes are 2.3 percent in the 

high offset scenario and 8.4 percent in the high cost scenario (Table 1). 

Other institutions have also estimated impacts of the House legislation on energy 

costs. For example, CRA International estimates were used in earlier FAPRI–MU 

analysis of possible impacts on Missouri crop production expenses. In that analysis 

(FAPRI–MU Report #05–09), Missouri dryland corn operating costs increased by 3.2 

percent in 2020 and 3.8 percent in 2030. 

The earlier analysis did not consider impacts of EITE provisions, thus explaining 

its larger estimate of 2020 production cost impacts. However, in 2030, EIA’s basic 

and high cost scenarios result in larger impacts on energy costs than estimated by 

CRA. It should not be surprising, therefore, that the estimated impacts on 2030 national corn operating costs under EIA’s basic and high costs scenarios are larger 

than the previous FAPRI–MU estimate of increases in 2030 Missouri dryland corn 

operating costs.

Table 1. Estimates of Changes in Nominal Farm Operating Costs Resulting From H.R. 2454

EIA basic scenario EIA high offset

scenario 

EIA high cost

scenario 

Nominal energy cost impacts *

Diesel fuel 

2020 8.3% 4.6% 9.0%

2030 15.0% 8.0% 17.5%

Electricity 

2020 3.8% 3.6% 5.4%

2030 22.3% 11.8% 32.7%

Industrial natural gas 

2020 14.4% 8.3% 20.2%

2030 25.9% 10.2% 39.9%

58

Table 1. Estimates of Changes in Nominal Farm Operating Costs Resulting From H.R. 2454—Continued

EIA basic scenario EIA high offset

scenario 

EIA high cost

scenario 

Crop operating cost impacts 

Corn 

2020 1.8% 0.9% 2.5%

2030 5.7% 2.3% 8.4%

Soybeans 

2020 2.2% 1.3% 2.6%

2030 4.9% 2.5% 6.3%

Wheat 

2020 2.0% 1.0% 2.8%

2030 6.3% 2.6% 9.2%

Upland cotton 

2020 2.3% 1.4% 2.9%

2030 6.4% 3.1% 8.8%

* Calculations based on EIA reported nominal energy cost data. Note that inflation-corrected 

real price changes generally would be slightly smaller, as EIA estimates that the scenarios would 

result in slightly higher rates of overall price inflation in the economy. 

The EIA scenarios are briefly described in the text. The full EIA analysis is available at http://

www.eia.doe.gov/oiaf/servicerpt/hr2454/index.html.

The key point is that there is great uncertainty about the magnitude of the impact on farm production expenses, primarily because of great uncertainty about the 

magnitude of impacts on energy costs. If it is relatively easy for electric utilities and 

others to reduce greenhouse gas emissions and sequester carbon, allowance prices 

will be relatively low, increases in energy costs will be modest, and impacts on farm 

production expenses will be fairly small. If it proves much more difficult to reduce 

emissions and sequester carbon, allowance prices will be much higher, as will energy costs and farm production expenses. 

Shifts in production patterns 

In addition to its effect on production expenses, climate change legislation could 

have many other important effects on the farm sector. For example, others will 

speak to you tomorrow about the opportunities for farmers to earn income by selling 

offsets for activities that reduce emissions or sequester carbon. I want to focus most 

of my remaining remarks on possible impacts on crop production patterns. 

There are several reasons why crop production patterns could shift in response 

to climate change legislation. 

First, rising input costs could cause some shifts away from crops that experience 

the largest increases in production expenses. Unless changes in production expenses 

are larger than in the scenarios we have examined so far, we do not expect this effect to cause large reductions in overall U.S. crop production. As a result, we do not 

expect the increase in production expenses to translate into very large increases in 

prices for corn, wheat, soybeans, cotton, and other crops. 

Second, the opportunity to earn offset income could encourage landowners to reduce the amount of land used to produce current crops and expand the area devoted 

to forestry or the production of energy crops. Analysis conducted for the Environmental Protection Agency using the FASOM model suggests that climate change 

legislation could lead to tens of millions of acres shifting from crop and pasture uses 

to forestry. Analysis conducted at the University of Tennessee suggests that there 

could be a large expansion in production of energy crops such as switchgrass. 

We have begun to do some work looking at the possible impacts on the farm sector that might result if some land shifts to forestry uses in response to climate 

change legislation. As the work is ongoing, it would be premature to cite specific 

estimates, but it could be useful to discuss some early lessons that appear likely to 

hold even after we refine the analysis.

(1) If relatively little land shifts from cropland to forestry uses, climate change 

legislation may have only small effects on crop production and prices. If crop 

prices are largely unchanged, producers who face higher production expenses 

are likely to experience a reduction in income, unless they can earn money by 

selling offsets for practices like conversion to no-till farming methods.

(2) If more significant amounts of cropland shift to forestry uses, the result 

would be a larger reduction in crop production. This, in turn, would result in 

higher crop prices that would increase market revenue for farmers who continue 

to grow traditional crops. This increase in market revenues could offset some 

or all of the increase in crop operating expenses.

59

(3) If very large amounts of land shift to forestry uses, as suggested in the 

FASOM analysis, the reduction in crop production could cause very significant 

increases in crop prices. The resulting increase in market revenue could well 

exceed any increase in crop operating costs. In such a case, net revenue over 

operating costs could exceed reference scenario levels, even for producers who 

do not directly earn any offset income.

If large shifts in acreage do indeed occur, they would have impacts that go far 

beyond possible effects on crop producer receipts. Higher crop prices would increase 

feed costs for the livestock industry. These higher feed costs, in turn, would result 

in reduced production and higher prices of meat and dairy products. Consumer food 

prices would increase, not just for products made from grains and vegetable oils, but 

also for beef, pork, poultry and milk. All else equal, higher crop prices would reduce 

the quantity of agricultural products exported by the United States. Forestry uses 

of land result in different patterns of rural employment and economic activity than 

result from current crop production patterns. 

If climate change legislation increases the demand for land to sequester carbon 

in trees, prices for crop and pasture land are likely to be bid higher. This would 

benefit current landowners, but could make it more difficult for new and established 

producers who rent land or who were looking to buy additional land to grow traditional crops. 

In addition to possible impacts on crop supplies, climate change legislation could 

have complex effects on the demand for agricultural products. Higher energy costs 

would make it more expensive to process and transport food, likely increasing the 

gap between farm and consumer food prices. The demand for biofuels could be affected both by the opportunity to earn offset income and by changes in fossil fuel 

prices. Effects of climate change legislation on the macroeconomy could have an impact on domestic food demand. Export demand facing U.S. agriculture could be affected both by the legislation’s impacts on the global economy and by the opportunity of foreign producers to earn offset income by changing production practices 

to reduce emissions and sequester carbon. 

From bills to regulation 

Any analysis being done today about the impacts of climate change legislation will 

be built on a series of assumptions about how the rest of the policy process will unfold. Final legislation may differ in important ways from the House-passed bill. 

Many important decisions would need to be made in writing rules to implement any 

legislation that is finally approved. It is inevitable that many of the policy assumptions underlying analysis today will differ in important ways from final implementation of compromise legislation. Just to take one critical example, impacts of climate 

change legislation on the farm sector will look very different if implementing rules 

make it very easy to earn offset income by planting trees than if it is difficult. 

Climate change and international efforts 

The discussion so far has not focused on climate change itself, primarily because 

I am not an expert on climate change and its potential impacts on agricultural production. It has been argued that the proposed legislation would have only modest 

impacts on the world’s climate over the next few decades. If instead the climate effects are large, they might have important impacts on agricultural production and 

prices. 

When examining trade agreements, it is important to distinguish effects that result when one country changes its policies from effects that result when all countries change policies simultaneously. A similar point is relevant here: it is important 

to be clear whether one is reporting changes that result only from proposed U.S. 

climate change legislation, or changes that might result if there is a global agreement. The discussion here has focused on U.S. legislation only, but it could matter 

tremendously what actions other countries are also taking to address climate 

change. 

For example, much of the analysis conducted so far assumes that the U.S. firms 

will be able to purchase large amounts of offsets from other countries for practices 

that reduce emissions or sequester carbon. Similar policies in other countries could 

increase competition for such offsets. This would tend to increase allowance prices, 

resulting in higher domestic energy costs and more demand for domestic offsets. 

Summary 

There is considerable uncertainty over the possible impacts of climate change legislation on the U.S. agricultural sector. Here is a brief summary of what we think 

we know and what we do not:

60

(1) The House-passed legislation would raise energy costs, and this would translate into higher farm production expenses.

(2) Just how large the increases in production costs would be is unknown. Alternative sets of reasonable assumptions result in very different estimates of production cost impacts.

(3) The ability to earn offset income by changing production practices or planting trees or energy crops could have major impacts on agricultural production, 

commodity prices, farm income, consumer food costs, and rural communities.

(4) The greater the shift in acreage away from production of traditional crops 

to trees or energy crops, the larger the potential impact on crop production and 

prices. Resulting increases in revenues may offset some or all of the increase 

in production expenses for crop producers.

(5) Unilateral U.S. changes in climate policy could have very different impacts 

than if there is a multilateral agreement to reduce greenhouse gas emissions.

Thank you for your interest in our work.

The CHAIRMAN. Thank you, Doctor. Dr. Antle. 

STATEMENT OF JOHN M. ANTLE, PH.D., PROFESSOR OF

AGRICULTURAL ECONOMICS AND ECONOMICS, MONTANA 

STATE UNIVERSITY; COURTESY PROFESSOR OF

AGRICULTURAL AND RESOURCE ECONOMICS, OREGON 

STATE UNIVERSITY; UNIVERSITY FELLOW, RESOURCES FOR 

THE FUTURE, BOZEMAN, MT 

Dr. ANTLE. Mr. Chairman and Members of the Subcommittee, 

thank you for this opportunity to appear today and testify about 

the potential impacts of climate change and greenhouse gas mitigation on the farm sector and the food industry. My name is John 

Antle. I am a Professor of Agricultural Economics and Economics 

at Montana State University in Bozeman, Montana. The following 

are the main points I would like to emphasize. First, agriculture 

and the food system are likely to be impacted substantially by climate change and by policies designed to mitigate the effects of 

greenhouse gas emissions. While these sectors are dynamic and 

have demonstrated capability to adapt to change, the economic impacts of climate change on agriculture and the food system more 

broadly are likely to be substantial. 

There are many important unanswered questions about the ability of agriculture and the food system to adapt to climate change, 

including the effects of policies designed to reduce greenhouse gas 

emissions as my colleagues have been pointing out. Second, studies 

of climate change impacts have likely underestimated the impacts 

of climate change on agriculture and the food industry, and have 

underestimated the importance of possible adaptations and mitigating effects of climate change. Climate impact assessments of agriculture have been limited in scope and relevance because of limitations of the data and the models used. Moreover, studies have 

not measured the cost of adaptation or accounted for possible 

changes in climate extremes. 

For example, studies of production agriculture have not adequately accounted for impacts of pests and diseases on crops, and 

have not adequately addressed impacts on important climate sensitive sectors such as specialty crops, horticulture, livestock, poultry, and rangelands. The impacts of climate change on transportation infrastructure and the food processing industry, and the effects of greenhouse gas mitigation policies also have not been studVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00066 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
61

ied adequately. Third, there is a need for a comprehensive assessment of the effects of existing and likely future policies on agricultural adaptation. Many existing policies are likely to affect the ability of U.S. agriculture and the food sector to adapt to climate 

change, and in my written testimony I provide further discussion 

of these issues. 

Finally, there is a potential important role for the public sector 

to facilitate agricultural adaptation to climate change. The substantial role that the public sector has played in making investments 

that led to the success of U.S. agriculture in the 20th Century 

raises a number of questions about the appropriate policies in the 

context of climate change. A key question for policy is whether climate change justifies an expanded role in these areas or whether 

markets can stimulate adequate responses to the adjustments that 

will be required as the climate changes. 

Again, thank you, Mr. Chairman and Members for this opportunity to participate in this panel. I will be happy to respond to 

your questions. I will just conclude by noting that in addition to my 

written testimony, this is related to some work that I have been 

carrying out with an organization here in Washington, D.C., Resources for the Future on climate adaptation. I think some of that 

other work might be of interest to the Committee. Thank you very 

much. 

[The prepared statement of Dr. Antle follows:]

PREPARED STATEMENT OF JOHN M. ANTLE, PH.D., PROFESSOR OF AGRICULTURAL

ECONOMICS AND ECONOMICS, MONTANA STATE UNIVERSITY; COURTESY PROFESSOR

OF AGRICULTURAL AND RESOURCE ECONOMICS, OREGON STATE UNIVERSITY;

UNIVERSITY FELLOW, RESOURCES FOR THE FUTURE, BOZEMAN, MT 

Mr. Chairman and Members of the Subcommittee, thank you for this opportunity 

to appear today to testify about the potential impacts of climate change on the farm 

sector. My name is John M. Antle and I am a Professor of Agricultural Economics 

and Economics at Montana State University in Bozeman, Montana. I also am a 

Courtesy Professor of Agricultural and Resource Economics at Oregon State University, and a University Fellow at Resources for the Future in Washington, D.C. I was 

first involved with research on the economic impacts of climate change while serving 

as a Senior Economist for the President’s Council of Economic Advisers in 1990, and 

since then have conducted research on climate change impacts and greenhouse gas 

mitigation in the United States and in other regions of the world. I have also served 

as a Lead Author and Contributing Author to the Third and Fourth Assessment Reports published by the Intergovernmental Panel on Climate Change. 

My testimony today is a brief summary of a longer publication that may be of interest to this Committee, available on the world-wide web (www.rff.org/News/Features/Pages/Climate-Change-Forcing-Farmers-to-Adapt.aspx). That study reviews 

recent research on economic impacts of climate change, and discusses implications 

for U.S. agriculture’s potential to adapt to climate change. That report was prepared 

for a research program at Resources for the Future—a nonpartisan research organization in Washington, D.C.—on adaptation to climate change in agriculture and 

other sectors of the U.S. economy (http://www.rfforg/News/ClimateAdaptation/

Pages/domesticlhome.aspx). 

