Agriculture and Climate Change: Promoting Sensible Legislation for a Green Economy

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1 Agriculture and Climate Change: Promoting Sensible Legislation for a Green Economy Rick Tolman CEO National Corn Growers Association February 8, 2010

2 Overview Making More with Less Cap and Trade Study Legislative Stance Clean Energy from Agriculture

3 The 2009 Corn Crop Setting Records, Meeting Challenges

4 A Late Planting in 2009 Percent of Crop Planted Source: USDA Weekly Crop Progress Reports

5 An Even Later Harvest in 2009 Percent of Crop Harvested Source: USDA Weekly Crop Progress Reports

6 The 2009 Corn Crop Acres Planted Acres Harvested Average Yield Bushels Produced Total Supply Average Price Crop Value 86.5 million 79.6 million bu/a* 13.2 billion* 14.8 billion* $3.70 /bu $48.7 billion * Record Levels! Source: USDA, 1/12/2010

7 Where s the Crop Going? 14.8 billion bushels Source: USDA, 1/12/2010

8 Corn Acreage Thousand Acres Source: USDA, 1/12/2010

9 U.S. Corn Yield Bushels Per Acre Growers are greatly increasing production without needing to boost acres Source: USDA

10 Corn Yield Bushels per Acre Source: USDA, 1/12/2010

11 Comparing Average, Contest Yields Bushels per Acre Top Category Results from the 2009 NCGA National Corn Yield Contest

12 Corn Uses Million Bushels Source: USDA, 1/12/2010

13 A Three Year View Source: USDA 1/12/10 (billion bushels) (dollars per bushel)

14 Agriculture s Role in Climate Change

15 The Cap and Trade Study Protecting grower interests Need to create demand for increasing crop Understand implications of possible legislation

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17 Bottom Line Up Front There will be production cost implications resulting from increased energy prices that will stem from cap and trade. Yet, there will also be an opportunity for some farmers to gain despite these cost increase by participating in a carbon offsetting activity Pg 28 17

18 Energy Price Scenarios Low = EPA Basic Base = EIA Basic High = EIA No International/Limited Energy Price Impacts Cap and Trade Energy Price Impact (relative to reference case) (nominal$) Low Base High Low Base High Low Base High Carbon Price ($/mtco2e) $ $ $ $ $ $ Diesel (cents/gallon) Natural Gas ($/thous ft. 3 ) Notes EIA s reference case, basic case and high price scenarios are extended from 2030 to 2035 based on average growth rate of previous three years. Nominal dollars for the low price case, which is based off of EPA s basic case, are derived using EIA s inflation forecast. EPA only reports their forecasts in real dollars. Sources: EIA (high and base), EPA (low) 18

19 Who gets Allowances? 19

20 CORN: Cost of Production Impact Basic Scenario Sources: Informa Economics analysis; USDA, ERS production costs; DOE, EIA energy prices 20

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23 Assumed Adoption Rates 23

24 Net Revenue Impacts 24

25 Informa Land Use Change, 2035 (Heartland, N Crescent, Prairie, N Great Plains) 25

26 Conclusions Cost of Production increase will affect everyone Will domestic fertilizer manufacturers get sufficient allowances? Will imported fertilizer be taxed? Some growers may see net benefit through offsets Farmers ability/willingness to adopt continuous No till Stackability of other offsets Are offsets tied to land or producer? Contract obligations Land will be diverted to trees or perennial grasses Between 9 and 22 million acres in the Midwest will be diverted. Pasture and marginal lands will divert first

27 Principles for Greenhouse Gas Legislation 1. Agriculture must not be capped 2. Recognize wide range of carbon sequestration benefits that agriculture can provide 3. Must make economic sense for agriculture 4. USDA not EPA writes and administers rules for agriculture 5. No artificial limit on domestic offsets 6. Sequestration rates must be based on sound science 7. Must provide initial list of eligible agriculture offsets 8. Recognize early actors 9. Allow stackable credits and participation in multiple programs

28 Cap and Trade Legislation House of Representatives: H.R Senate: Stabenow Baucus Agricultural Offsets Legislation

29 H.R NCGA Opposes H.R Three Main Reasons: 1.Higher cost for all farmers 2.Offset programs limited 3.Diversion of corn acres

30 Stabenow Baucus Agricultural Offsets Legislation Includes several issues important to corn growers: 1. Includes an exemption for agriculture from a greenhouse gas emissions cap. 2. Gives USDA primary authority to design and administer an offset program for agriculture. 3. Recognizes producers in an offsets program who have been practicing no till and conservation tillage practices, regardless of when that practice began.

