Effects of the Energy Innovation and Carbon Dividend Act on U.S. and Global Agricultural Markets

Jerome Dumortier, Amani Elobeid
January 2020  [20-WP 598]

We use a global agricultural outlook model to analyze changes in agricultural production,prices, trade, and greenhouse gas (GHG) emissions from land-use change triggered by a carbon tax in the United States. The carbon tax scenario is consistent with proposed U.S. legislation starting at $15 t-1 CO2-equivalent (CO2-e) and increasing annually by $10. The scenario covers carbon taxes from $15 to $105 over the 10-year projection period. Our results show that at the end of the projection period, the production cost for corn and soybeans increases by 16.4% and 11.9%, respectively at a carbon tax of $105 t-1 CO2-e. The increase in the cost of production is compensated in part by a slight increase in commodity prices and a contraction in area. Hence, the decrease in net returns for corn, soybeans, and wheat is 7.4%, 4.2%, and 8.0%,respectively, for the highest carbon price. Exports from the U.S. decrease for all commodities except rapeseed and wheat which experience an increase by 1.4% and 0.1%, respectively. Corn and soybean exports decrease by 5.0% and 0.8%, respectively. These changes in trade patterns also result in a re-allocation of land-use in the rest of the world leading to a slight increase in GHG emissions representing 0.6% of total U.S. emissions in 2017. It is important to note that our study only covers one particular sector of a carbon tax and the increase in emissions is small compared to the overall projected reduction.

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