The following are the main points I would like to emphasize:

• Agriculture and the food system are likely to be impacted substantially 

by climate change and by policies designed to mitigate the effects of 

greenhouse gas emissions. While these sectors are dynamic and have demonstrated capability to adapt to change, the economic impacts of climate change 

on agriculture and the food system are likely to be substantial. There are many 

important unanswered questions about the ability of agriculture and the food 

system to adapt to climate change. There are also important, unresolved questions about the effects of policies designed to reduce greenhouse gas emissions.

62

• Studies of CC impacts have likely underestimated the impacts of climate change on agriculture and the food industry, and thus have underestimated the importance of possible adaptations in mitigating the 

effects of climate change. Climate impact assessments of agriculture have 

been limited in scope and relevance because of limitations of the data and models used. For example, studies of production agriculture have not adequately accounted for impacts of pests and diseases on crops, and have not adequately addressed impacts on important climate-sensitive sectors such as specialty crops, 

horticulture, livestock, poultry and rangelands. The impacts of climate change 

on transportation infrastructure and the food processing industry, and the effects of greenhouse gas mitigation policies, also have not been studied adequately.

• There is a need for a comprehensive assessment of the effects of existing and likely future policies on agricultural adaptation to climate 

change. Many existing policies are likely to affect the ability of U.S. agriculture 

and food sector to adapt to climate change. These include:

» Agricultural subsidy and trade policies which reduce flexibility and have unintended consequences for global markets.

» Production and income insurance policies and disaster assistance. While providing some protection against climate variability and extreme events, to 

some extent these policies also may reduce the incentive for farmers and 

ranchers to take adaptive actions.

» Policies encouraging soil and water conservation and provision of ecosystem 

services. These policies protect water quality and enhance ecosystem services 

such as wildlife habitat, but also may reduce flexibility to respond to climate 

change by reducing the ability to adapt land use and to respond to extreme 

events.

» Environmental policies and agricultural land use regulation, such as regulations for location and disposal of waste from confined animal production facilities, are likely to affect the costs of adaptation.

» Tax policies affect agriculture in many ways, and could be used to facilitate 

adaptation, for example, through favorable treatment of capital depreciation 

and investments needed to offset greenhouse gas emissions.

» Energy policies and greenhouse gas mitigation policies are likely to have 

many impacts on agriculture as a consumer and as a producer of energy. Development of new bioenergy production systems and greenhouse gas offset 

policies may benefit agriculture and facilitate adaptation. The increased cost 

of fossil fuels associated with greenhouse gas mitigation policies will adversely affect incomes of farmers in the near term, in the longer term it will 

have the benefit of encouraging adaptation.

• There is a potentially important role for the public sector to facilitate 

agricultural adaptation to climate change. The substantial role that the 

public sector has played in making the complementary investments that led to 

the success of U.S. agriculture in the 20th century raises a number of questions 

about appropriate policies in the context of climate change. A key question for 

policy is whether climate change justifies an expanded role in these areas or 

whether markets can stimulate adequate responses to the adjustments that will 

be required as the climate changes. Examples of areas for public activity may 

be:

» Estimation of adaptation costs and reassessment of impacts.

» Breeding climate-resilient crop and livestock varieties.

» Adaptation of confined livestock and poultry production to climate change 

and extremes, and development of resilient livestock waste management technologies.

» Impact of climate change on insect pests, weeds and diseases and their management.

» Effects of adaptation strategies on ecosystem services associated with agricultural lands.

» Public information on long-term climate trends.

» Assessing implications of energy policies and greenhouse gas mitigation policies for agriculture and the food sector. 

63

Adaptation and Impact Assessment 

Agricultural production and productivity depend on the genetic characteristics of 

crops and livestock, soils, climate, and the availability of needed nutrients and energy. Researchers use crop and livestock growth simulation models to analyze the 

possible impacts of climate change and increases in atmospheric carbon dioxide 

(CO2) concentrations (known as CO2 fertilization) on crop and livestock productivity. 

Temperature and precipitation, key drivers of agricultural production, operate on 

the highly site-specific and time-specific basis of the microclimate in which a plant 

or animal is located. Aspects of agriculture and food system impacted by climate 

change include:

• Soil and water resources.

• Crop, livestock and poultry productivity.

• Farm structure, income and financial condition.

• Waste management for confined animal production facilities.

• Ecosystem services from agricultural landscapes.

• Food quality and safety.

• Market infrastructure.

• Food processing and distribution.

Several methodologies have been used to estimate possible impacts of climate 

change on agriculture. Most studies use integrated assessment models, which combine process-based crop and livestock models that simulate the impacts of climate 

change on productivity with economic models that simulate the impacts of productivity changes on land use, crop management, and farm income. Some studies instead use statistical models based on historical data to estimate effects of temperature and rainfall on economic outcomes, and then use these models to simulate future impacts of climate change. Some of these integrated assessment models also 

link the farm management outcomes to environmental impact models to investigate 

impacts such as those on water use and quality, soil erosion, terrestrial carbon 

stocks, and biodiversity. The data presented here are derived from the recent U.S. 

assessment of climate change impacts on agriculture (Reilly et al. 2003), which used 

an integrated assessment model. 

Research suggests that in highly productive regions, such as the U.S. Corn Belt, 

the most profitable production system may not change much; however, in transitional areas, such as the zone between the Corn Belt and the Wheat Belt, substantial shifts may occur in crop and livestock mix, in productivity, and in profitability. 

Such changes may be positive if, for example, higher temperatures in the northern 

Great Plains were accompanied by increased precipitation, so that corn and soybeans could replace the wheat and pasture that presently predominate. Such 

changes also could be negative if, for example, already marginal crop and 

pastureland in the southern Great Plains and southeast became warmer and drier. 

In addition to changes in temperature and precipitation, another key factor in agricultural productivity is the effect of elevated levels of atmospheric CO2 on crop 

yields. Some studies suggest that higher CO2 levels could increase the productivity 

of small-grain crops, hay, and pasture grasses by 50 percent or more in some areas 

(and much less so for corn), although these effects are likely to be constrained by 

other factors, such as water and soil nutrients. However, elevated CO2 could also 

increase weed growth, and these adverse effects of climate change have not been 

incorporated into impact assessments. 

According to the U.S. assessment study, the aggregate economic impacts of climate change on U.S. agriculture are estimated to be very small, on the order of a 

few billion dollars (compared to a total U.S. consumer and producer value of $1.2 

trillion). This positive outcome is due to positive benefits to consumers that outweigh negative impacts on producers. Impacts on producers differ regionally, and 

the regional distribution of producer losses tends to mirror the productivity impacts, 

with the Corn Belt, Northeast, South, and Southwest having the largest losses and 

the northern areas gaining. The overall producer impacts are estimated to range 

from ¥4 to ¥13 percent of producer returns, depending on which climate model is 

used. Some statistical modeling studies have produced estimates of much smaller 

impacts on U.S. agriculture. For example, the study by Deschenes and Greenstone 

(2007) finds positive impacts on the order of 3–6 percent of the value of agricultural 

land and cannot reject the hypothesis of a zero effect. 

Limitations of Integrated Assessment and Statistical Models 

There are a number of significant limitations to integrated assessment models, as 

well as the statistical models, as discussed in detail in Antle (2009). One critical limVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
64

itation of these modeling studies is the difficulty in quantifying the costs of adaptation. Whereas these studies have attempted to quantify the impacts of climate 

change on physical quantities of production and their economic value, few, if any, 

studies have attempted to quantify the costs of adapting to climate change. These 

costs would include adaptations to production agriculture, including additional research and development of crop and animal varieties, and changes in or relocation 

of capital investments such as crop storage infrastructure, confined animal facilities 

and waste management investments. If the rate of climate change were relatively 

high, implying that the costs of adaptation were also relatively high, then the net 

benefits of adaptation would also be lower, and less adaptation would occur. Consequently, contrary to many economists’ arguments that adaptation is likely to offset much of the adverse impacts of climate change, it may be that if the costs of 

adaptation are high, the impact estimates assuming little adaptation may be closer 

to actual outcomes than the estimates that ignore adaptation costs. 

In addition to their inherent model limitations, the impact assessments cited 

above do not consider many of the potential impacts of climate change on the food 

transportation, processing, and distribution sectors mentioned above. In particular, 

none of the impact assessments has considered the costs of relocating input distribution systems, crop storage and processing, or animal production, waste management, 

slaughter and processing facilities. Only recently have some studies begun to assess 

impacts of proposed GHG mitigation policies on production agriculture or on input 

production and distribution, output transport, or food processing and distribution 

systems. Recent experience with higher fossil fuel costs suggests that these impacts 

may be more important for farmers and food consumers than the impacts of climate 

on productivity. Thus, by largely ignoring possible impacts of future climate change 

mitigation policies, the impact assessments carried out thus far may have missed 

some of the most important long-term implications of climate change. 

Policy Issues 

The evidence on likely impacts of climate change on agriculture and the food sector suggest two aspects of policy that need to be evaluated. First, many existing 

policies affect agriculture and the food sector, and many of these policies are likely 

to affect adaptation. Climate change is not likely to be the focus of many of these 

policies, but it does make sense for policy design to take adaptation into consideration. Second, there may be a role for public policy in facilitating adaptation of agriculture and the food sector. 

Policy Design and Adaptation 

As yet there has not been any systematic effort to evaluate the effects of these 

existing policies on adaptation. Some examples of existing policies and their possible 

effects on adaptation are described here. 

Agricultural subsidy and trade policies. Agricultural subsidy programs for major 

commodity crops such as wheat, corn, rice, and cotton, as well as trade policies such 

as the import quota on sugar, were established in the 1930s and continue today. 

The structure of these programs has changed over time, but a common feature is 

that they reduce flexibility by encouraging farmers to grow subsidized crops rather 

than adapting to changing conditions, including climate. In addition, because the 

United States produces a large share of many of these commodities, these policies 

have the unintended consequence of distorting global markets and discouraging an 

efficient allocation of resources in other parts of the world. 

Production and income insurance policies and disaster assistance. There is a long 

history of both private and public crop and insurance schemes for agriculture and 

disaster relief programs. The most recent farm policy legislation, enacted in 2008, 

continued existing crop insurance subsidies, introduced a new revenue insurance 

program, and established a permanent disaster assistance program. These types of 

publicly subsidized crop and income insurance could be one way to address increasing climate variability and climate extremes associate with climate change. Whether 

this is an appropriate policy response to climate change is an open question that 

deserves further study. In any case, it is clear that public subsidies for crop or revenue insurance and disaster assistance, like other types of agricultural subsidies, 

will have the effect of reducing the incentive for farmers and ranchers to avoid adverse impacts of climate change through adaptation. 

Soil and water conservation policies and ecosystem services. Over time U.S. agricultural policies have shifted from commodity subsidies towards a variety of policies 

that provide subsidies to encourage protection of soil and water resources and the 

provision of ecosystem services. For example, the Conservation Reserve Program, established in 1986 legislation, has led to more than 30 million acres of land being 

taken out of crop production and put into grass and tree cover through cost-sharing 

65

of conservation investments and long-term contracts providing payments to maintain conserving practices. While these policies protect surface water quality from 

soil erosion and chemical runoff, and enhance a number of ecosystem services such 

as wildlife habitat, they also reduce flexibility to respond to changes in climate over 

time, by reducing the ability to adapt land use, and also reduce the ability to respond to extreme events. For example, according to CRP rules farmers are not allowed to use CRP lands for grazing or to harvest grasses as animal feed. As a result, 

when severe droughts reduce availability of livestock feed in pasture and rangeland 

farmers are not allowed to use CRP lands for livestock, even though in many places 

this could be done on a temporary basis without substantially impacting environmental benefits of the CRP. In some cases the Secretary of Agriculture can waive 

these rules to allow grazing. Changes in program design, such as more flexibility 

in administrative rules, and better targeting of the policies towards lands with high 

environmental value, could facilitate adaptation. 

Environmental Policies and Agricultural Land Use. Many environmental policies 

affect agricultural land use and management. Policies governing the management 

and disposal of animal waster from confined animal feeding operations are an important example that has clear implications for adaptation. Both state and Federal 

laws regulate the choice of sites and management of these facilities. Changes in average climate and climate extremes are likely to impact the viability of these operations in some locations, for example where waste ponds become vulnerable to extreme rainfall events and floods. Environmental regulations raise the cost of re-locating facilities and thus have the unintended consequence of discouraging spatial 

adaptation. Including benefits of climate adaptation in regulatory design could lead 

to policies that achieve the dual goals of environmental protection under current climate and the need for adaptation to future climate. 

Tax Policies. A wide array of tax policies affect agriculture, including the taxation 

of income and the depreciation of assets. Tax rules could be utilized to facilitate adaptation in a variety of ways, for example, by accelerating the depreciation of assets, 

and by encouraging investments that reduce greenhouse base emissions. However, 

creating such policies for climate adaptation alone may prove difficult to implement, 

since many other types of economic and technological changes may also lead to capital obsolescence and it may not be desirable to give favorable tax treatment in all 

such cases. 

Energy Policies. The increasing public interest in developing domestic sources of 

non-fossil based energy, including biofuels, has already resulted in significant policy 

developments, such as subsidies for corn ethanol, and is likely to have important 

implications for both food and fuels prices and for adaptation. Further developments 

in biofuels could further change the way land is used for food and fuel production 

and have implications for adaptation, and will be impacted by related energy policies, such as requirements for use of renewable energy. Development of other types 

of energy technologies, such as the use of animal waste for energy production, may 

have important impacts on the adaptability of these systems and the way they are 

regulated (see the preceding discussion of environmental regulation). 

Greenhouse Gas Mitigation Policies. Policies that constrain greenhouse gas emissions have the potential to affect agricultural operations as both emitters and as 

suppliers of offsets to emissions, depending on how such policies are designed and 

implemented. For example, recent legislative proposals have imposed some limits on 

the use of offsets, but also have excluded agricultural operations from emissions 

caps. Moreover, because agriculture and the food system are relatively intensive fossil fuel users, any policy that effectively raises the cost of fossil fuels will have potentially important impacts on these industries. 

