Congress is currently debating climate legislation which could affect the U.S. agriculture and forestry sectors. In June 2009, the House passed H.R. 2454 , the American Clean Energy and Security Act of 2009. In November 2009, the Senate Committee on Environment and Public Works completed markup of S. 1733 , the Clean Energy Jobs and American Power Act, by approving a "Manager's Amendment" as a substitute, and ordered S. 1733 reported. Both the House-passed and the Senate-reported bills would establish cap-and-trade systems to regulate greenhouse gas (GHG) emissions, as well as address energy efficiency, renewable energy, and other energy topics. Both bills would require major reductions in GHG emissions from entities comprising roughly 85% of current U.S. GHG emissions. Covered sectors would include electricity production, natural gas distribution, petroleum refining, and specific industrial sectors. These and related bills and issues are currently being debated in Congress. For more detailed information see CRS Report R40896, Climate Change: Comparison of the Cap-and-Trade Provisions in H.R. 2454 and S. 1733 . Numerous studies have attempted to estimate the economic effects of potential climate legislation currently being considered by Congress. These studies have examined both the economy-wide effects, as well as the effects to specific sectors, such as the U.S. agriculture and forestry sectors. Some of these studies have also examined the potential market and industry effects from the proposed climate legislation, including possible resource shifts such as land use conversions and related crop production changes. Some studies further examine the potential economy-wide market effects, such as possible changes to retail food prices and supplies. This first section of this report describes results from some of the studies and discusses limitations and uncertainties associated with the economic models and their results. The second and third sections examine two particular concerns raised by the modeling results, involving (1) lands converted from agriculture to forestry, and (2) potential unequal opportunities and costs of carbon markets in various sectors of the agricultural community. The final section provides some conclusions. The leading House and Senate climate proposals would not require GHG emission reductions in the agriculture and forestry sectors. However, provisions in these bills could potentially raise farm costs for energy, fertilizers, and other production inputs, while also providing opportunities for additional farm income. These potential effects have been estimated by various governmental agencies, including the U.S. Department of Agriculture (USDA) and the U.S. Environmental Protection Agency (EPA), as well as by several universities and farm industry groups. Many of these studies examine the possibility that higher costs may be alleviated by possible farm revenue increases from other provisions of the bills. Primarily, higher costs might be countered by possible revenues for farmers who participate in carbon offset programs. Costs might also be balanced by tradable allowances that could be provided at no cost to certain agricultural industries, such as fertilizer manufacturers. In addition, the renewable energy provisions in these bills could potentially expand the market for farm-based biofuels, biomass residues, dedicated energy crops, and other renewable energy production. Both bills also provide incentives for international forestry and related land-based activities. This section describes these analyses in some detail and puts their results in perspective by discussing limitations and uncertainties inherent in all models, as well as constraints specific to the EPA and USDA studies. The principal reports on the economic effects for the U.S. agriculture and forestry sectors were conducted by EPA and USDA: EPA studies: The United States Environmental Protection Agency's Analysis of S. 1733 in the 111th Congress, the Clean Energy Jobs and American Power Act of 2009, October 2009; and The United States Environmental Protection Agency's Analysis of H.R. 2454 in the 111th Congress, the American Clean Energy and Security Act of 2009 , June 2009. USDA studies: The Impacts of the American Clean Energy and Security Act of 2009 o n U.S. Agriculture , December 18, 2009; and A Preliminary Analysis of the Effects of H.R. 2454 on U.S. Agriculture, USDA , July 22, 2009 . The core modeling work underlying these analyses relies on a version of a longstanding economic and market model, called the Forest and Agriculture Sector Optimization Model (FASOM) with Greenhouse Gases (FASOMGHG). An overview of this model is provided in the text box below. Both studies took a comprehensive approach to assess the potential costs and economic effects of the legislative proposals. EPA conducted its review of the potential economic effects of the energy and climate legislation throughout the U.S. economy, including the agriculture and forestry sectors. USDA also conducted analyses of the effects to agricultural producers from expected higher production and input costs under the legislation, expanding on some of the simulation results generated by EPA and further disaggregating some of the estimated effects to the farming sector. In addition to the USDA and EPA analyses, several other groups, including universities, non-governmental organizations, industry groups, and other advocacy groups also