Bill Huffman
Director - Government Relations

The Friday Report

December 4, 2009

Climate change continues to dominate much of the news of interest to agriculture.  President Obama has announced that he will be attending the Copenhagen Climate talks later this month. Reports indicate the President is prepared to put on the table a U.S. emissions reduction target in the range of 17% below 2005 levels to be achieved by 2020.  If true, that tracks with the goal being set in the climate control legislation under consideration in both the House of Representatives and the U.S. Senate. We have seen nothing on what the Obama Administration will ask developing countries to commit to, especially China and India.

Meanwhile, Senate leaders have announced that debate on the Senate’s climate change legislation will not take place until spring. Some Washington, D.C. observers say debate on the bill may not occur until after the 2010 election. Senate Commerce, Science and Transportation Chairman John Rockefeller IV, D-W.Va., said that “climate change is such a difficult thing to do in any year and there’s some possibility of people saying it’s too controversial to do in an election year.”  But Senate Foreign Relations Chairman John Kerry, D-Mass, disagrees with Rockefeller’s assessment. Kerry believes the Senate will move forward with climate change legislation next spring. The debate between these two Chairmen leads one to believe that there is wide disagreement within the Democratic leadership over this hot potato issue.

House Hearing on Climate Change

The House Agriculture Subcommittee on Conservation, Credit, Energy and Research held two days of hearings this week on climate change and the impact on agriculture.  Testimony on Wednesday focused largely on potential costs and Thursday’s hearing examined potential new income for agriculture producers.

House members were largely divided along party lines with regard to the bill passed earlier by the House while the Chief Economist for USDA, Joe Glauber, tried to emphasize that, while climate legislation would increase costs to producers, those expenses would be gradual over several decades. USDA’s latest data shows that there would be “modest” increases in expenses over time, but potential income from carbon offsets and bio-energy would outstrip the increased costs. USDA is projecting that farmers could gain as much as $20 billion in additional farm income from such sources.

The House bill, the American Clean Energy and Security Act (ACES), would reduce carbon emissions 17% by 2020 and up to 83% by 2050.  The bill exempts agriculture from emission caps but creates an agricultural carbon offset program that would be run by USDA.

Despite USDA projections, most farmers are skeptical of the costs and the science behind climate change overall. Most major farm groups either oppose the legislation or are neutral.

At Wednesday’s hearing, Republicans gave a blistering review of what could be expected under the legislation. Most vocal was former Agriculture Committee Chairman Bob Goodlatte, R-Va, who said, “Cap and trade has the potential to devastate the agricultural community with higher input prices and lower farm income.” Mr. Goodlatte pointed out that tens of millions of acres could be converted from crops to forestry, causing “artificial competition between food, feed, fuel and now carbon.” 

Representative Jerry Moran, R-Kansas, said the climate bill is “the most damaging piece of legislation passed in my time in the House of Representatives as far as agriculture is concerned.” 

The House climate bill provides free pollution allowances until 2025 for “energy-intensive, trade-exposed” industries. Because of that, USDA’s analysis assumes the fertilizer industry would receive allowances related to the price of natural gas. While the analysis shows minimal cost impacts through 2025, Federal EPA studies show energy price increases of up to 14 percent by 2030 and up to 35% by 2050. That is what creates the concern of producers (and Republican members of Congress) about future costs associated with fuel, fertilizer and pesticides. These products are produced from oil and natural gas.

Analysis

After listening to and reading the testimony of USDA at the hearing, it is clear that they do not have an accurate assessment about future costs for agriculture producers. USDA has made assumptions that may or may not be valid and they have concentrated most of their efforts on Midwest agriculture, which largely is the corn, wheat and soybean belt.  We have not seen credible data from USDA specifically covering the California rice industry or many of the crops grown in this state. 

As the climate change debate continues, it is not clear if the U.S. Senate will adopt a bill any time soon. If they do pass a bill in 2010, we should remember that legislation and the bill passed by the House will have to go to a “Conference Committee” to iron out differences. That’s where an intense debate will occur that will shape the final climate control bill, if there is going to be one.

Other Legislative News

The House of Representatives voted yesterday to extend the Federal estate tax beyond the December 31st expiration date set in prior legislation. In effect, the Democratic controlled House has refused to permanently repeal the Federal estate tax that was supposed to expire at the end of this year under legislation passed in 2001. Republican’s voted against the bill as did 26 Democrats, all saying that the Federal estate tax should expire as was intended in the 2001 tax reform legislation.

The bill, sponsored by Representative Earl Pomeroy, D-N.D., would freeze the estate tax exemption and tax rate at the current level of $3.5 million exemption ($7 million for married couple) and a 45 percent tax rate.

The measure now goes to the Senate, which plans to consider its own version. The two bills would have to be reconciled, passed again by both chambers, and signed by President Obama by December 31st to avoid the tax expiring by the end of this year.

Water News

The Chico Enterprise Record reported this week that environmental groups have filed a legal challenge to water rights of some Northern California water districts. The suit claims that the 40-year contracts approved in 2005 between the Bureau of Reclamation and water districts including Glenn-Colusa Irrigation District, Princeton-Codora-Glenn Irrigation District, Provident Irrigation District, and Anderson-Cottonwood Irrigation District and others violate the Endangered Species Act.

Environmental groups including the Natural Resources Defense Council, San Francisco Baykeepers and Earthjustice filed their suit in the Federal 9th Circuit Court of Appeals contending that the contracts renewed in 2005 relied on a flawed biological opinion on the delta smelt. That biological opinion was earlier invalidated by a Federal Court and thus the suit states that the water contracts need to be re-valuated with the most recent science on the delta smelt.

Also named in the suit are water districts in the San Joaquin Valley who hold 25-year contracts with the Bureau of Reclamation, receiving their water from the delta.