Policies to Facilitate Adaptation 

The record shows that U.S. agriculture’s success in the 20th century was dependent on complementary investments in physical and human capital and agricultural 

research and extension, many of them publicly funded through institutions such as 

the land grant universities. Moreover, complementary policies have fostered the conservation of natural resources and the adoption of more sustainable management 

practices. This experience suggests that that the U.S. agricultural sector is capable 

of adapting to a wide range of conditions and adopting new technologies as they become available. As long as the rate of climate change is relatively slow and predictable, we can expect the same to be true with future climate change. However, important questions remain about how effectively the sector could adapt to rapid 

changes in average climate or increases in extreme events. 

The substantial role that the public sector has played in facilitating agricultural 

development raises a number of questions about appropriate policies in the context 

of climate change. The justification for public funding of infrastructure, research, 

66

and information systems was based on economies of scale as well as the public good 

aspect of basic research needed to develop agricultural technologies. Although a substantial public role remains in infrastructure, research, and outreach, it has diminished over time as private institutions have become increasingly capable of providing these services. A key question for policy is whether climate change justifies 

an expanded role in these areas or whether markets can stimulate adequate responses to the adjustments that will be required as the climate changes. Some examples of the key questions about adaptation and a possible role for public sector 

involvement follow:

• Estimation of adaptation costs and reassessment of impacts. As noted above, the 

impact assessments carried out thus far have largely ignored the costs of adaptation for the agricultural production sector and for the broader food industry. 

Besides biasing the conclusions of the impact assessments, data on costs of alternative adaptation strategies are needed to inform both private and public decision makers. Costs should be evaluated under alternative scenarios for the 

rate of climate change, climate variability, and the occurrence of extreme 

events. Thus far, most of the research effort has been devoted to the impact on 

grain crops. Much more research on impacts and costs of adaptation in other 

agricultural systems is needed, particularly for livestock and other economically 

important products, such as vegetable and fruit crops.

• Identifying adaptation strategies and supporting basic research needed for development of adaptation technologies.

» Basic crop and animal research on vulnerability to extremes.

» Breeding resilient crops and livestock varieties.

» Research on effects of climate change on pests and diseases and their management.

» Development of more resilient livestock waste management technologies, incorporation into biofuels production.

• Identifying and estimating the vulnerability of ecosystem services to climate 

change and adaptive responses. Agricultural land-use practices are known to 

have important impacts on the provision of ecosystem services. As yet, the impacts of climate change on ecosystem services have not been quantified systematically on a regional or national basis. Research is needed to evaluate the effects of alternative adaptation strategies on ecosystem services.

• Provision of public information about long-term climate trends and their economic implications. There is a great deal of public information available on 

short-term weather forecasts, but there may be a need for more public awareness of long-term climate trends and forecasts. This information is a public good 

that may need to be supported with public funds.

• Implications of climate change and mitigation policies for agriculture and the 

food sector. As yet, virtually no research has been done on identifying and quantifying potential impacts or adaptation strategies for the food sector. Included 

in such an analysis would be costs of adapting the food distribution system to 

a warmer climate and potential impacts on the prevalence and control of 

foodborne pathogens. The dependence of this sector on fossil fuel-based energy 

also suggests that GHG mitigation policies could have substantial impacts on 

the national and global food system as it presently operates. As yet, none of 

these issues has been addressed in impact assessment studies. 

References 

Antle, J.M. 2009. Agriculture and the Food System: Adaptation to Climate 

Change. Resources for the Future. www.rff.org/news/climateadaptation.

Deschenes, O., and M. Greenstone. 2007. The Economic Impacts of Climate 

Change: Evidence from Agricultural Output and Random Fluctuations in Weather.

AMERICAN ECONOMIC REVIEW 97(1): 354–385. 

Reilly, J., F. Tubiello, B. McCarl, D. Abler, R. Darwin, K. Fuglie, S. Hollinger, C. 

Izaurralde, S. Jagtap, J. Jones, L. Mearns, D. Ojima, E. Paul, K. Paustian, S. Riha, 

N. Rosenberg, and C. Rosenzweig. 2003. U.S. Agriculture and Climate Change: New 

Results. CLIMATIC CHANGE 57: 43–69.

The CHAIRMAN. Thank you, Doctor. Dr. Capper. 

67

STATEMENT OF JUDITH ‘‘JUDE’’ L. CAPPER, B.S.C., PH.D.,

ASSISTANT PROFESSOR OF DAIRY SCIENCE, DEPARTMENT 

OF ANIMAL SCIENCES, WASHINGTON STATE UNIVERSITY, 

PULLMAN, WA 

Dr. CAPPER. Thank you very much. Mr. Chairman and the Members of the Subcommittee, it is a pleasure to be here. Obviously, I 

am from England but I have worked at Washington State University for the past 7 months. I would like to start by making it clear 

that our model is an environmental impact model as opposed to an 

economic model per se, but having said that as stated in my testimony carbon is the intrinsic fundamental unit of energy use. 

Therefore, if we want to make improvements both in economic sustainability and environmental sustainability, we have to look at 

carbon as the intrinsic unit of that. Based on that, there is an interesting link between economics and environmental impact, and 

the work that I am going to present to you shows that if we improve environmental impact by improving productivity then we 

also improve the economic prospects for the farming sector. 

So, as you can see, on the graphs here we have an issue in that 

at present offset programs do not take into account productivity as 

a means to reduce environmental impacts. This is, in part, because 

the environmental impact programs to date have concentrated on 

a process basis per cow, per animal, per farm. If we do that, as you 

can see on the right, the carbon footprint per cow has doubled over 

the last 65 years between 1944 and 2007, but again this is on a 

per head basis. If we look at it on an output basis as an industry 

that is meant to produce food, produce dairy, per gallon of milk or 

per pound of milk the dairy industry has made huge strides. 

In the U.S. we have cut the carbon footprint of a gallon of milk 

by 2⁄3 between 1944 and 2007. This means that as a total dairy industry we have cut our total carbon footprint over those years by 

41 percent, which is a huge achievement and something that we 

should be very, very proud of. As I say, this is basically due to huge 

improvements in productivity. We have a four-fold increase in milk 

yield per cow between 1944 and 2007. That means compared to 

1944, back then we produced 53 billion kilos of milk per year using 

almost 26 million dairy cows. Now due to improvements in nutrition/genetics management, we make 84 billion kilos of milk using 

only 9.2 million animals per year. 

What that means is we have a huge improvement in environmental impact. We use 21 percent of the animals, 23 percent of the 

feed, 35 percent of the water, and only ten percent of the land per 

gallon or pound of milk now than we did 65 years ago. What this 

also has is obvious economic consequences to the producer. Less 

feed, less land, less water, less fertilizers, all has huge economic 

consequences. I would like to point out that this also has an impact 

on the beef industry if we go from a pasture-based beef system to 

a corn-based beef system. We have a huge improvement in growth 

rates and the animals are grown over about 200 fewer days. 

That means with corn-based it yields more production, a more efficient system. We use about a third of the total energy to produce 

that beef. We have a third of total methane emissions and we cut 

land use by a fraction of 13, so again less resources, a beneficial 

environmental impact, and a beneficial effect on economics. Finally, 

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this isn’t confined just to farm level. If we look at the transportation sector here we have an example which we presented last 

month to the Cornell nutrition conference comparing buying eggs 

from a local farm, a farmer’s market, and a grocery store. Because 

of the huge productivity of the food transport system in the states, 

we can cut our fuel use from 9 liters per dozen eggs if we buy individually per farm to only .03 liters per dozen eggs from a grocery 

store. 

So in summary, productivity is extremely important to cut both 

environmental impact and to improve economic sustainability. 

Thank you, and I will be very happy to answer any questions. 

[The prepared statement of Dr. Capper follows:]

PREPARED STATEMENT OF JUDITH ‘‘JUDE’’ L. CAPPER, B.S.C., PH.D., ASSISTANT

PROFESSOR OF DAIRY SCIENCE, DEPARTMENT OF ANIMAL SCIENCES, WASHINGTON

STATE UNIVERSITY, PULLMAN, WA 

Summary 

The purpose of U.S. animal agriculture is to produce high quality meat, milk and 

eggs for human consumption. The environmental impact of livestock production 

must therefore be assessed on a whole-system basis and expressed per unit of food 

produced. Improving productivity (output per unit of resource input) is a key factor 

in reducing the environmental impact of livestock production. Systems that allow 

for increased milk yield per cow, improved growth rate per beef steer or greater 

quantities of food product to be moved using a single vehicle allow for considerable 

reductions in resource use, greenhouse gas emissions and economic cost per unit of 

food produced. Management practices and systems that intuitively appear to be environmentally and economically beneficial should therefore be subjected to scientific 

assessment in order to correctly assess their potential for mitigating the environmental impact of livestock production. 

Introduction 

All food production systems have an impact upon the environment, regardless of 

how and where the food is produced. The environmental impacts of agricultural 

practices are increasingly well-known, not only to food producers but also to policymakers, retailers and consumers. Increased public awareness of these issues underlines the critical need to adopt livestock production systems that reduce the environmental impact of agricultural production. This can be achieved through the use of 

management practices and technologies that encourage environmental stewardship 

at the farm-level, as well as improving transportation operations to reduce the eventual environmental and economic cost to the consumer. In the following testimony 

I will discuss the potential for improved productivity to mitigate the environmental 

impact of animal agriculture. 

Low-Input Production Systems Are, By Definition, Low-Output Production 

Systems 

The dichotomous challenge of producing more food from a dwindling resource base 

often leads to the suggestion that adopting low-input production systems is the key 

to sustainable agriculture. However, this defies a fundamental principle of physics, 

the First Law of Thermodynamics which states that ‘energy can neither be created 

nor destroyed, it can only change form’. Carbon is the key unit of currency of energy 

use of living organisms. Just as we balance our checkbook every month, energy (carbon) inputs and outputs must be balanced against each other. By definition, a lowinput production system is a low-output system. Within livestock production systems, low-output systems are characterized by reduced productivity over a fixed 

time period. The following examples will discuss the effects of improved productivity 

manifested as increases in milk yield per day (dairy production), growth rate (beef 

production) and transportation carrying capacity (egg production). 

Environmental Assessment Must Be Assessed Per Unit of Food Produced 

The purpose of any livestock production system is to provide sufficient safe, nutritious, affordable meat, milk or eggs to fulfill market demand. In contrast to more 

uniform manufacturing industries, livestock production occurs within myriad different systems that range from extensive to intensive; small-scale to large-scale and 

independently owned and managed to contracted production. Environmental impact 

69

has previously been assessed per acre, per animal or per facility. Although this may 

provide an indication of the impact of animal production on a specific geographic 

region, this fails to consider the true aim of the system—to produce food. 

When assessing environmental impact, it is therefore essential to express impact 

per functional unit of food, e.g., resource use and waste output per lb, kg or gallon 

of product (Schau and Fet, 2008). Thus, greenhouse gas (GHG) emissions should not 

be simply assessed as per animal or per facility but based on system productivity 

using a lifecycle assessment (LCA) approach. Prescribed by the EPA, LCA incorporates all inputs and outputs within food production and allows valid comparisons 

to be made between systems. For example, it is intuitively obvious that a 50 cow 

dairy will have lower annual methane emissions compared to a 500 cow dairy. However, the 500 cow dairy will produce more milk both per facility (as a consequence 

of the increased number of animals) but also, according to a recent USDA–NAHMS 

report (USDA, 2007) an extra 1,152 kg milk per cow annually. Greater productivity 

is associated with both physical and financial economies of scale, but also with a 

reduction in environmental impact through the ‘dilution of maintenance’ effect 

(Bauman et al., 1985). 

The ‘Dilution of Maintenance’ Effect 

All animals require a daily amount of maintenance nutrients to maintain weight, 

bodily functions and health. This ‘fixed cost’ must be met before production (growth, 

pregnancy or lactation) can occur and is fulfilled by primary (feed, water) and secondary (cropland, fertilizer, fossil fuels) resource inputs. It is also associated with 

a proportion of the animal’s daily waste and GHG output. To use dairy cows as an 

example, ‘dilution of maintenance’ occurs when output (milk yield per cow) is increased, thus diluting the maintenance cost over more units of production and improving efficiency. This effect is not simply confined to lactating cows: the national 

herd also contains a considerable number of non-productive animals (non-lactating 

cows, replacement heifers and bulls) that serve to maintain the dairy herd infrastructure and require maintenance nutrients. Improving productivity thus improves 

efficiency and reduces the total population size required to produce a set amount 

of milk. Consequently it reduces both resource use and GHG emissions per unit of 

milk produced. 

Improving Productivity (Milk Yield) Reduces the Dairy Industry’s Environmental Impact 

The effect of improved productivity on the environmental impact of producing a 

set quantity of milk is perhaps best illustrated by comparing U.S. dairy production 

in 1944 compared to 2007 (Capper et al., 2009b). The agrarian vision of U.S. dairy 

farming involves cows grazing on pasture with a gable-roofed red barn in the background—a traditional low-input system. By contrast, the image of modern dairy production propounded by anti-animal agriculture activists is synonymous with ‘‘filthy 

and disease-ridden conditions’’ and ‘‘industrialized warehouse-like facilities that significantly increase GHG emissions per animal’’ (Koneswaran and Nierenberg, 2008). 

It is indeed true that modern dairy cows produce more GHG emissions than their 

historical counterparts. Figure 1 shows that daily GHG emissions per cow (expressed in CO2-equivalents, the standard measure for expressing carbon emissions) 

have increased considerably over the past 65 years. The average dairy cow now produces 27.8 kg of CO2-equivalents per day compared to 13.5 kg CO2-equivalents per 

day in 1944 (Capper et al., 2009b). However, expressing results on a ‘per cow’ basis 

fails to consider system productivity. When analyzed using LCA on a whole-system 

basis, GHG emissions per kg of milk produced have declined from 3.7 kg in 1944 

to 1.4 kg in 2007, a 63% reduction. This has been achieved through considerable 

improvements in productivity conferred by advances in animal nutrition, genetics, 

welfare and management. Annual milk yield per cow more than quadrupled between 1944 (2,074 kg) and 2007 (9,193 kg), allowing 59% more milk (84.2 billion 

kg vs. 53.0 billion kg) to be produced using 64% fewer lactating cows (9.2 million 

versus 25.6 million). 

