U.S. Department of Agriculture: Agricultural Research Service, Lincoln, Nebraska
Date of this Version
7-22-2009
Abstract
USDA performed a preliminary economic analysis of the impacts of House-passed climate legislation, HR 2454, on U.S. agriculture. The analysis assumes no technological change, no alteration of inputs in agriculture, and no increase in demand for bio-energy as a result of higher energy prices. Therefore, it overstates the impact of the climate legislation on agriculture costs in the short (2012-18), medium (2027-2033), and long-term (2042 to 2048). In USDA’s analysis, short-term costs remain low in part because of provisions in HR 2454 that reduce the impacts of the bill on fertilizer costs. In fact, the impact on net farm income is less than a 1% decrease. In the short run, agricultural offset markets may cover these costs. Over the medium-term and long-term, costs to agriculture rise but remain modest (3.5% and 7.2% decreases in net farm income, respectively). However, benefits to agriculture from an offsets market rise over time and will likely overtake costs in the medium and long term. Other studies that account for the impact of higher energy prices on input substitution and demand for bio-energy find that HR2454 leads to higher agricultural incomes, even without offsets. In summary, USDA’s analysis shows that the agricultural sector will have modest costs in the short-term and net benefits – perhaps significant net benefits – over the long-term.