Nicholas Institute for Environmental Policy Solutions
February 2010

The Effects of Low-Carbon Policies on Net Farm Income

The Effects of Low-Carbon Policies on Net Farm Income

Concerns about expected increases in energy and other agricultural input costs have led some to oppose greenhouse gas cap-and-trade legislative proposals. However, these policies could result in significant revenue for U.S. agriculture, which is a potential source of low-carbon bioenergy and low-cost abatement alternatives to fossil fuel emission reductions through terrestrial sequestration, afforestation and reductions in nitrous oxide and methane emissions. It is important to simultaneously model these factors in order to properly assess the net impacts of low-carbon policies on U.S. agriculture. Existing studies of the impacts of low-carbon policies on the agricultural sector have generally not accounted for changes in production practices, demand responses, or commodity and offset revenuse. In this study, we estimate the U.S. net farm income implications of moving to a low-carbon economy. We find higher input costs, higher output prices, modest consumer response, increased bioenergy supply and offset income opportunities. On net, we find that the U.S. agricultural sector would benefit from a U.S. climate policy.