The resource use and waste output per unit of milk for 1944 and 2007 production 

systems are shown in Figure 2. The 4.4-fold increase in productivity (milk yield per 

cow) drove a 79% decrease in total animals (lactating and dry cows, heifers, mature 

and adolescent bulls) required to produce 1 billion kg of milk. Feed and water use 

were reduced by 77% and 65% respectively. The total land required for milk production in 2007 was reduced by 90% compared to 1944, due to both improved crop 

yields and the shift from feeding pasture to nutritionally-balanced diets based on 

silage, hay and concentrate feeds. Manure output from the modern system was 76% 

lower than from the 1944 system, contributing to the aforementioned 63% decrease 

in the carbon footprint per unit of milk. In consequence, the carbon footprint of the 

70

entire dairy industry was reduced by 41% by the adoption of technologies and modern management practices that improved productivity between 1944 and 2007.

Figure 1. Carbon Footprint per Cow and per Kilogram of Milk for 1944 and 

2007 U.S. Dairy Production Systems (Capper et al., 2009).

The U.S. dairy industry has led the major global dairy regions in terms of productivity since 1960 (FAO, 2009). The average U.S. dairy cow produced 9,219 kg milk 

per year in 2007. By contrast, the average annual yield for the top six milk-producing counties in Europe was 6,362 kg milk per year, while annual production in 

New Zealand and Canada averaged 3,801 kg milk/cow and 8,188 kg milk/cow respectively (FAO, 2009). On a comparative basis, this meant that for every one dairy 

animal in the USA in 2007, Canada required 1.1 animals, Europe required 1.4 animals and New Zealand required 2.4 animals to maintain a similar milk supply (Figure 3, Capper et al., 2009a). This clearly demonstrates the important of improving 

productivity in reducing the number of dairy animals required to produce a set 

amount of milk, therefore reducing total resources and GHG emissions associated 

with milk production. 

Within any milk production system, a relatively minor increase in productivity 

will have a major environmental mitigation effect. Simply increasing the average 

U.S. dairy cow’s daily milk yield from 29.5 kg to 34 kg would reduce the dairy population required to fulfill the market demand for milk by 12% (Capper et al., 2008). 

This would reduce the GHG emissions per billion kg of cheese by 1,173,000 metric 

tonnes—equivalent to taking ∼246,900 cars off the road or planting 184 million 

trees. This improvement in productivity would also equate to a significant improvement in economic sustainability for the producer. Fetrow (1999) discusses a similar 

improvement in productivity conferred by the use of the technology recombinant bovine somatotropin (rbST) and concludes that a 50% return on investment can be 

gained. Furthermore, as noted by Alvarez et al. (2008), improvements in productivity are intrinsically linked to economic and labor efficiencies.


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Figure 2. 2007 U.S. Milk Production, Resource Use and Emissions Expressed as a Percentage of the 1944 Production System (Adapted from Capper et al., 2009). 

Improving Productivity (Growth Rate) Reduces the Environmental Impact of 

Beef Production 

Mirroring improvements in dairy productivity over time, the average beef-carcass 

yield per animal has increased over the past 30 years from 266 kg in 1975 compared 

to 351 kg in 2007 (USDA, 1976; USDA/NASS, 2008). It appears that slaughter 

weight has reached a plateau beyond which the processor is unwilling to venture. 

However, improving productivity by increasing growth rate confers considerable potential as a mechanism to reduce the environmental impact of beef production. As 

previously described, all animals have a basic requirement for daily maintenance 

nutrients to maintain health and body tissues. As growth rate increases, fewer days 

are required to grow the animal to slaughter weight, thus saving maintenance nutrients and associated resource inputs.


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Figure 3. Dairy Animals (Cows, Heifers and Bulls) Required to Produce 

One Billion kg of Milk in 2007 (Capper et al., 2009a).

According to Capper et al. (2009a) finishing beef steers on pasture takes 438 days, 

compared to 237 days to finish identical animals on corn-based diets. This is due 

to the lower growth rate conferred by pasture-based diets. In combination with increased daily GHG emissions and energy use by animals fed pasture-based diets, 

the extra 201 days of maintenance nutrients results in a threefold increase in total 

energy use and methane emissions to finish the pasture-fed steer. To supply the 

extra maintenance nutrients required, 13× more land is required to finish a pasturefed beef steer than a corn-fed steer. These results are in agreement with modeling 

simulations of beef production systems published by researchers at Iowa State University (Lawrence and Ibarburu, 2007), and with the suggestion by Avery and Avery 

(2007) that pharmaceutical technologies used to improve growth rate in beef animals have positive environmental and economic effects. Furthermore, Acevedo et al.

(2006) analyzed the economic implications of differing productivity in conventional 

(grain-fed), grass-fed and organic beef production systems and concluded that the 

conventional system, with its high growth rate, was the most economically-beneficial 

to the producer. 

Productivity Plays a Key Role in Reducing the Environmental Impact of 

Food Transportation 

Transportation represents a relatively minor component of the total environmental impact of food animal production with the major component occurring during 

the on-farm production phase (Berlin, 2002; Steinfeld et al., 2006). Nonetheless, the 

productivity (in this situation defined as the quantity of food product moved over 

a specific distance) of the transport system has a major effect upon the total environmental impact attributed to transportation. In response to the current tendency 

to use ‘food miles’ as an indicator of environmental impact, three scenarios were developed by Capper et al. (2009a) to model the transport of a dozen eggs from the 

point of production to the consumers’ home. The three scenarios were as follows: (1) 

the local chain grocery store supplied by a production facility with eggs traveling 

a total distance of 805 mi; (2) a farmer’s market supplied by a source much closer 

than the grocery store’s source; (total distance traveled 186 mi) or (3) directly from 

a local poultry farm (total distance traveled 54 mi). Intuitively it would seem that 

buying eggs directly from a local poultry farm would be the situation with the lowest environmental impact. However, the grocery store eggs, which traveled the furthest distance, were shown to have lowest fuel consumption per dozen eggs (0.56 

liters), buying eggs from the local farm had the highest fuel use (9.12 liters per 


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dozen eggs) and the farmer’s market eggs were intermediate between the other two 

scenarios. The high energy efficiency of the grocery store system can be attributed 

to its reliance on tractor-trailers that have a capacity of 23,400 dozen eggs—a huge 

increase in productivity compared to the other two scenarios. Again, it is clear that 

productivity has a significant impact, not simply upon resource use and consequent 

environmental impact; but, given the current financial situation, on the economic 

sustainability of the food transport system. 

Conclusion 

The global population is predicted to increase to 9.5 billion people in the year 

2050 (U.S. Census Bureau, 2008). Total food requirements will increase by 100% 

(Tilman et al., 2002) as a function of both the 50% increase in population and the 

additional global demand for animal protein as people in developing countries become more affluent (Keyzer et al., 2005). The resources available for agricultural 

production are likely to decrease concurrently with population growth due to competition for land and water and depletion of fossil fuel reserves. To continue to 

produce sufficient milk, meat and eggs for future domestic and export markets in 

an environmentally and economically sustainable manner it is essential to examine 

the entire food production system and to make judgments based on productivity, expressed per unit of food. There can be no doubt that improving productivity, whether as part of on-farm production or further down the transportation chain has a considerable effect upon total environmental and economic impact. 

References Cited 

Acevedo, N., J.D. Lawrence, and M. Smith. 2006. Organic, Natural and Grass-Fed 

Beef: Profitability and constraints to Production in the Midwestern U.S., Iowa Beef 

Center, Iowa State University, Ames, IA. 

Alvarez, A., J. del Corral, D. Solis, and J.A. Perez. 2008. Does intensification improve the economic efficiency of dairy farms? JOURNAL OF DAIRY SCIENCE 91: 3693–

3698. 

Avery, A., and D. Avery. 2007. The Environmental Safety and Benefits of Pharmaceutical Technologies in Beef Production, Hudson Institute, Center for Global Food 

Issues, Washington, D.C. 

Bauman, D.E., S.N. McCutcheon, W.D. Steinhour, P.J. Eppard, and S.J. Sechen. 

1985. Sources of variation and prospects for improvement of productive efficiency in 

the dairy cow: a review. JOURNAL OF ANIMAL SCIENCE 60: 583–592. 

Berlin, J. 2002. Environmental life cycle assessment (LCA) of Swedish hard cheese.

INTERNATIONAL DAIRY JOURNAL 12: 939–953. 

Capper, J.L., R.A. Cady, and D.E. Bauman. 2009a. Demystifying the environmental sustainability of food production. In: Proceedings of the Cornell Nutrition 

Conference, Syracuse, NY. 

Capper, J.L., R.A. Cady, and D.E. Bauman. 2009b. The environmental impact of 

dairy production: 1944 compared with 2007. JOURNAL OF ANIMAL SCIENCE 87: 2160–

2167. 

Capper, J.L., E. Castan ̃ eda-Gutie ́rrez, R.A. Cady, and D.E. Bauman. 2008. The environmental impact of recombinant bovine somatotropin (rbST) use in dairy production. Proceedings of the National Academy of Sciences 105: 9668–9673. 

FAO. 2009. FAOSTAT. http://faostat.fao.org/. Accessed: 09/04/2009. 

Fetrow, J. 1999. Economics of recombinant bovine somatoptropin use on U.S. dairy 

farms. AGBIOFORUM 2: 103–110. 

Keyzer, M.A., M.D. Merbis, I.F.P.W. Pavel, and C.F.A. van Wesenbeeck. 2005. 

Diet shifts towards meat and the effects on cereal use: can we feed the animals in 

2030? ECOLOGICAL ECONOMICS 55: 187–202. 

Koneswaran, G., and D. Nierenberg. 2008. Global farm animal production and 

global warming: impacting and mitigating climate change. ENVIRONMENTAL HEALTH

PERSPECTIVES 116: 578–582. 

Lawrence, J.D., and M. Ibarburu. 2007. Economic Analysis of Pharmaceutical 

Technologies in Modern Beef Production in a Bioeconomy Era, Iowa State University. 

Schau, E.M., and A.M. Fet. 2008. LCA studies of food products as background for 

environmental product declarations. INTERNATIONAL JOURNAL OF LIFE CYCLE ASSESSMENT 13: 255–264. 

Steinfeld, H. et al. 2006. Livestock’s Long Shadow—Environmental Issues and Options, Food and Agriculture Organization of the United Nations, Rome. 

Tilman, D., K.G. Cassman, P.A. Matson, R. Naylor, and S. Polasky. 2002. Agricultural sustainability and intensive production practices. NATURE 418: 671–677. 

U.S. Census Bureau. 2008. Total Midyear Population for the World: 1950–2050.

http://www.census.gov/ipc/www/idb/worldpop.html. Accessed: July 2009. 

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USDA. 1976. Livestock Slaughter Annual Summary 1975, USDA, Washington, 

D.C. 

USDA. 2007. Dairy 2007, Part I: Reference of Dairy Cattle Health and Management Practices in the United States, 2007, USDA–APHIS–VS, Fort Collins, CO. 

USDA/NASS. 2008. Livestock Slaughter 2007 Summary, USDA, Washington, D.C.

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ATTACHMENT


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The CHAIRMAN. Thank you, Dr. Capper. Mr. Pottorff. 

STATEMENT OF RICHARD C. POTTORFF, CHIEF ECONOMIST, 

DOANE ADVISORY SERVICES, ROCHESTER, MN 

Mr. POTTORFF. Good afternoon. Thank you for the invitation to 

participate in today’s hearing. My name is Richard Pottorff and I 

am Chief Economist for Doane Advisory Services. The focus of our 

study was on the cost of production. We didn’t look at potential revenue gain from the sale of carbon offsets or the impacts that may 

result from land moving out of crop production that was not considered. Nor were costs for transporting goods to and from farms, possible increases in the cost of food or feed processing distribution, 

or other off-farm costs evaluated. 

Several studies, including those from government sources, 

showed the adoption of a climate change bill being considered in 

the spring of 2008 would result in higher energy prices. Energy 

prices are a major factor in the cost of producing crops. Production 

costs are impacted directly raising the cost of diesel fuel, gasoline, 

propane, electricity, and all the other things that farmers use to 

produce and harvest crops and store them. Production costs are 

also impacted indirectly. Natural gas is a critical factor in the production of nitrogen fertilizers which is a key crop nutrient. To meet 

the objectives of this study, we first estimated the relationships between the energy prices and the various components of production, 

per acre production costs. 

The per acre production costs were based on USDA’s cost and return budgets at the national level for the eight major crops. The 

data were extended using USDA’s forecast for 2008, 2009, and then 

using the energy price forecast provided by EPA and the Energy 

Information Administration. We projected those production costs 

out through 2020. The alternative scenarios were then looked at to 

evaluate what the changes in energy prices would have on the cost 

of producing the major crops. The alternative scenarios were based 

on the productions from the Environmental Protection Agency’s 

analysis of the Lieberman-Warner Climate Security Act of 2008. 

The alternative scenarios used in this study covered a wide range 

of possible impacts on energy prices. One scenario included in the 

EPA study assumed that substantial growth in nuclear power and 

biofuels would mitigate the impact on energy prices. Under this 

scenario, natural gas prices were up 35 percent in 2020 compared 

to the baseline and crude oil prices were 27 percent higher. A second scenario was developed based on assumptions that nuclear 

power and biomass power production did not exceed the growth in 

the baseline scenario by 2020. In this scenario, natural gas prices 

were up 50 percent compared to those in the baseline and crude oil 

prices were up by 37 percent. 

The third alternative used for the evaluation assumed that the 

nuclear power and the biomass production did not exceed the baseline levels, and that carbon capture and sequestration technology 

did not become commercially available until after 2020. Natural 

gas prices and crude oil prices were up by 71 percent and 52 percent, respectively, using this set of assumptions. The higher energy 

cost boosted crop production costs on a per acre basis by a range 

from $40 to $79 for corn, $11 to $20 an acre for soybeans, $25 to 

79

$48 an acre for cotton, $80 to $153 an acre for rice, and $16 to $32 

for wheat. Added together, these increased production costs in 2020 

ranged from a range of $6 billion on the low side to $12 billion on 

the high side compared to the baseline. 

