How Might Carbon Prices and Energy Costs Affect Returns to Agricultural Producers?

Author(s): Brian Murray, Bruce A. McCarl and Justin Baker

Published: May 2009

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A report issued by Doane Advisory Services in May 2008 titled "An Analysis of the Relationship between Energy Prices and Crop Production Costs" has received recent attention as some interest groups have used it as evidence of how a U.S. federal cap-and-trade program—or any similar climate policy that creates a price on greenhouse gases (GHGs)—would negatively affect U.S. farmers. The study takes energy prices from EPA’s economic analysis of the Lieberman-Warner America Climate Security Act (S. 2191) and combines this with USDA data on input costs from the eight largest crops (by value) in the United States to gauge how the higher energy costs expected under GHG controls translate into higher farm operating costs. Higher farm operating costs are the study’s lone measure of farmer well-being, and the authors thereby imply that the economic harm to farmers equals their increased operating costs.