No. 102 - Greenhouse Gas Control: Implications for Agriculture (Part 1)

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Though the science of “global warming” is far from settled,<2> policymakers at both the federal and state levels have been increasingly active in proposing legislation to cap, reduce, or capture and store greenhouse gases thought to contribute to the phenomenon. Those gases are principally carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride. The laws typically call for voluntary and mandatory emissions reporting, renewable energy requirements, explicit caps on utility emissions, incentives for capturing or “sequestering” carbon, and lower emissions from cars and trucks.

Federal Legislation

In 2002, President George W. Bush announced the Global Climate Change Initiative (GCCI), a combination of government and private voluntary initiatives focused on reducing greenhouse gas intensity (emissions per dollar of GDP) in energy production and consumption by 18 percent over the next 10 years.<3> Actual greenhouse gas emissions in any given year would depend on the economy’s performance. This approach differs from that of the Kyoto Protocol, an international agreement rejected by Congress and by Bush, which would have required the U.S. to reduce its greenhouse emissions to 7 percent below 1990 levels by the year 2012.

The GCCI directs the Department of Energy to improve the present voluntary greenhouse gas reporting system (established under Section 1605(b) of the Energy Policy Act of 1992), and the Department of Agriculture to provide targeted incentives to landowners to support voluntary actions to increase carbon storage. Deputy Secretary of the U.S. Department of Agriculture Jim Mosely, speaking at a Climate Change Workshop in November 2002, said “the concept of crediting greenhouse gas offsets fits right in with USDA’s portfolio approach to conservation, and parallels our voluntary, incentive-based programs. Last February, when President Bush announced the Global Climate Change Initiative, he said ‘we will look for ways to increase the amount of carbon stored by America’s farms and forests through a strong conservation title in the farm bill.’”<4>

On June 6, 2003, the Department of Agriculture announced it would spend $3.9 billion for agriculture and forest conservation, which it expected would “reduce greenhouse gas emissions and sequester roughly 12 million tons of greenhouse gases (measured in carbon equivalent terms) annually by 2012.”<5>

While the GCCI does not mandate an absolute reduction in greenhouse gas emissions, proposed federal legislation would. On January 9, 2003, Senators John McCain (R-Arizona) and Joe Lieberman (D-Connecticut) introduced Senate Bill 139, the Climate Stewardship Act of 2003, which would require total greenhouse gas emissions to fall to 2000 levels by the year 2025, with emission reductions starting in 2010. Beginning in 2016, more stringent caps would go into effect, requiring emissions to fall to near 1990 levels over the next decade.<6> The U.S. Senate is expected to vote on SB 139 in the Fall of 2003.

Also under consideration as part of federal energy legislation being negotiated in conference committee as this was written is a federal requirement that electric utilities rely on renewable energy sources for 10 percent of their electricity output by 2020.<7> The energy legislation also contains language requiring greenhouse gas emissions to be reported and offering credits to businesses that reduce their emissions in anticipation of a cap-and-trade regime for greenhouse gases. These provisions were part of a Democrat-written energy bill passed by the Republican-controlled Senate to avoid a Democratic filibuster and, at the time this was written, were not expected to survive conference.

State Initiatives

In their 2003 legislative sessions, 24 state legislatures considered 91 bills explicitly seeking to reduce greenhouse gas emissions.<8> According to the American Legislative Exchange Council (ALEC), approximately one-third of the bills (35) would have set voluntary or mandatory renewable energy requirements on electric utilities, 15 sought to reduce emissions from cars and trucks, 11 would cap or reduce emissions from stationary sources, six would create greenhouse gas registries, four addressed carbon sequestration, and 21 were “miscellaneous” bills.

In June 2003, Maine enacted a law aimed at reducing greenhouse gas emissions by 10 percent below 1990 levels by 2020. As reported by Myron Ebell, the law “requires Maine’s Department of Environmental Protection to convene a group of stakeholders, including environmentalist groups and at least 50 businesses that will agree to an emissions reduction plan by 2006. The law also includes a carbon sequestration program allowing credit for carbon taken up by vegetation. The cost of the law has not been estimated.”<9>

Ten states, according to ALEC, have carbon sequestration programs in place, 13 have renewable energy portfolio mandates, and three have caps on stationary sources of greenhouse gas emissions.