have published studies and estimates. Many have focused specifically on the economic effects on the agricultural and forestry sectors. A list of these studies is provided in Appendix A . These economic studies show a wide range of possible effects, often with conflicting conclusions. The EPA and USDA studies generally concluded that the overall economic costs of the proposed climate legislation to farmers and landowners would be "modest" and that "agriculture will benefit from energy and climate legislation if it includes a robust carbon offset program and other helpful provisions." Indeed, both the USDA and EPA studies indicate that the U.S. agricultural sectors—in aggregate—would experience net economic gains , since farm revenues generated by participating in carbon offset programs would more than counter the potentially higher production costs resulting from higher energy and energy-based input costs. The USDA analysis further considered the possibility that increases in farm production costs would be mitigated by freely distributed tradable allowances (akin to currency) to U.S. fertilizer manufacturers under the legislative proposals' allowances for "energy-intensive and trade-exposed" industries. Both EPA and USDA projected economic gains from the possible resource shifts in changing agricultural markets, including land use conversions and related crop production and market changes. In particular, the results showing substantial possible conversion of cropland to forestland under a carbon offset program have stirred some controversy in the agricultural community. (This is discussed further under "Potential Land Conversion," below.) Almost all of the studies predict that energy costs would rise under a GHG cap-and-trade system, though the estimated magnitudes vary widely. Several studies also examine the potential harm to the U.S. agriculture sectors from climate change, absent policy changes designed to mitigate such effects, as part of efforts to evaluate the possible economy-wide benefits of climate change legislation. (See Appendix B . ) The general economic conclusions of the potential for net agricultural sector gains have been supported by some additional economic studies. Various studies conclude that, despite higher energy and farm-level input costs, the expected gains to the U.S. farming sector from a cap-and-trade system will result in net benefits to the entire sector. Among the predicted gains are expected higher commodity prices, due to modest consumer response and potential short crop supplies, and alternative sources of farm revenue from increasing bioenergy demand and offset income opportunities. New markets for carbon offsets via afforestation and bioenergy crops would increasingly compete for available land, raising farmland values. Also, producers shifting land out of crop production to participate in biofuels or carbon offset markets, thus raising crop prices, would likely present additional production opportunities to farmers that might not be willing or able to participate in the emerging biofuels or carbon offset markets. These benefits would generally accrue to all U.S. crop and animal producers. Nonetheless, some are worried about the possible implications for crop production, food prices, and trade. In response to concerns, USDA has indicated that it would re-examine its model, modeling assumptions, and results regarding cropland conversion. Concerns also have been raised about the possibility that any potential benefits that might accrue to farmers in a carbon offset program may not be evenly distributed and might disproportionately favor larger-sized farming operations or farmers in certain regions. These issues, along with some additional analysis results, are discussed further throughout this report. Economic models cannot reliably predict the future. If cap-and-trade legislation eventually allows substantial use of offsets for compliance (as recent proposals would do), its potential economic impacts are diverse and debatable. The quantity and type of domestic offsets that might be available and used in a cap-and-trade system are subject to considerable uncertainty. It is difficult to estimate the supply of offsets, mainly because the supply is determined by many variables, most of which are fraught with uncertainty. These include: Mitigation potential. Mitigation potential estimates are the raw data, without economic and implementation limitations, that are inputs into models estimating offset use in a cap-and-trade program. For example, recent FASOM estimates contain considerable uncertainty. Policy choices. The design and implementation of the cap-and-trade system would be critical to offset supply. Particularly relevant design choices include: which sources are covered; which types of offset projects are allowed; whether or not offset use is limited; and the degree to which set-aside allowances are allotted to activities that may otherwise qualify as offsets. Policymakers' treatment of international offsets also would have a substantial effect on domestic offset development. Technological development . The development and market penetration of low- and/or zero-carbon technologies in both covered and non-covered sectors would likely have substantial effects. These technologies could lower the costs of the cap-and-trade program, making fewer (in covered sectors) or more (in non-covered sectors) offset projects cost effective. Carbon market price.