31 Stabenow Baucus Agricultural Offsets Legislation 4. Allows for short term offsets contracts rather than permanent easements. 5. Allows stackable credits so that farmers can receive offsets payments in addition to other conservation payments and any future ecosystem trading markets. 6. Provides a carbon incentives program with a separate source of funding for farmers who are unable or not interested in participating in an offsets market. Does not include provisions addressing land use change.

32 Solutions from Agriculture Examples

33 Ethanol: A Positive Story Reduces dependence on foreign oil Provides new markets for surplus commodities Stimulates rural economies and creates jobs Reduces green house gas emissions and provides other environmental services

34 Gas vs. Ethanol & Land Use Impact Without Land Use Change Land Use Change Source: EPA

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43 The Global Renewable Fuels Alliance released the results of a greenhouse gas (GHG) emissions study titled GHG Emission Reductions from World Biofuel Production and Use. The report concludes world biofuels production in 2009 has reduced global GHG emissions by million metric tons representing an average reduction of 57 percent compared to the emissions that would have occurred from the production and use of equal quantities of petroleum fuels. ( The study relied on a life cycle assessment approach to estimate the production and use of biofuels from cradle to grave, including acquisition of raw materials, manufacture, transport, use, maintenance and final disposal. )

44 Ethanol Boosted Direct Injection (EBDI) - Ethanol powered vehicles delivering diesel like fuel economy and gasoline like performance using dramatically downsized engines

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49 CleanFlex Power Systems, LLC Lincoln, Nebraska Combustion Blend: 85% #2 Diesel Fuel and 15% 120 proof Ethanol Engine runs significantly Cooler Engines utilize more EGR-Lowers NOx Emissions Increase Horsepower and Energy Efficiency Reduces Particulate Matter (PM) 2% fuel savings by injection advance in timing 15% efficiency gain

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51 1996 Peterbilt Caterpillar 3406E Diesel Engine Retrofitted with CFP Ethanol Fuel system Test Results Oct 12 th, Omaha Truck Center, Council Bluffs, IA.

52 Environmental Attributes CFP System s primary benefit is great reductions of NOx in properly retrofitted standard diesel engines. Offers a Carbon Neutral Flex Fuel Option utilizing Ethanol and other cleaner Alternate Fuels for Diesel Engines.

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54 Precision Farming

55 Corn s Impacts, Land Use Soil Loss Irrigation Energy Climate Amount of land to produce one bushel of corn Soil loss per bushel, above a tolerable level Irrigation water use per bushel Energy used to produce one bushel Emissions per bushel 37% 69% 27% 37% 30%

56 [*Estimated commercialization pipeline of corn biotech events prepared by the U.S. Grains Council/NCGA Commercialization dependent on many factors, including successful conclusion of regulatory process] Industry Corn Portfolio* A Steady Pipeline of Events VT Triple Pro (Monsanto) Broad Lep MIR 162 (Syngenta) Drought Tolerance (Monsanto/ BASF) Drought Tolerance (Syngenta) Improved Feed (Pioneer/DuPont) Higher Yield (Monsanto/ BASF) RW dual Mode of action (Syngenta) Nitrogen utilization (Monsanto/BASF) Nitrogen utilization (Pioneer/DuPont) Improved Feed (BASF) Novel Insect Traits (Syngenta) Agronomic Trait Quality Trait X. Corn Amylase (Syngenta) SmartStax (Monsanto/Dow) Optimum Herb. Tol. (Pioneer/ DuPont) Increased Yield (Pioneer/ DuPont) Herbicide Tol. (Dow) Triple mode Herb. Tol. (Pioneer/ DuPont) Increased Ethanol (Syngenta) Drought tolerance (Pioneer/ DuPont) Increased Ethanol (Pioneer/DuPont) Nitrogen utilization (Syngenta)

57 A formula that works for high end foodies of the Bay Area or Manhattan can't produce enough affordable food to feed the masses whether in Minnesota or Mumbai. The emerging war on agriculture threatens not only the livelihoods of millions of American workers; it could undermine our ability to help feed the world.

58 Like manufacturers and homebuilders before them, farmers have found themselves in the crosshairs of urban aesthetes and green activists who hope to impose their own Utopian vision of agriculture. This vision includes shutting down large scale scientifically run farms and replacing them with small organic homesteads and urban gardens. Troublingly, the assault on mainstream farmers is moving into the policy arena. It extends to cut offs on water, stricter rules on the use of pesticides, prohibitions on the caging of chickens and a growing movement to ban the use of genetic engineering in crops. And it could undermine a sector that has performed well over the past decade and has excellent long term prospects.

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60 Thank You! Rick Tolman, CEO National Corn Growers Association