Carbon Trading Needs to be Transparent

If the U.S. Senate passes a cap and trade bill, it needs to be regulated so that trading of carbon credits are transparent and not subject to manipulation, members of the Senate Agriculture Committee were told Wednesday.

"If we're serious about a cap and trade system, that means we must get the trading part right," Agriculture Committee Chairman Tom Harkin (Iowa) said when he opened the hearing. He added that he is concerned about the potential for excessive speculation in carbon credits to distort their value.

Under a bill passed by the U.S. House of Representatives, emitters of greenhouse gases will have to buy offsets, which could include carbon sequestered in the soil of farms that practice no-till or on land planted to trees.

Gary Gensler, chairman of the U.S. Commodity Futures Trading Commission (CFTC), told the panel that the CFTC already has experience monitoring the trading of offsets for sulfur dioxide, a regulated byproduct of coal burning that causes acid rain. And the CFTC monitors trading of carbon credits under a voluntary program run by the Chicago Climate Exchange. For a carbon market to work properly, Gensler said, it will need 5 things: uniform standards, record keeping, oversight of trade, clearing of the trades and prevention of fraud.

Republican members of the agriculture committee remain skeptical that benefits from carbon trading will offset increased input costs for farmers.

"We are asking our farmers and ranchers to bear the burden of this," said former Agriculture Secretary Mike Johanns, now a Senator from Nebraska. "I think it is a given that they will pay higher input costs."

Johanns said at one point that hog producers in his state are saying they are 30 days from going out of business after suffering more than a year of the effects of depressed pork prices and, until recently, high feed costs.

Timothy Profeta, head of the Nicholas Institute for Environmental Policy Solutions at Duke University in Durham, N.C., told the panel that he, too, knows the struggles of the hog industry but that the effects of carbon trading on feed costs would be nothing like the speculative increase in feed costs of last year.

"The market remains the best way to achieve environmental goals at the lowest cost," he said.

The Institute helped write a new analysis of the effects of the House cap and trade bill on agriculture and concluded that nearly all types of agriculture would benefit from the bill, mainly from increasing crop prices and land values as some land is planted to trees.

But the committee's ranking member, Sen. Saxby Chambliss (Ga.) cited another study by Texas A&M that showed most producers outside of the corn belt would gain little from cap and trade legislation.

The study looked at how the House bill would affect 98 representative farms and ranches across the United States.

"The study says that 71 of 98 farms will be worse off under the House cap and trade plan, even in the early years of the program," Chambliss said. "Most concerning, the 27 farms that benefit do so only because other producers go out of business. Not one rice farm or cattle ranch benefits, while only one cotton operation and one dairy benefit mainly due to the fact that they both grow a significant amount of feed grains."

Reprinted in part from Successful Farming