A subsequent study evaluating the impact of higher energy 

prices on the U.S. livestock sector was undertaken. Using these 

same three scenarios, and assuming that the higher cost of producing crops was passed along as higher feed cost for livestock producers, livestock production cost for dairy, hogs, and cattle would 

increase by a total of $2.5 billion to $5 billion by 2020 compared 

to the baseline. Our studies were completed using energy price 

forecasts based on the Lieberman-Warner bill that was considered 

in the spring of 2008. 

Government agencies have produced new reports with very different results based on the Waxman-Markey bill that passed the 

House of Representatives. The new EPA study showed dramatically 

different impacts on energy prices. The most recent study show 

natural gas prices up only modestly by 2020, even as caps are put 

on greenhouse gas emission. The determination of the level of the 

increase in energy prices as a result of climate change legislation 

is critical in determining the impact on farmers’ crop production 

cost. Last year’s EPA study showed big increases in energy prices 

and this year’s study show very modest increases. 

Other studies show significantly larger energy price impacts. Assumptions about these energy shifts, such as shifting from coal to 

natural gas for electricity generation, assumptions about the expansion in nuclear energy, or the assumptions about the gains in 

energy use technologies will all have huge implications on the estimates of cost of producing the crops for America’s crop producers. 

Thank you. 

[The prepared statement of Mr. Pottorff follows:]

PREPARED STATEMENT OF RICHARD C. POTTORFF, CHIEF ECONOMIST, DOANE

ADVISORY SERVICES, ROCHESTER, MN 

Good morning. Thank you for the invitation to participate in today’s hearing. My 

name is Richard Pottorff and I am Chief Economist for Doane Advisory Services. 

Doane is an information company that provides economic information, analysis and 

forecasts to the agriculture industry. The company is headquartered in St. Louis, 

Missouri, and is a part of Vance Publishing Company. 

About 18 months ago, we were commissioned to conduct a study designed to 

measure the impact that proposed climate change legislation would have on production costs for U.S. crop producers. The study, titled ‘‘An Analysis of the Relationship 

Between Energy Prices and Crop Production Costs’’, was completed in May of 2008. 

The focus of the study was on costs of production. Potential revenue gains from the 

sale of carbon offsets or the impacts that may result from land moving out of crop 

production were not considered. Nor were costs for transporting goods to and from 

farms, possible increases in costs of food or feed processing, distribution, or other 

off-farm costs evaluated. 

Several studies, including those from government sources, showed that adoption 

of the climate change bill being considered in the spring of 2008 would result in 

higher energy prices. Energy prices are a major factor in the cost of producing crops. 

Production costs are impacted directly, raising expenditures for diesel fuel, gasoline, 

electricity, propane, and natural gas used by farmers to produce and harvest crops. 

Production costs are also boosted indirectly. Natural gas is a critical factor in the 

production of nitrogen fertilizers—a key crop nutrient. 

To meet the objectives of the study, we first estimated the relationship between 

energy prices and the various components of per acre crop production costs. Production costs vary significantly from region to region, and even from farm to farm. The 

per acre production costs were based on USDA Costs and Return budgets at the naVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00085 Fmt 6633 Sfmt 6621 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
80

tional level. The data were extended for 2008 and 2009 using USDA forecasts, and 

the production costs were projected through 2020 based on the estimated relationships between production costs and energy prices. Energy price forecasts used came 

from USDA and the Energy Information Administration. Once this ‘‘baseline’’ was 

established, we evaluated the energy price impacts under various scenarios using 

the statistical relationships. Alternative scenarios were based on projections from 

the Environmental Protection Agency’s analysis of the Lieberman-Warner Climate 

Security Act of 2008. 

The alternative scenarios used in this study covered a wide range of possible impacts on energy prices. One scenario included in the EPA study assumed substantial 

growth in nuclear power and widespread international action. Under this scenario, 

natural gas prices were up 35 percent in 2020 compared to the baseline and crude 

oil prices were 27 percent higher. A second scenario was developed based on assumptions that nuclear power and biomass power production did not exceed growth 

outlined in the baseline scenario by 2020. In this scenario, natural gas prices were 

up 50 percent compared to those in the baseline and crude oil prices were 37 percent 

higher. The third alternative used for evaluation assumed nuclear power and biomass production do not exceed baseline levels and carbon capture and sequestration 

technology does not become commercially available until after 2020. Natural gas 

prices and crude oil prices go up by 71 percent and 52 percent, respectively, under 

this set of assumptions.

A subsequent study evaluating the impact of higher energy prices on the U.S. 

livestock sector was undertaken. Using the same three scenarios, and assuming that 

the higher costs for producing crops were passed along as higher feed costs for livestock producers, livestock production costs for dairy, hogs, and cattle would increase 

by a total $2.5 billion and $3.5 billion in 2020 compared to the baseline. 

Our studies were completed using energy price forecasts based on the LiebermanWarner bill that was under consideration in the spring of 2008. Government agencies have produced new reports with very different results based on the WaxmanMarkey bill that passed the House of Representatives. The new EPA studies show 

dramatically different impacts on energy prices. The more recent studies show natural gas prices up only modestly by 2020, even as caps are put on greenhouse gas 

emissions. 

This determination of the level of increase in energy prices as a result of climate 

change legislation is critical in determining the impact on farmer’s crop production 

costs. Last year’s EPA studies showed big increases in energy prices in stark contrast to this year’s results. Other studies show significantly larger energy price impacts. As an example, the midpoint of the high and low scenarios by the National 

Association of Manufactures is near a 40 percent increase in natural gas prices in 

2020. Assumptions about energy shifts, such as shifting from coal to natural gas, 

assumptions about the expansion of nuclear energy, and assumptions about gains 

in energy use efficiencies will have huge implications for the estimates of changes 

in production costs for America’s crop producers.

The CHAIRMAN. Thank you, sir. Dr. Westhoff, we are all aware 

of what the FAPSIM model shows, and the fact that EPA utilized 

it in their analysis or determining the impacts of H.R. 2454, but 

do you believe that such land shifts are likely to happen, and what 

would carbon prices need to be for a land to move out of crop production into trees? 

Dr. WESTHOFF. Well, I very deliberately highlighted that as a 

major source of uncertainty that we are trying to conduct ourselves 

right now. I will say that my own personal impression is that the 

kind of shifts talked about in the EPA analysis do seem to be on 


11138185
81

the high side today. But, I also can’t pretend we fully had a chance 

to look at all the possible stories that might unfold as people respond to, the possibility for any large amounts of money from carbon offsets. We have started to look at some other scenarios that 

look at more modest changes and shifts in acreage that might 

occur, and we find that the sort of qualitative results I talked about 

this morning hold even if the shifts in acreage are not anywhere 

nearly as large as in the analysis done for EPA. 

The CHAIRMAN. Thank you. Dr. Capper, your testimony was very 

interesting, Mr. Goodlatte and I, think it is very helpful to a hearing we are going to be having next week, so thank you so much 

for that. But what is your sense of the economics of methane digesters in dairy and beef operations and what will it take for more 

digesters to be installed? 

Dr. CAPPER. I think that is a great question. I think the main 

issue we have with the methane digesters are that they are not a 

size neutral technology so they may be ideal, for example, on a 

farm with 1,000 cows or 2,000 cows, but on a farm with 50 cows 

at the moment, the economics aren’t there to make them economically viable. 

The CHAIRMAN. So the economics where the Ranking Member 

and I come from, the Midatlantic and the Northeast, probably 

would not be economically viable. 

Dr. CAPPER. Absolutely. Yes, absolutely. 

The CHAIRMAN. Mr. Pottorff, is your organization currently working to update the 2008 study? 

Mr. POTTORFF. We are not at the moment. We haven’t been commissioned to do that. 

The CHAIRMAN. Thank you. The chair recognizes the Ranking 

Member, the gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. Dr. Capper, I want 

to join the Chairman in commending you for the interesting information you have provided us. What policies can Congress pursue 

that will achieve the goal of reduction in greenhouse gases without 

disrupting farm input costs and farm income? 

Dr. CAPPER. As I said in my testimony productivity appears to 

be absolutely key. If we can improve milk yield per cow, for example, we count the number of animals——

Mr. GOODLATTE. What can Congress do about that? 

Dr. CAPPER. So, therefore, we need to keep in place the tools and 

the management practices that allow us to do that whether 

that——

Mr. GOODLATTE. Those are mostly developed in the private sector, are they not? 

Dr. CAPPER. Absolutely. Yes, they are. 

Mr. GOODLATTE. And could there be significant GHG reductions 

just from additional research and development? 

Dr. CAPPER. Absolutely there could. That is important, but again 

we have to consider productivity as the main factor. 

Mr. GOODLATTE. But the research that we do provide some assistance for could help to increase productivity? 

Dr. CAPPER. Of course. Yes. Absolutely. Absolutely. 

82

Mr. GOODLATTE. So that type of approach as opposed to the sale 

of credits and so on might bear more effect on productivity than a 

cap-and-trade arrangement. 

Dr. CAPPER. Yes. Absolutely. 

Mr. GOODLATTE. What do you believe the environmental impact 

would be of shifting more agriculture production overseas? If a 

farmer can’t comply with cap-and-trade requirements and the cost 

of doing business rises. If it is found to be cheaper to distributors 

and food processors, and so on, to import more food, would that not 

have the effect of actually increasing greenhouse gas emissions; 

since American producers are generally more efficient, as you demonstrated in your chart, than the impact of shifting the production 

to other places and the transportation costs of transporting those 

agricultural products further and further away from the end consumers? 

Dr. CAPPER. Yes. Absolutely. Transportation is a fairly minor 

component compared to what comes from the cow, but there is absolutely not doubt that as a U.S. dairy industry we are highly efficient and we have a really low environmental impact compared to 

other countries, again, as in the testimony. 

Mr. GOODLATTE. Thank you. Dr. Outlaw, you mentioned in your 

testimony that not all of the representative farms that you discussed could participate in offset projects. Did any of these representative farms have higher cash reserves at the end of the period? 

Dr. OUTLAW. Yes. There were a number of them that would see 

benefits from higher prices. That is the question that Pat was 

asked earlier. If there are land shifts to afforestation, for example, 

then some of the cropland will go out and prices will rise, and that 

is driving more the results in than the carbon part of our analysis. 

The actual selling carbon offsets performed—only averaged a little 

over $10,000 per farm per year. So most of the ones that were better off were because of price impacts. 

Mr. GOODLATTE. And that, of course, is borne by the consumer, 

is that not correct? 

Dr. OUTLAW. Absolutely. 

Mr. GOODLATTE. So, as with so many other aspects of cap-andtrade, whether it is a utility company or some other entity, some 

of the ability to sustain this is by their ability to transfer those 

costs to others and ultimately that burden can fall on the consumer. 

Dr. OUTLAW. Correct. And the ranches that we analyzed, we 

didn’t assume they were eligible, which at some locations they 

would very well be, but we didn’t assume for this analysis but they 

are made much worse off because of the higher feed costs. 

Mr. GOODLATTE. Did any of the representative farms that did 

have offset projects end up with lower cash reserves? 

Dr. OUTLAW. Yes. Yes, they did. 

Mr. GOODLATTE. Can you explain that? 

Dr. OUTLAW. Well, in a lot of cases, for example, in the dairies 

our assumption was 500 cows or more to put in a methane digester, but not in all cases is that a financially sound move. They 

were actually well worse off by trying to sell program credits by 

83

doing this and selling electricity than they would have been otherwise. 

Mr. GOODLATTE. And finally to Dr. Westhoff, your testimony 

gives several scenarios that there is a shift of crop acres to trees. 

If there is a large shift as expected by the EPA, how will this 

change the structure of agriculture? Could this drive farmers and 

ranchers out of business? 

Dr. WESTHOFF. Well, you definitely have impacts that will be 

worldwide in their nature. I mean we would be talking about shifting a lot of agricultural production out of the U.S., which would 

have impacts on everything from the farmer to the processor to the 

consumer. We do think it would have impacts on things like rental 

rates that farmers have to pay for land and the cost of land itself. 

If you are a landowner, this might be a very good thing. For someone who has to rent land for a living, it might not be such a good 

thing. 

Mr. GOODLATTE. And from a homeland security perspective since 

that has been raised at this hearing earlier it would make us more 

dependent on foreign sources of food, would it not? 

Dr. WESTHOFF. It would mean that we would have less exports 

and that is certainly true. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

The CHAIRMAN. The chair thanks the gentleman and recognizes 

the gentlewoman from South Dakota. 

Ms. HERSETH SANDLIN. Thank you, Mr. Chairman. I thank you 

and the Ranking Member for this hearing and the witnesses for 

their testimony. Dr. Antle, I would like to pose my questions to you 

and then the other witnesses can certainly add their perspectives. 

As it relates to your testimony with regard to the way that a robust 

public investment in agriculture in the 20th century led to such 

great advancements in agriculture and technology. I know some of 

the questioning here today, particularly of Dr. Glauber, focused on 

the state of the climate science, what the best approach to addressing greenhouse gas emissions would be in terms of a policy matter 

of cap-and-trade versus some other system. But, separate from that 

if we just accept that there have been climate changes regardless 

of what has caused it, and its impacts on agriculture, in your opinion what is the best role for the public sector in facilitating agricultural development in the transition to a new energy economy? 

Where can Federal resources best be targeted to provide the greatest benefit to help agriculture adapt to changes in climate? 

Dr. ANTLE. Well, thank you for that question. Good question. I 

think perhaps like my colleague has suggested increasing investments in productivity are important, but I would point out that an 

important caveat there is that just raising productivity doesn’t reduce emissions. It reduces emissions per unit of output but of 

course not overall emissions, and hence the idea of cap-and-trade 

type policy. But to better facilitate adaptation, we need to do a better job of understanding the range of possible impacts, hence in my 

testimony some of the comments about, for example, looking in 

more detail at the potential impacts of extreme climate events, for 

example, and how that would impact agriculture, and then also, 

really, how agriculture is going to be organized spatially. If we do 

see continuing changes in climate like we have been seeing agriVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00089 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
84

culture is, in a sense, going to move around, and there are potentially important questions about how that will happen. 