Costly Reductions

Reducing greenhouse gas emissions is an expensive proposition for the following reasons:

• Wind, solar, and similar renewable fuels are expensive and rarely used. In most areas of the country and for most applications, renewable energy sources are more expensive than fossil fuels, are in limited supply, or are able to produce power only intermittently, therefore requiring additional investments in energy storage, transmission, and baseline production capacity. <10>

• Higher energy prices have pervasive and negative economic effects.<11> When the prices of most commodities increase, consumers can switch to substitutes. It is much more difficult and costly, and often impossible, to find alternatives when energy costs rise.

• A rapid transition from fossil fuels to alternatives would require the premature retirement of assets worth hundreds of billions of dollars. Mines, railroads, power plants, refineries, and power lines, many built just in the past two decades, would have to be retired prematurely, at enormous cost to investors and buyers of electricity.

• Attempting to reduce greenhouse gas emissions from cars and trucks by raising corporate average fuel economy (CAFE) standards encourages more driving and less carpooling, offsetting much of the predicted gains. The social cost of higher CAFE standards--in the form of higher vehicle prices, less consumer value, and increased highway fatalities due to lighter vehicles--is estimated to be 50 times greater than the cost of simply raising gasoline taxes.<12>

For these reasons, all credible studies of the cost of reducing greenhouse gas emissions by more than trivial amounts project very large costs to consumers and producers. The Energy Information Administration estimated in 1998 (during the Clinton-Gore administration) that reducing U.S. carbon dioxide emissions to 7 percent below 1990 levels by 2010--the goal set forth by the Kyoto Protocol--would reduce national gross domestic product (GDP) by a staggering $397 billion, or 4.2 percent of the baseline reference. The price of electricity would increase 86.4 percent and gasoline prices would increase 52.8 percent.<13>

Another study, this one produced by Mary Novak et al. for WEFA Inc., estimated that reaching the Kyoto goal would cause GDP to fall by $300 billion annually (3.2 percent of baseline GDP projections), electricity prices would rise 55 percent, and the price of home heating oil would rise 70 percent. WEFA estimated Kyoto would cause the number of jobs in the U.S. to fall 2.4 million below the baseline projection, and average annual household income would be nearly $2,700 ($3,372 in 2001 dollars) less than the baseline.<14>

The McCain-Lieberman bill, which sets more modest goals than those contained in the Kyoto Protocol, would nevertheless be quite expensive. According to the Energy Information Administration, the program would cause GDP to fall 0.7 percent (about $106 billion) below baseline projections in 2025, gasoline prices to rise by 19 cents per gallon in 2010 and 40 cents per gallon in 2025, and electricity costs to increase by 9 percent in 2010 and 46 percent in 2025.<15> Part of this expense for some people would be offset by a welfare-like system funded and managed by a Climate Change Credit Corporation.

The Energy Information Administration has also estimated the cost of the 10 percent renewable energy mandate put forward by Democrats in the U.S. Senate. Costs incurred by the power industry and passed on to consumers from 2003 - 2025 would amount to between $11.7 billion and $17.5 billion (in 2001 dollars), depending on how caps are measured and enforced.<16> Using less-optimistic assumptions, EIA estimated the cost could be as high as $37 billion.

States trying to reduce emissions on their own would incur costs much higher than those calculated for national programs. According to a February 2003 report by Joseph Bast (one of the authors of this study), James Taylor, and Jay Lehr, state programs will typically cost 10 times as much per ton of carbon dioxide equivalent reduced as a national program would cost.<17> State programs are so much more expensive than a national program because lowest-cost emission reduction opportunities would be beyond the reach of state programs; businesses and residents would move to nearby states with lower energy costs or less burdensome regulations (causing what economists call “leakage”); and states would have to rely on costly command-and-control regulatory approaches.

