Potential Implications of a Carbon Offset Program to Farmers and Landowners

Renée Johnson
Specialist in Agricultural Policy

Jonathan L. Ramseur
Specialist in Environmental Policy

Ross W. Gorte
Specialist in Natural Resources Policy

Megan Stubbs
Analyst in Agricultural Conservation and Natural Resources Policy

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. Two principal reports on the economic effects to the U.S. agriculture and forestry sectors were conducted by the U.S. Environmental Protection Agency (EPA) and the U.S. Department of Agriculture (USDA). As described by USDA, these studies generally concluded that the overall economic costs to the agricultural community of the proposed legislation would be modest. Both studies further suggested that farm revenues from carbon offsets could result in net economic gains for the U.S. agricultural sectors. Concerns have been raised regarding the results of the EPA and USDA analyses, as well as the potential effects of a carbon offset market established by a cap-and-trade system. Many in the U.S. farming community have expressed concern that these analyses estimate that 60 to 65 million acres of U.S. agricultural land could be converted to woodlands by 2050. This conversion would be the result of farmers and landowners choosing to participate in the emerging carbon markets through additional tree-planting, in response to expected high carbon prices. Some believe this could take land out of crop production, removing farmers from the business of food production, and raising food prices to consumers. In addition, some in the farming community have expressed concern that only certain landowners and agricultural producers might benefit in the carbon offset market. Some worry that only larger landowners and farmers might benefit from a carbon offset program, which could result in further industry consolidation in the farming sectors, exacerbating difficult business conditions for smaller, traditional farmers. Others worry that only certain crop producers will benefit, resulting in inequities across all crop producers. 

Given the general uncertainty about the possible outcomes of a likely regulatory process, following the still uncertain passage of climate legislation in Congress, it is not possible to definitively predict or provide a quantitative assessment of the potential implications or participation rates within a future carbon offset program. Regarding available economic modeling projections of land-use changes, many variables and factors complicate the analyses and projections of cropland conversion rates should be regarded with caution. Among the types of factors are: assumptions in the models of high and rising carbon prices that substantially influence the modeling results; missing farm-level costs, such as transaction costs associated with the future regulatory regime and possible foregone revenue from farm support programs; regional and biological variability that might not be precisely reflected in the model; possible physical capacity constraints and limitations to support substantial afforestation efforts; and possible legal and contractual constraints that might affect participation in the carbon market, given differences in the U.S. crop sectors between farmland ownership and leasing in the United States. 

The available economic models are even more limited in their ability to predict land-use changes or other potential changes under a carbon offset market, differentiating among producers and production areas. Anecdotally, the evidence about whether or not some operations and production regions might benefit more than others is mixed. Some evidence suggests that larger landowners and farming operations may have greater opportunities to participate in carbon markets, because of their economies of scale and their likely lower transactions costs compared to smaller landowners and farmers. Alternatively, smaller-sized operations might have greater opportunities to participate in carbon offset projects, because they are more likely to own their land and generally tend to be more operationally diverse, and the expected continued role of designated middlemen in generating and marketing carbon offsets. .


Date of Report: February 26, 2010
Number of Pages: 38
Order Number: R41086
Price: $29.95

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