Economic Impacts of Carbon Charges on U.S. Agriculture

We evaluate the farm sector impacts that would result from implementing a system of carbon based charges on energy intensive inputs. Our emphasis is on production costs, crop acreage, commodity prices, input use, farm income, and farm welfare. The charges considered – $14, $100, and$200 per metric ton of carbon – were developed from the literature and areconsistent with reducing U.S. GHG emissions to a 1990 minus 7% level by 2010 underdifferent levels of carbon trading and developing country participation. Impacts are relatively modest for a charge of $14 per mt. Relative to baseline conditions, producer and consumer surplus decline 0.02 and 0.03 percent, respectively. Across crop and livestock commodities, price increases and production declines are all less than 1.0%. As the carbon charge increases, farm sector impacts become more pronounced and determination of whether the aggregate effect is significant or not becomes more subjective.