According to Bast, Taylor, and Lehr, the average state government would have to spend approximately $530 million a year ($55/ton) to implement a comprehensive greenhouse gas program and would lose $2.6 billion a year in revenues, for a total annual cost of $3.2 billion. This is a staggering 28.6 percent of an average state government’s revenues.

Consumers and businesses in an average state would pay some $21.8 billion a year more for goods and services due to the higher cost of energy and migration of businesses and commerce to other states and countries. The cost to the average household could be $10,000 a year, two or three months of take-home pay for a middle-income working couple. For low-income families and senior citizens on fixed incomes, such an expense would mean not being able to meet basic needs for food, medicine, and shelter without public assistance. For these households, a greenhouse gas control program could mean hunger, going without needed prescription drugs, and losing one’s home.

Little or No Benefit

For all the pain greenhouse gas control programs would impose, they would produce little or no benefit either to humans or to other life forms because carbon dioxide--which accounts for about 60 percent of human greenhouse gas emissions--is not a pollutant in the traditional sense of being harmful to living creatures. It occurs naturally in the atmosphere and is the principal food supply for plants. About 94 percent of a plant’s dry weight is derived from CO2.

Higher levels of CO2 in the air promote plant growth, what scientists call the “fertilizing effect.”<18> The result is a boon for agriculture as well as forests and wildlife. “Agricultural economists studying the relationship of temperatures and CO2 to crop yields have found not only that a warmer climate would push up yields in Canada, Australia, Japan, northern Russia, Finland, and Iceland, but also that the added boost from enriched CO2 fertilization would enhance output by 17 percent,” writes Thomas Gale Moore.<19> Reducing CO2 levels, then, is likely to slow down improvements in crop yields.

Another reason reducing CO2 emissions is likely to produce little or no benefit is because even deep cuts in emissions are unlikely to have much effect on the global climate. Annual human emissions of carbon dioxide are minuscule relative to the amount of CO2 already in the atmosphere, and once released, CO2 can remain in the atmosphere for approximately 100 years. If all the developed countries on Earth reduced their emissions to 5 percent below 1990 levels by the year 2012--the goal of the Kyoto Protocol--the theoretical warming in the year 2100 would be reduced by a mere 0.14°C, the same as postponing warming by only six years (from 2100 to 2106).<20>

According to a recent and authoritative review of current literature, if left unaddressed, by 2060 global warming is likely to have a small (0.2 percent of GDP) positive effect on the U.S. economy and a small (1 to 2 percent of GDP) negative effect on the global economy.<21> The positive effects come from lower prices for food and forest products, lower energy and construction costs, and lower mortality and morbidity rates. After discounting for the fact that any hypothetical benefits from emission reductions would begin to occur 50 years or more into the future, the benefit of reducing emissions today is an order of magnitude less than the cost.<22>

Biological Carbon Sequestration

Partly in response to the high price of reducing greenhouse gas emissions, attention has lately shifted to programs that reward farmers and foresters for increasing the amount of carbon dioxide their crops and trees remove from the air and store in soil or harvested products.

Nebraska’s carbon sequestration program, adopted in 2000, is typical of, and a model for, other agricultural states. It established a Carbon Sequestration Advisory Committee with funding from the Nebraska Agricultural Policy Task Force, the Nebraska Corn Board, and the Nebraska Public Power District. The committee is supposed to study agricultural sequestration possibilities and implement sequestration-maximizing agricultural practices.

Minnesota, Montana, and Oregon have programs to sequester carbon through forestation. In 1990, the Minnesota legislature concluded “trees are a major factor in keeping the Earth’s carbon cycle balanced, and planting trees and perennial shrubs and vines recycles carbon downward from the atmosphere.”<23> The legislature directed the Minnesota Department of Natural Resources (DNR) and the state’s Pollution Control Agency (PCA) to examine strategies for promoting and funding tree-planting programs.<24>

The DNR and PCA recommended a tree-planting program for rural and urban areas to cost $13.5 million a year, to be funded largely by tax increases.<25> Funding was not approved, however, and a scaled-down tree-planting campaign is now being funded by state lottery funds and industry fees.