For example, the livestock industry. Relocating livestock, confined animal production, could be a real challenge given the regulatory environment we have and other issues. So, we need to look 

more broadly. The studies that have been done so far have really 

focused on grain production and sort of major commodity production, and that is largely because that is where we have models to 

simulate effects of climate. But a lot of other areas of agriculture 

are, of course, just as important. 

And another thing that the studies have tended to over emphasize are costs of adaptation. When you look at these studies what 

you see is that in fact there has been a lot of emphasis on what 

are the benefits of adaptation with very little attention to what are 

the potential costs of adaptation, and that, of course, tends to bias 

the results. So, we need to think more carefully about where we 

think agriculture is headed in the future, impacts on the various 

parts of agriculture, not just grain crop production, and how research could help mitigate the impacts and facilitate the adaptations. 

Ms. HERSETH SANDLIN. I appreciate that response. Any thoughts 

as it relates to domestic biofuels production? I understand the focus 

on grain because the models are there, but it is also because grain 

production, at least for grain-based ethanol production. What 

about, for example, some of the research that maybe you are doing, 

that folks at South Dakota State University are doing as it relates 

to cover crops in addition to other farming practices, or the investments that we have made in the past as it relates to providing the 

foundation for seed technology that, again, goes not just to productivity but perhaps meeting our domestic biofuels needs as well. 

Dr. ANTLE. Definitely, there are a lot of opportunities there also 

with confined animal, waste management. USDA has some real 

breakthroughs there, so, yes, I think there are a lot of opportunities. 

Ms. HERSETH SANDLIN. Well, I appreciate your focus on what is 

going to happen spatially. I found your written testimony very interesting as it relates to what may happen to the Corn Belt versus

Northern Great Plains and, again, how that affects both grain production as well as livestock production. Any other witnesses—my 

time is up, and I know we have votes, so if any of you want to respond to those questions if you could do so in a written submission, 

I would appreciate it. Thank you, Mr. Chairman. 

The CHAIRMAN. The chair thanks the gentlewoman. The gentleman from Pennsylvania. 

Mr. THOMPSON. Thank you, Mr. Chairman, and I thank the 

panel for your testimony. Dr. Westhoff, you talked about, in your 

testimony and your remarks, about crop production patterns, and 

it was referenced early we certainly have concerns about food security in the future. I think that is a huge risk for us to be depending 

on other countries for our food supply. In your remarks with the 

potential for shifting certain crops and agricultural commodities, 

are there certain crops or commodities you see that are more at 

risk based on what information we have now to shifting to offshore 

or overseas? 

85

Dr. WESTHOFF. There is lots of uncertainty here as has kind of 

been my theme, I guess, all morning here is there is lots of uncertainty about the effects we are likely to see. I do think, as Dr. 

Glauber talked about this morning, crops like rice, for example, is 

one where it is hard to see many positives that might come from 

the legislation’s impacts. That may be one where reduced exports 

would be even more likely in future commodities. I do want to 

stress that even though we are talking about lower levels of U.S. 

production going overseas is a possibility here, I don’t think we are 

likely to talk about a scenario where the U.S. becomes an importer 

of those products. Reduced exports is the most likely outcome. 

Mr. THOMPSON. Okay. Thank you. Dr. Antle, you noted in your 

remarks that the market changes in responding to climate change. 

I was wondering are there any, based on your experience, any examples of potential market changes that could occur that you can 

give as an example? 

Dr. ANTLE. In response to climate? 

Mr. THOMPSON. Yes, please. 

Dr. ANTLE. Sure. And some of them have been described here already, but the modeling studies, for example, suggest that green 

production might—corn, soybean production might move west and 

north, so that would have production impacts, and would impact 

market distribution systems, for example. You could also—and 

then further south you go typically the more adverse impacts are—

what the current studies tend to show is that in the U.S. some 

areas benefits and some areas are harmed, and on net the impacts 

are fairly small. So that kind of shifting of comparative advantage 

would certainly have market impacts, you can imagine. 

Mr. THOMPSON. Thanks. And then my final question, Dr. Capper, 

the information provided was very interesting in terms of dairy in 

terms of the increase in productivity since 1944. If I read that correctly, 443 percent increase in productivity, more efficiency. Just 

very simply my question is given those huge leaps, what—two 

questions, I guess, two-part question. What were the motivating 

forces to have that happen and then what is the potential for giving that growth, significant growth, so far, what is the future for—

potential for future productivity increases? 

Dr. CAPPER. Okay. So the advances that we have made to date 

have been huge, and they were basically economically based. It became more economically sound to have cows that gave more milk 

via nutrition/genetics management, and so on. The average animal 

now gives about 22,000 pounds of milk per year. The record cow 

has given about 40,000 pounds of milk per year and there are 

herds with an average of over 30,000 pounds of milk per year, so 

we still have a huge way to go in improving productivity that way 

and improving economics of the environment as well. 

Mr. THOMPSON. Okay. Thank you. Thank you, Mr. Chairman. 

The CHAIRMAN. I thank the gentleman. The gentleman from Minnesota. 

Mr. WALZ. Thank you, Mr. Chairman, and thank you all for taking the time to testify. I really appreciate the different takes on 

this. Just a couple questions. I was referencing before the study 

that came out of New York University more integrated than this. 

I think maybe we make a mistake. Obviously, we are concerned. 

86

This is the Agriculture Committee. It is our Committee of jurisdiction, but to look at one sector and silo it away from the overall impacts and how they are all going to tie together, is a mistake, and 

I know all of you are looking in that direction too. 

I just wanted to focus on a couple of things. Again, Dr. Antle, you 

probably hit it more where I was coming from on this. The cost of 

doing nothing and the cost of allowing climate change as it exists 

to go forward, that has to be factored in. That has to be laid on 

the table as we look forward. I think one of the things I am coming 

to, and there is a University of Tennessee study, and maybe you 

guys can help me as peer review type of things, of starting to show 

the positive impacts of this and into the numbers of $364 billion 

above letting the EPA do this, potentials that are there. 

So, the question is, can we do this type of legislation right if it 

is coupled with an energy policy that includes nuclear power which 

I agree has to be a part of this? Can we make this broader where 

we start to get energy security on this, we start to transfer, and 

we don’t harm the agricultural markets? Do you feel from your expert opinion that the potential there lies to do this if we do this 

right, or is the cap-and-trade exactly the wrong way to go? And, Dr. 

Capper, I find it interesting you said most of the productivity improvements were done in the private sector and you all said at 

state universities. I say that because Dr. Borglum is from the University of Minnesota and Texas A&M from the Green Revolution 

and other things that come out of it. And I also say that because 

when I request money for Aphid control research at the University 

of Minnesota that is of course an earmark that isn’t for bid. 

Now are we counterproductive in everything we are doing? To 

you I want to ask, what we want is this. We want stability in our 

agricultural markets. We want stability in our energy markets. We 

want the ability to control human emissions of greenhouse gases if 

we believe that that is important. In your expert opinion, can that 

be done? Each of you, can it be done? The question basically is 

should we throw the cap-and-trade side of things out and is there 

a different way to do it, or in your opinion is it important to look 

at this? And I say that because what is hanging over this is all of 

us know one of two things. It is either the climate change itself is 

going to make these things known to us and we are going to find 

out, or EPA is going to do it one way or another or maybe both. 

So my question is, is this the right approach in your opinion, capand-trade? 

Dr. OUTLAW. To be honest with you, Congressman, I really 

hadn’t thought about it in that regard. Most of our work is on a 

request basis where we are requested to do certain things. Could 

it be done? Absolutely, it could be done. The question that I have 

as an economist is what is the economic cost on the players that 

are affected and are there ways to mitigate those costs or not, and, 

if not, maybe another approach. So my answer is not really an answer. It is more of a question. 

Mr. WALZ. No, and I appreciate that because it is complex and 

I appreciate all of you thinking at it from those different angles. 

Dr. WESTHOFF. FAPRI does not endorse or oppose legislation, but 

I will say that I think it is appropriate to ask the question: what 

are the consequences of doing nothing. In my own written testiVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00092 Fmt 6633 Sfmt 6601 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
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mony I do mention the fact that it is important to distinguish the 

impacts of U.S. legislation by itself and what that might do incrementally to climate change versus the impacts of other countries 

likewise agreeing to something. 

Dr. ANTLE. Congressman, it is important for us to do something 

if we think this is a serious problem, and we all know there are 

a number of different ways to create incentives for not only agriculture but the rest of our economy to respond to do something different. We have to change. If we are going to solve this problem 

of climate change and energy consumption, we have to do things 

differently. So, yes, there may be some impacts on agriculture and 

there may be some impacts on you and me, but that is the price 

we have to pay for changing if we think it is important to change. 

Dr. CAPPER. Again, I agree. I think it is something we should 

change and that we can change, and the only thing we have to take 

into account is we have a growing population. We have to use more 

food and we have less resources and what is the best way that we 

can possibly do that economically and environmentally. 

Mr. POTTORFF. Yes, sir. I think that there have been some public 

studies out that show the potential yield implications of doing nothing are extreme, 40, 50 percent declines in yield production. Meanwhile, we are talking about needing to increase food production by 

50 percent by 2050 or even more. And so I think that we need to 

take some action. What action we take is hard to say. I just want 

to suggest that we want to be careful when we do this so that we 

don’t hamstring American farmers and that we don’t hamstring our 

fertilizer industry. Over the last decade, we have seen 25 ammonium-producing fertilizer plants close, and we have out-sourced basically our nitrogen fertilizer applications, and that is why I was 

so concentrated on natural gas because it does have such a big impact on the fertilizer industry. 

Mr. WALZ. Thank you all. 

The CHAIRMAN. The chair thanks the gentleman, and the chair 

thanks our witnesses for their testimony today. Unfortunately, we 

are going to have to run. There are five votes on the House floor. 

Under the rules of the Committee, the record of today’s hearing 

will remain open for 10 calendar days to receive additional material and supplementary written responses from the witnesses to 

any question posed by a Member. The hearing of the Subcommittee 

on Conservation, Credit, Energy, and Research is adjourned. 

[Whereupon, at 12:34 p.m., the Subcommittee was adjourned.] 

[Material submitted for inclusion in the record follows:] 

88

89

SUBMITTED STATEMENT BY FORD B. WEST, PRESIDENT, THE FERTILIZER INSTITUTE

December 4, 2009

Hon. TIM HOLDEN,

Chairman,

Subcommittee on Conservation, Credit, Energy, and Research, 

Committee on Agriculture, 

Washington, D.C.

Dear Chairman Holden,

The Fertilizer Institute (TFI) respectfully submits this letter for the record in response to statements that were made during the Dec. 2 Subcommittee hearing that 

was held to examine the potential economic impacts of climate change policy on the 

agricultural sector. 

During the hearing, U.S. Department of Agriculture Chief Economist Joseph 

Glauber comprehensively reviewed the potential economic impacts of climate change 

on the farm sector. On page six and seven of his written testimony, Dr. Glauber 

states:

‘‘While most of the direct energy price increases would be felt immediately by 

the agricultural sector, fertilizer costs would likely be unaffected until 2025 due 

to a provision in H.R. 2454 that would distribute specific quantities of emissions 

allowances to ‘energy-intensive, trade exposed entities’ (EITE). Additionally, 

EPA analysis indicates that the allocation formula would provide enough allowances to cover the increased energy costs of all presumptively eligible EITE industries. Based on these considerations, the USDA analysis assumes H.R. 2454 

imposes no uncompensated costs on nitrogen fertilizer manufacturers related to 

the increases in the price of natural gas through 2024.’’

TFI would like to make you aware of several factors that dispute Dr. Glauber’s 

statements regarding the potential impacts of climate change policy on fertilizer 

costs. First, nitrogenous fertilizer manufacturing is listed as a covered sector in the 

Environmental Protection Agency’s (EPA) analysis of presumptively eligible sectors, 

which may receive allowance rebates under Subtitle B of Title IV in the Housepassed climate bill H.R. 2454. However, phosphatic fertilizer manufacturing, potash 

mining and phosphate rock mining, all of which are industrial sectors that encompass two of the primary fertilizer nutrients (phosphorous and potassium) are not 

listed as eligible sectors. Given this circumstance, it is not wise to assume that fertilizer costs, which can be responsible for 19–44 percent of total operating expenses 

depending on the crop, would likely be unaffected by the legislation until 2025. 

Second, it is currently impossible for anyone, including EPA and Dr. Glauber to 

predict exactly how many free emission allowances nitrogen fertilizer manufacturers 

will receive under Subtitle B of Title IV in H.R. 2454. All of the trade vulnerable 

industries will be seeking free emission allowances from a limited and defined pool 

and that pool will shrink each year. Emissions that aren’t covered by free allowances would need to be covered by purchased allowances. 

Furthermore, Sec. 763., Title IV (page 1088) of H.R. 2454 states that the purpose 

of the emission allowance rebate program is ‘‘to provide a rebate to the owners and 

operators of entities in domestic eligible industrial sectors for their greenhouse gas 

emission costs incurred under this title, but not for costs associated with other 

related or unrelated market dynamics.’’ Thus nitrogen fertilizer manufacturers 

would receive some allowances for their greenhouse gas emission cost (direct emission + indirect electricity emission) only, and therefore are not compensated for costs 

related to the increases in the price of natural gas, which accounts for 70–90 percent 

of nitrogen fertilizer production costs. Increases in the price of natural gas resulting 

from climate change legislation would have a significant impact on the nitrogen 

price paid by U.S. farmers as indicated on the attached graph, which demonstrates 

the high correlation between the price of natural gas paid by U.S. nitrogen manufacturers and the price of nitrogen fertilizer (anhydrous ammonia) paid by U.S. farmers. For example, as natural gas prices increased from $3.68 to $8.07 per thousand 

cubic feet from 2000 to 2008, the nitrogen price paid by U.S. farmers rose from $227 

to $755 per material ton. 

I hope you will take the points that have been raised within this letter into consideration as you continue to address the economic impact of climate change policy 

on the agricultural sector. Specifically, we hope you will note that there is no estabVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00095 Fmt 6621 Sfmt 6621 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
90

lished economic data available to support the statement that fertilizer costs would 

likely be unaffected until 2025 under a cap-and-trade policy. 