Montana and Oregon also have begun forestation programs similar to Minnesota’s. Montana’s program is particularly noteworthy in that the state will pay private landowners the cost of planting trees, in exchange for the landowners assigning the carbon-offset value of the new trees to a state-sanctioned company. This company, in turn, may sell the credits to outside entities at a future date.

One of the more ambitious biological carbon sequestration bills introduced in 2003 is California Senate Bill 701, which if enacted would put the “California Clean Air Bond of 2004” on the March 2004 ballot. The bill states in its findings that “incentives to maintain agricultural uses of land can have a positive net benefit on air quality through absorption of carbon dioxide.” If approved by voters, the state would issue $4.5 billion in bonds to finance a long list of projects aimed at improving air quality, including grants to farmers to reduce emissions or sequester more carbon in the soil.

Conclusion

Even though the science of global warming is uncertain, state and federal elected officials are rushing to enact legislation to mandate reductions in greenhouse gas emissions. Research predicts national programs would be enormously expensive, with costs measured in the hundreds of billions of dollars each year in lost income and millions of lost jobs. State programs would cost even more, since state-level programs cannot take advantage of lowest-cost reduction opportunities and suffer from “leakage”--economic development (and hence emissions) moving to other states where energy costs are lower or regulations less onerous.

Given the enormous cost and dubious benefits of greenhouse gas reduction programs, legislators can hardly be blamed for looking for less expensive alternatives. Programs to encourage biological carbon sequestration seem to fit the bill. The authors of this report do not argue against voluntary programs that focus on encouraging private efforts. States, for example, can encourage farmers to adopt conservation tillage and foresters to plant more trees for reasons other than their possible effect on global warming, such as reducing erosion and protecting watersheds. At issue, and what the next section of this report addresses, is whether farmers and foresters should be rewarded specifically for sequestering carbon.

NOTES TO PART 1

1 Joseph Bast is president of The Heartland Institute in Chicago; Dennis T. Avery, an agricultural economist, directs the Center for Global Food Issues at the Hudson Institute in Indianapolis; Alex Avery, a biologist, is Director of Research and Education at the Center for Global Food Issues; James L. Johnston is a senior fellow in regulatory affairs for The Heartland Institute and retired senior economist for Amoco; John Skorburg and Terry Francl are economists at the American Farm Bureau Federation. The authors would like to thank Carlos Stagnaro and David E. Wojick for their comments on early drafts of the manuscript. Any errors that remain are strictly the responsibility of the authors.

© 2003 The Heartland Institute. Nothing in this report should be construed as supporting or opposing any proposed or pending legislation, or as necessarily reflecting the views of The Heartland Institute.

2 A few of the many credible reports documenting the uncertainty surrounding global climate change include Vincent Gray, The Greenhouse Delusion: A Critique of 'Climate Change 2001' (Essex, UK: Multi-Science Publishing Co., Ltd., 2002); Richard S. Lindzen, Ming-Dah Chou, and Arthur Y. Hou, "Does the Earth Have an Adaptive Infrared Iris?" Bulletin of the American Meteorological Society, Vol. 82, No. 3 (March 2001), pages 417-432; S. Fred Singer, Hot Talk, Cold Science: Global Warming's Unfinished Debate (Oakland, CA: The Independent Institute, 1997); National Academy of Sciences, Decade-to-Century-Scale Climate Variability and Change: A Science Strategy, 1998; Patrick Michaels and Robert Balling, The Satanic Gases: Clearing the Air about Global Warming (Washington, DC: Cato Institute, 2000).

3 James M. Taylor, "Bush Announces Kyoto Alternative," Environment & Climate News, April 2002.

4 USDA Release No. 0482.02, November 18, 2002.

5 U.S. Department of Agriculture, USDA Targeted Incentives for Greenhouse Gas Sequestration, Fact Sheet, Release No. fs-0194.03, June 6, 2003, page 1.

6 Energy Information Administration, Analysis of S.139, the Climate Stewardship Act of 2003: Highlights and Summary, June 2003, pages 1-2.