Sincerely,

FORD B. WEST, President.

CC:

Secretary of Agriculture, Hon. TOM VILSACK;

USDA Chief Economist, JOSEPH GLAUBER, PH.D.; 

Subcommittee Ranking Member, Rep. BOB GOODLATTE. 

ATTACHMENT

The Cost of Natural Gas Drives Nitrogen Prices Paid by U.S. Farmers

Data Source: USDA—retail price of anhydrous ammonia paid by U.S. farmers; EIA—U.S. wellhead price of natural gas. 

SUBMITTED STATEMENT BY NATIONAL OILSEED PROCESSORS ASSOCIATION

The National Oilseed Processors Association (NOPA) offers its thanks and appreciation to Chairman Holden and Ranking Member Goodlatte for holding this hearing to review the potential economic impacts of climate change on the farm sector. 

NOPA also thanks you for the opportunity to submit for the record NOPA’s views 

regarding the potential impact of global climate change legislation on the oilseed 

processing industry. 

NOPA is a national trade association comprised of 15 member companies engaged 

in the production of food, feed, and renewable fuels from oilseeds, including soybeans. NOPA’s member companies process more than 1.7 billion bushels of oilseeds 

annually at 65 plants located throughout the country, including 60 plants that process soybeans. 

As your Committee begins consideration of global climate change legislation, we 

respectfully provide you with our perspectives on how such legislation may impact 

oilseed processors. Attached to our Written Statement is a document entitled 

‘‘NOPA Estimates of Costs to NOPA Member Companies Associated with Global Climate Change (GCC) Legislation: Costs Due to CO2 Allowances and Increased Energy Prices ($1,000s)’’ (see Attachment A). Also attached to our Written Statement 

(see Attachment B) is a letter to Chairman Holden and Ranking Member Goodlatte, 

informing them of the views of a coalition, of which NOPA is a member, including 


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food, feed, ingredient, beverage, and consumer product processors, manufacturers, 

distributors, and retailers, on prospective climate change legislation. 

Today, USDA will discuss the impacts of climate change legislation. NOPA believes the climate change legislation passed by the House will cause a significant 

restructuring of the U.S. economy and in particular agriculture from farm to fork. 

Conducting analysis on a dynamic and ever changing industry such as agriculture 

is no easy task. The climate change legislation being discussed today sets in law 

specific goals and targets that must be met through 2050. Assumptions play a key 

role in determining analysis and impact—because agriculture is so dynamic and 

ever changing, those assumptions will be subject to dissection and question. 

With so many uncertainties and difficulty forecasting so far into the future, NOPA 

is concerned about the cost of allowances, increased energy cost, commodity cost, 

transportation cost, loss of productive cropland to trees and grass, acreage shifts, 

impact on livestock and poultry sectors, and compliance with our WTO obligations, 

to name a few. 

While USDA and some of the other witnesses at today’s hearing are discussing 

the impact of climate change legislation on farmers, NOPA believes analysis by 

USDA and the other witnesses should include the economic impact from farm to 

fork. Examples should include other ag-related industries such as processors (e.g.,

oilseed, meat processors), food manufacturers, ag equipment manufacturers, exporters, and transportation. 

The assumptions used to estimate the cost of carbon allowances varies; Charles 

River Associates (CRA) International, in a May 2009 study, estimated carbon allowances at $22 CO2 per ton in 2015, $46 CO2 per ton in 2030, and $124 CO2 per ton in 2050. USDA, on the other hand, has estimated $12.64 CO2 per ton in 2015, $26.54 CO2 per ton in 2030, and $70.40 CO2 per ton in 2050. The cost variance and 

implications are staggering: (1) carbon offsets are a potential income source for producers and forest landowners; this offset program could have a devastating impact 

on land use, taking productive crop land out of production and planting it to trees, 

thereby causing higher commodity prices and higher food prices for domestic and 

foreign consumers; (2) the cost of purchasing allowances by NOPA member companies on Day One is substantial—in the millions of dollars on an annual basis; and 

(3) acreage shifts will impact NOPA member facilities’ ability to obtain soybeans for 

processing and could lead to higher transportation costs, impacting competitiveness 

for upstream customers and their ability to compete in domestic and international 

markets. 

Depending on one’s assumptions, some of USDA’s preliminary analysis shows that 

in 2050: CO2 allowance cost per ton—$70.40; a loss of almost 60 million acres, of 

which 35 million acres comes from productive cropland and 24 million acres from 

pastureland; soybean acreage—29% below current baseline; and hog production 

slaughter—23% below current baseline. These assumptions could have a devastating 

impact on NOPA members’ processing facilities, soybean farmers, livestock and 

poultry customers, other ag related businesses and, more importantly, the rural 

communities in which NOPA plants are located. 

Our views and concerns are discussed below:

• Direct Costs to Oilseed Processing Industry (Attachment A). The American Clean Energy and Security Act of 2009 (H.R. 2454), Subtitle B of Title IV, 

defines ‘‘energy-intensive, trade exposed entities’’ (EITE) to include industrial 

sectors that have an energy or greenhouse gas intensity of at least five percent 

or a trade intensity of at least 15%. Entities meeting the EITE qualify for free 

allowances. NOPA members do not meet EITE. Without these allowances, firms 

in industrial sectors such as oilseed processing would incur energy-related costs 

that foreign competitors would not face, putting them at a significant market 

disadvantage.

In the near term (2015–2019), NOPA members would spend an estimated $790 

million on purchasing greenhouse gas (GHG) allowances and additional energy 

costs to operate their facilities—that’s about $2.6 million per plant over that 

time period in additional annual operating costs. In the moderate term (2020–

2024), NOPA members would incur an estimated $1.1 billion on allowances and 

additional energy costs—that’s about $3.7 million per plant in additional annual 

operating costs. This means in the near-to-moderate term (2015–2024), NOPA 

members would incur nearly $1.9 billion in additional costs.

• Loss of Productive Cropland. NOPA members are extremely concerned 

about the unintended and problematic consequences of agricultural producers 

taking arable cropland out of production and converting it to grassland or trees 

to earn carbon offsets. USDA estimates that by 2050, land converted to 

afforestation would increase to nearly 60 million acres—35 million from cropVerDate 0ct 09 2002 12:41 Mar 08, 2010 Jkt 041481 PO 00000 Frm 00097 Fmt 6621 Sfmt 6621 I:\DOCS\111-38\54580.TXT AGR1 PsN: BRIAN
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land and 24 million from pastureland. Any program that inadvertently 

incentivizes agricultural producers to take productive and environmentally sustainable cropland out of production to earn carbon offsets would devastate U.S. 

agricultural competitiveness and could severely strain the ability of the food, 

feed, and renewable fuels industry to meet worldwide demand.

Further analysis is needed to determine the impacts on agricultural production 

(including the livestock and poultry sectors), commodity prices, farm income, 

consumer food costs, and rural communities.

• Impact—Unintended Consequences. Our members, as well as one of their 

principal customers (i.e., animal producers), have limited ability to pass costs 

on to users/consumers of their products; thus, we (and they) are very concerned 

with any cost impacts on our industry, including costs for allowances and energy price increases associated with the legislation. To the degree that our 

members can pass costs on to their customers, the result would be higher food 

prices domestically and higher prices on the products our members (and, in 

turn, our customers) export to other countries. Higher prices would make our 

industry less competitive both domestically and internationally, resulting in reduced revenue for farmers, processors and livestock/poultry producers, loss of 

jobs within the food and related industries (e.g., logistics) chain, and increased 

food/feed prices for U.S. consumers.

In circumstances in which our members cannot pass on these increased costs, 

they would experience higher operating costs at their facilities, rendering them 

less competitive both domestically and internationally. The result would be reduced revenue for both farmers and processors and the loss of jobs within the 

food and related industries chain.

Higher operating costs and a less competitive business environment would result in a transfer of oilseed processing and related jobs, including animal production, to other countries and a transfer, not a reduction, in global GHG emissions. In fact, the climate change problem would be exacerbated to the degree 

that those operations are transferred to countries that use energy sources that 

are more carbon-intensive.

• Underestimated Impact of Climate Change. The impacts of climate change 

legislation on the food processing industry and transportation infrastructure, including the impacts of GHG mitigation policies, have not been studied adequately. A full review of the benefits and costs of carbon tax and cap-and-trade 

programs should be undertaken. In a high-volume, low-margin business like the 

one in which our members operate, domestic production can quickly move to foreign competitors, at the expense of U.S. production and jobs. If implemented in 

an aggressive or reckless manner, either a carbon cap-and-trade or carbon tax 

program would have disastrous economic consequences on the U.S. oilseed processing industry. Either program would result in food, feed, and renewable fuel 

prices increasing to such a degree that the industry could not absorb the associated costs, rendering the oilseed processing industry much less competitive on 

exports to foreign markets.

For these critical reasons, NOPA opposes any unilateral climate-related legislation that calls for either a carbon tax or a mandatory cap on GHG emissions. 

We do not believe sufficient effort has been put towards the development of voluntary initiatives that provide the framework for effective, voluntary, progrowth, technology-driven approaches to reduce energy use, and thereby achieve 

GHG reductions in an economically sound manner. We believe that global GHG 

emissions are best addressed through voluntary initiatives, as well as through 

increased research, development and deployment of innovative breakthrough 

technologies. NOPA and its members are focused on solutions that will continue 

to promote U.S. agriculture and the food, feed, and renewable fuels industry.

• Distribution of Allowances. Any cost of allowances for entities that emit 

more than 25,000 tons of GHGs annually would be directly added to the operating cost of each facility. One can safely assume that firms necessarily would 

need to cover added costs by passing them forward in the supply chain. This 

inevitably would impact costs for consumers, returns for processors, or a combination of both. However, there comes a point when it is no longer possible to 

pass on all such costs in a globally competitive market. Therefore, without an 

appropriate allocation of allowances, processing firms in the United States may 

not remain viable.

If a cap-and-trade approach is taken, we believe it would work best—both for 

the oilseed processing industry and all energy-intensive sectors—if allowances 

are distributed proportionately to each industry’s emissions, thereby mitigating 

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the direct and indirect impacts on all regulated industries. Such a proportionate 

allocation would be the fairest system, because it would avoid arbitrarily picking winners and losers and assist all industries in making the challenging transition to a low-carbon economy. A fair distribution of allowances would provide 

an appropriate percentage of allowances to the food, feed, and renewable fuels 

sector. It would also avoid the impression that the allowances represent subsidies to favored industries—an accusation that could subject the U.S. to World 

Trade Organization (WTO) disputes and American companies to retaliatory tariffs. We cannot demonstrate international leadership by approving GHG legislation that undermines our international credibility on trade liberalization.

• Climate Change is a Global Challenge. Climate change is a global challenge 

requiring multilateral solutions that do not shift the economic burden to agricultural production, processing, and manufacturing of food and feed products 

and renewable fuels. Rising energy costs commensurate with either a carbon 

tax or an emissions cap imposed on U.S. operations would threaten the viability 

of not only the energy-intensive, import/export-sensitive U.S. oilseed processing 

industry, but other sectors of manufacturing in the U.S., resulting in some companies facing the decision to move operations out of the country. Hence, legislation must ensure that developed and developing nations alike share responsibility for addressing climate change. Additionally, any emission reductions from 

such legislation must be verifiable and enforceable, particularly with respect to 

impacts on international trade.

• World Trade Organization (WTO) Obligations. Any U.S. carbon reduction 

program must be structured in a manner to protect our competitive advantage 

while being consistent with our international trade obligations under the WTO, 

recognizing that many of our competitors likely do not have similar policies in 

place. Structuring a program in this manner would be a huge challenge, considering our WTO commitments. Any U.S. carbon reduction program could lead to 

allocation schemes and trade mechanisms that could face WTO challenges, already a very complex problem. Designing a program/scheme to address ‘‘carbon 

leakage’’ without risking retaliation from our overseas customers would be a 

very difficult task. If the U.S. fails in this task, the current global recession we 

are experiencing could be exacerbated by a wave of international protectionism.

• Federal Preemption of Regional, State and Other Carbon Reduction 

Programs. The oilseed processing industry supports Federal preemption of all 

regional, state and other carbon reduction programs or, at a minimum, the harmonization of these climate initiatives. Any legislation that allows regions, 

states and other entities to pursue their own programs would only lead to confusion, multiple sets of record-keeping and additional expense, all of which 

would serve to undermine regulatory effectiveness, create investment uncertainty, and negatively impact U.S. competitiveness. The objective should be to 

avoid unnecessarily driving up compliance costs and making environmental 

goals even more difficult to reach. To the degree that these other climate initiatives remain, it is paramount that they be harmonized with the Federal program to eliminate the cost and chaos multiple independent systems would impose on the regulated sectors. 

Conclusion 

During these difficult economic times, it is unwise to insert additional economic 

uncertainties into an already fragile marketplace without full consideration of the 

consequences. In the event Congress acts to limit GHG emissions, a full review of 

the benefits and costs of the legislation should be undertaken. 

Thank you for allowing NOPA to share its views on global climate change legislation. We look forward to working with you and Members of the Committee in addressing the challenges and opportunities facing businesses across the country, but, 

in particular, rural businesses that serve domestic farmers and livestock and poultry producers. 

ATTACHMENT A 

Cap & Trade Legislative Proposals: Very Costly to the U.S. Oilseed Processing Industry 

The National Oilseed Processors Association (NOPA) is an important stakeholder 

in the global climate change legislative proposals that are being considered by the 

U.S. Congress. NOPA is a national trade association that represents 15 companies 

engaged in the production of food, feed and renewable fuels from oilseeds, including 

soybeans. NOPA’s 15 member companies process more than 1.7 billion bushels of 

94

oilseeds annually at 65 plants located throughout the country, including 60 plants 

which process soybeans. 

Our members, as well as their customers (i.e., animal producers), have very little 

ability to pass costs on to users/consumers of their products; thus, we are very concerned with any cost impacts on our industry, including costs for allowances and 

energy price increases associated with the legislation:

• To the degree that our members can pass costs on to their customers, the result 

would be higher food prices domestically and higher prices on the products our 

members (and, in turn, our customers) export to other countries. Higher prices 

would make our industry less competitive both domestically and internationally, 

resulting in reduced revenue for both farmers and processors, loss of jobs for 

our members, and increased food/feed prices for U.S. consumers.