7 Energy Information Administration, Supplement to Analysis of a 10 Percent Renewable Portfolio Standard, July 2003.

8 Kelli Kay, "Sons of Kyoto: Summary of Greenhouse Gas Legislation in the States, 2003," American Legislative Exchange Council, May 12, 2003, page 1.

9 Myron Ebell, Cooler Heads Project, Vol. VII, No. 14 (July 9, 2003).

10 Energy Information Administration, Annual Energy Outlook 2003 with Projections to 2025; Jerry Taylor and Peter VanDoren, "Evaluating the Case for Renewable Energy: Is Government Support Warranted?" Policy Analysis, Cato Institute, January 10, 2002; Robert Bradley, "Renewable Energy: Not Cheap, Not Green," Policy Analysis, Cato Institute, August 27, 1997.

11 John R. Moroney, "Energy, Carbon Dioxide Emissions, and Economic Growth," in Charls E. Walker, Mark A. Bloomfield, and Margo Thorning, eds., Climate Change Policy: Practical Strategies to Promote Economic Growth and Environmental Quality (Washington, DC: American Council for Capital Formation, Center for Policy Research, May 1999).

12 John W. Mayo and John E. Mathis, "The Effectiveness of Mandatory Fuel Efficiency Standards in Reducing the Demand for Gasoline," Applied Economics, Vol. 20 (1998), pages 211-219; Andrew N. Leit, "Short- and Long-Range Impacts of Increases in the CAFE Standard," http://www.cei.org, February 2002.

13 Energy Information Administration, Impact of the Kyoto Protocol on U.S. Energy Markets and Economic Activity, 1998.

14 Mary Novak et al., Global Warming: The High Cost of the Kyoto Protocol, National and State Impacts, 1998.

15 Energy Information Administration, Analysis of S.139, the Climate Stewardship Act of 2003: Highlights and Summary, June 2003, http://www.eia.doe.gov/oiaf/servicerpt/ml/pdf/summary.pdf.

16 Energy Information Administration, Supplement to Analysis of a 10 Percent Renewable Portfolio Standard, July 2003, Table 2, page 6. http://tonto.eia.doe.gov/FTPROOT/service/supplement.pdf

17 Joseph L. Bast, James M. Taylor, and Jay Lehr, "State Greenhouse Gas Programs: An Economic and Scientific Analysis," Heartland Policy Study #101, February 2003, page 2.

18 Sylvan H. Wittwer, Food, Climate and Carbon Dioxide (Boca Raton, FL: CRC Press, 1995); Sherwood B. Idso, Carbon Dioxide and Global Change: Earth in Transition (Tempe, AZ: IBR Press, 1989); Sherwood B. Idso, CO2 and the Biosphere: The Incredible Legacy of the Industrial Revolution (St. Paul, MN: Department of Soil, Water & Climate, University of Minnesota, 1995).

19 Thomas Gale Moore, Climate of Fear (Washington, DC: Cato Institute, 1998), page 104.

20 Tom M.L. Wigley, "The Kyoto Protocol: CO2, CH4, and Climate Implications," Geophysical Research Letter, Vol. 25, 1998.

21 Robert Mendelsohn and James E. Neumann, The Impact of Climate Change on the United States Economy (New Haven, CT: Yale University Press, 1999).

22 Stephen P.A. Brown and Hillard G. Huntington, "Some Implications of Increased Cooperation in World Oil Conservation," Economic Review, Federal Reserve Bank of Dallas, 1998.

23 Laws of Minnesota, Chapter 587, Section 2.

24 Ibid.

25 Barry G. Rabe, "Greenhouse and Statehouse: the Evolving State Government Role in Climate Change," Pew Center on Global Climate Change, November 2002, page 22.

© 2003 The Heartland Institute. Permission is granted to quote from this Heartland Policy Study, provided appropriate credit is given. Nothing in this Heartland Policy Study should be construed as reflecting the views of The Heartland Institute, nor as an attempt to aid or hinder the passage of legislation. Questions? Contact The Heartland Institute, 19 South LaSalle Street #903, Chicago, IL 60603; phone 312/377-4000; fax 312/377-5000; email think@heartland.org; Web http://www.heartland.org.