• To the degree that our members cannot pass on costs, they would experience 

higher operating costs at their U.S. operations, rendering them less competitive 

both domestically and internationally. The result would be reduced revenue for 

both farmers and processors and the loss of jobs for our members.

• Higher operating costs and a less competitive business environment would result in a transfer of oilseed processing and related jobs, including animal production, to other countries and a transfer, not a reduction, in global GHG emissions. In fact, the climate change problem would be exacerbated to the degree 

that those operations are transferred to countries that use energy sources that 

are more carbon intensive.

Following are some of the highlights of NOPA’s cost analysis (see attached)

• In the near term (2015–2019) NOPA members will spend an estimated $790 

million on allowances and additional energy costs to operate their plants—

that’s about $2.6 million per plant over that time period in additional annual 

operating costs.

• In the moderate term (2020–2024) NOPA members will incur an estimated $1.1 

billion on allowances and additional energy costs to operate their plants—

that’s about $3.7 million per plant in additional annual operating costs.

• In the near-to-moderate term (2015–2024) NOPA members will incur nearly 

$1.9 billion in additional costs.

October 2009

ATTACHMENT

10/13/2009

NOPA Estimates of Costs to NOPA Member Companies Associated with Global Climate Change (GCC) 

Legislation: Costs Due to CO2 Allowances and Increased Energy Prices ($1,000s) a b

Year 

2015 2020 2030 2040 2050

CO2 Allowances cde 90,066 114,629 188,319 302,949 507,644

Natural Gas c f 41,106 54,808 78,787 126,744 184,977

Fuel Oil c f 681 795 1,305 2,100 3,348

Electricity f 25,500 51,000 71,400 114,750 155,550

Total 157,353 221,232 339,811 546,543 851,519

$/bushel 0.09 0.13 0.20 0.32 0.50

aSubject estimates are based on 1.7 × 109 bushels of soybeans crushed/year from NOPA Statistics (Crush) Reports for NOPA Fiscal Year 2007–2008. bSubject estimates are based on fuel use and electricity utilization estimates for a hypothetical 

soybean processing plant from a 19 January 2009 NOPA submittal to the United Soybean Board 

with recommendations on updating of a National Renewable Energy Laboratory (NREL) database 

for soybean processing (electricity input: 1,500 kWh/1000 bushels of soybeans; heat input: 31 

MMBTU/1000 bushels of soybeans, including 65.5% from natural gas/landfill gas, 0.5% from #2 

fuel oil, 1% from #6 fuel oil and 33% from coal/biomass). cFossil fuel heat contents used in the subject estimates (1.01 MMBTU/1,000 CF of natural gas; 

18.60 MMBTU/ton of coal; 5.85 MMBTU/bbl of fuel oil) are from a May 2009 ‘‘Average Heat Content of Fossil-Fuel Receipts’’ issued by the U.S. Energy Information Administration. d Emission factors used in estimating greenhouse gas emissions from the burning of fossil fuels 

(0.0545 kg CO2/CF of natural gas; 2,106.9 kg CO2/metric ton of coal; 426.1 kg of CO2/bbl of #2 fuel 

oil; 495.4 kg of CO2/bbl of #6 fuel oil) are from USEPA’s 2009 GHG ‘‘Fast Facts.’’

95

ePrice of CO2 allowances used in estimating costs for 2015, 2020, 2030, 2040 and 2050 ($22, 

$28, $46, $74 and $124/ton, respectively) are from a May 2009 report by CRA International entitled ‘‘Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 

2454).’’ f Increased prices in 2015, 2020, 2030, 2040 and 2050 for natural gas ($1.20/MMBTU, $1.60/ MMBTU, $2.30/MMBTU, $3.70/MMBTU and $5.40/MMBTU, respectively), fuel oil ($0.12/gal, 

$0.14/gal, $0.23/gal, $0.37/gal and $0.59/gal, respectively) and electricity ($0.01/kWh, $0.02/kWh, 

$0.028/kWh, $0.045/kWh and $0.061/kWh, respectively) used in estimating costs are from a May 

2009 report by CRA International entitled ‘‘Impact on the Economy of the American Clean Energy and Security Act of 2009 (H.R. 2454).’’

ATTACHMENT B 

December 2, 2009

Hon. TIM HOLDEN, Chairman,

Subcommittee on Conservation, Credit, Energy, and Research, 

Committee on Agriculture, 

Washington, D.C.

Hon. BOB GOODLATTE, Ranking Minority Member,

Subcommittee on Conservation, Credit, Energy, and Research, 

Committee on Agriculture, 

Washington, D.C.

Dear Chairman Holden and Ranking Member Goodlatte:

On July 20, 2009, we sent the attached letter to Senators Boxer and Inhofe, to 

inform them of the views of our coalition of food, feed, ingredient, beverage, and consumer product processors, manufacturers, distributors, and retailers on prospective 

climate change legislation. As industries which provide abundant and affordable 

food and essential consumer goods to all Americans, we felt it necessary to inform 

you via today’s letter of our concerns with climate change policies that could have 

direct and indirect impacts on the cost of food, feed, and household products. 

We have carefully followed the draft legislation released as a Chairman’s mark 

by Senator Boxer. We do recognize and appreciate positive steps in certain areas, 

specifically the ability of a wider array of methane projects to qualify as offset opportunities. We are disappointed, however, that the draft legislation does not adopt 

any preemption or harmonization provisions, an omission that could result in additional Clean Air Act regulation of sources that already are subject to the emissions 

cap contemplated in this legislation. 

As we have stated before, the facilities represented by this coalition emit roughly 

two percent of the nation’s greenhouse gases (GHGs), but are especially vulnerable 

to indirect costs. Consumers of the products we produce could be negatively impacted by climate change legislation that significantly increases our energy, transportation, regulatory, and commodity costs. In our view, Congress should take care 

to avoid adverse impacts on food security, prices, and accessibility. 

While we have a number of concerns with the draft legislation, three issues in 

particular are paramount as the Congress continues to modify the bill:

• Allowances—It is critical that any legislation provide allowances to the manufacturers, distributors, and retailers of food, feed, and household products. The 

distribution of allowances should be based upon an industry’s historic emissions, and additional allowances should be distributed to reflect reductions in 

emissions between 2000 and 2012. Our industry will be at a significant economic disadvantage to other industries and our competitors around the globe 

unless the legislation fairly distributes allowances pro rata across all industrial 

sectors. While food and beverage producers account for 1.21% of the nation’s direct GHG emissions (Carbon Risks and Opportunities in the S&P 500 at 12), 

if cap-and-trade legislation is approved, our manufacturers will be more affected 

by it than this modest figure suggests. All members of the food supply chain 

are disproportionately vulnerable to indirect costs passed through by suppliers. 

When considering the total GHG emissions from each sector, including suppliers, the food, feed, and beverage sector has the fourth largest exposure to carbon costs—more than the chemical, retail, basic resources, and automobile and 

parts sectors. (Carbon Risks and Opportunities in the S&P 500 at 13).

• Preemption—Comprehensive climate change legislation should preempt or, if 

necessary, harmonize state and regional climate change programs. In addition, 

comprehensive climate change legislation should explicitly preempt EPA regulation under the Clean Air Act, including EPA’s authority to issue New Source 

96

Performance Standards for sources that emit between 10,000 and 25,000 tons 

of CO2e/year and requirements that certain sources be subject to Prevention of 

Significant Deterioration and Title V permitting. Exposing industry to additional regulation from either EPA or states and regions will yield little additional environmental benefit but could result in significantly higher costs.

• Offsets—Our organizations believe a viable offset system is essential to achieve 

cost containment, as demonstrated by recent EPA and CBO economic analyses. 

We urge the Committee to work with the food industry and our partners in agriculture and forestry to create an offset scheme that balances the need for affordable offsets with the need for productive land. In particular, we urge the 

Committee to devise an offset system that limits the retirement of frequently 

cultivated cropland. Sound climate change legislation should not pit our climate 

security needs against our food security needs.

We believe these issues will have a profound impact on the international competitiveness of our industry and our ability to provide U.S. consumers with abundant 

and affordable products. We would be pleased to discuss these or other issues related to climate change legislation with you or your staff in greater detail. 

Sincerely,

American Bakers Association; 

American Feed Industry Association; 

American Frozen Food Institute; 

American Meat Institute; 

Corn Refiners Association; 

Grocery Manufacturers Association; 

Institute of Shortening and Edible Oils; 

International Dairy Foods Association; 

National Chicken Council; 

National Council of Farmer Cooperatives; 

National Grain and Feed Association; 

National Meat Association; 

National Renderers Association; 

National Oilseed Processors Association; 

National Turkey Federation; 

North American Millers’ Association; 

Pet Food Institute; 

Snack Food Association. 

ATTACHMENT

July 20, 2009

Hon. BARBARA BOXER, Chairman,

U.S. Senate Committee on Environment and Public Works, 

Washington, D.C.

Hon. JAMES M. INHOFE, Ranking Minority Member,

U.S. Senate Committee on Environment and Public Works, 

Washington, D.C.

Dear Chairwoman Boxer and Ranking Member Inhofe:

As a coalition of food, feed, ingredient, beverage, and consumer product processors, manufacturers, distributors, and retailers, we respectfully provide you with 

our perspectives as your Committee begins consideration of climate change legislation, and how such legislation may impact providing abundant and affordable food 

and necessary consumer goods to all Americans. Specifically, as you develop climate 

legislation, we urge you to consider the direct and indirect impacts on the cost of 

food, feed, and household products. 

Our facilities emit roughly two percent of the nation’s greenhouse gases, but we 

are disproportionately vulnerable to indirect costs. As a result, poorly designed climate legislation could significantly increase the price of food and other household 

products. In particular, poorly designed climate legislation could significantly increase energy, transportation, regulatory, and commodity costs. These are paramount considerations Congress must consider and prioritize among the issues it addresses. Congress must take extreme care to avoid adverse impacts on food security, 

prices, safety, and accessibility to necessary consumer products. For this reason, we 

have joined together to represent the views of this vital segment of our economy as 

Congress debates this important issue. 

97

If a cap-and-trade approach is taken, we believe that climate legislation should 

embrace the following principles:

• Allowances—The distribution of allowances should be based upon an industry’s historic emissions and additional allowances should be distributed to reflect early action reductions in emissions between 2000 and 2012. Although we 

are an energy-intensive industry, H.R. 2454 fails to provide allowances to the 

manufacturers, distributors or retailers of food, feed, or household products and 

fails to provide transition assistance to low-income households struggling with 

rising food prices. Thus, our industry will be at a significant economic disadvantage to other industries unless the legislation fairly distributes allowances pro 

rata across all industrial sectors.

• Threshold—If a cap is adopted, EPA should not be authorized to lower the 

threshold for the cap in the future, or use the Clean Air Act to regulate greenhouse gas emissions from sources beneath that threshold. Capturing facilities 

emitting between 10,000 tons and 25,000 of CO2e/year would more than double 

the number of facilities subject to regulation, but only increase the share of 

emissions subject to regulation by 1⁄2 of 1 percent, according to EPA.

• Offsets—A viable offset system is essential to contain costs. Food processors, 

farmers, forest landowners, and others should be permitted to generate offsets, 

including efforts to capture methane either on the farm or through modifications to wastewater systems, to reduce the cost of allowances without unnecessary limitations on the quantity of available offsets. No distinction should be 

drawn between the use of domestic and international offsets, and no restrictions 

should be placed on the use of offsets by covered facilities. A well designed offset 

system should strike a balance between the need for affordable offsets and the 

need for productive farmland.

• Preemption—Comprehensive climate legislation should preempt or, if necessary, harmonize state and regional climate programs. In addition, comprehensive climate legislation should explicitly preempt EPA regulation under the 

Clean Air Act, including EPA’s authority to issue New Source Performance 

Standards for sources that emit between 10,000 and 25,000 tons of CO2e/year.

• Trade—Climate legislation should be contingent on Senate ratification of an 

international commitment to reduce greenhouse gas emissions that includes all 

major sources of emissions and should not authorize the Administration to place 

border measures on goods imported from other nations that do not have equally 

stringent limits on GHG emissions. In general, climate legislation should be designed to comply with our trade obligations. We should not demonstrate global 

climate leadership by undermining our commitment to global trade.

In addition, we believe that Congress should carefully consider the cost of allowances between 2020 and 2050, resolve tax treatment questions raised last month by 

the Joint Committee on Tax, resolve the regulation of any futures or derivatives 

markets that arise as a result of climate legislation, and make significant financial 

incentives available for energy efficiency. 

As you develop climate legislation, we urge you to carefully consider its impact 

on the price of food and household products. We believe that H.R. 2454 will increase 

food and feed prices and reduce the international competitiveness of our businesses, 

and look forward to working with you to craft climate legislation that reduces greenhouse gas emissions but which also ensures a safe and affordable supply of food. 

Sincerely,

American Baking Association; 

American Feed Industry Association; 

American Frozen Food Institute; 

American Meat Institute; 

Grocery Manufacturers Association; 

Institute for Shortening and Edible Oils; 

National Chicken Council; 

National Council of Farmer Cooperatives; 

National Grain and Feed Association; 

National Meat Association; 

National Oilseed Processors Association; 

National Turkey Federation; 

North American Millers’ Association; 

Pet Food Institute; 

Snack Food Association.

98

SUBMITTED REPORT BY HON. JOHN A. BOCCIERI, A REPRESENTATIVE IN CONGRESS

FROM OHIO


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SUBMITTED REPORT BY HON. TIMOTHY J. WALZ, A REPRESENTATIVE IN CONGRESS

FROM MINNESOTA


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SUBMITTED REPORT BY JOE L. OUTLAW, PH.D., CO-DIRECTOR, AGRICULTURAL AND

FOOD POLICY CENTER; PROFESSOR AND EXTENSION ECONOMIST—

FARM MANAGEMENT AND POLICY, DEPARTMENT OF AGRICULTURAL ECONOMICS, 

TEXAS A&M UNIVERSITY


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Æ


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