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Cole Gustafson, Published April 24 2009

New energy economics: Agricultural implications of EPA carbon dioxide declaration

FARGO - On April 17, 2009, the Environmental Protection Agency announced that carbon dioxide (CO2) and five other industrial emissions endanger “the health and welfare of current and future generations” and is “the first formal recognition by the U.S. government of the threats posed by climate change,” according to Lisa Jackson, EPA administrator.

The EPA stated that it will proceed with a very thoughtful and open process to control the problem by conducting several public hearings, issuing draft regulations, providing opportunity for formal comment and establishing a thorough internal review process. Nevertheless, even though several years away, this policy change will lead to stricter emission limits and directly affect both consumers and a broad range of industries, such as power plants, oil refineries, automakers and cement producers.

The EPA doesn’t state that CO2 itself is the problem. CO2 is a naturally occurring gas that plants depend on for life, and mammals, including humans, exhale. Instead, the EPA is concerned about increasing concentrations of CO2.

While the EPA notes that CO2 concentrations have fluctuated during the past millennia, current concentrations are the “unambiguous result of human action” and are “well above the natural range of atmospheric concentrations of the last 650,000 years.” CO2 and the other five gases are a special concern because they are long-lived and well-mixed in the atmosphere, which traps heat that otherwise would escape the Earth’s atmosphere.

This conclusion is more aggressive than most current scientific findings. For example, the new EPA view aligns with the highly respected Intergovernmental Panel on Climate Change (IPCC) in that higher concentration levels of greenhouse gases in the atmosphere, especially CO2, result in more heat and global warming.

However, the IPCC concludes that natural variations in climate, such as solar activity, can’t explain rising global temperatures.

Two years ago, the Supreme Court ruled that CO2 is a pollutant under the Clean Air Act and that the EPA had the power to regulate it. The EPA’s new finding brings the U.S. closer to European nations that have agreed to Kyoto greenhouse gas limits and are pushing for a new international treaty at the next round of December meetings in Copenhagen.

Industries with large carbon emissions, such as coal-fired power plants, could be impacted greatly. The EPA simply could impose new regulations that would require older plants to be retrofitted with boilers that are more efficient and other emission reduction technology. An alternative, though, is President Obama’s proposal to implement a cap and trade scheme. While the overall cap would be a burden to large carbon-emitting industries, the cost of compliance could be alleviated by purchasing “credits” from firms that are able to reduce their emissions or adapt more easily.

The latter creates an important opportunity for agriculture. The sector has been identified as one with great potential for generating these credits that other industries could use as offsets. Some of the options include soil carbon sequestration that results from great use of minimum tillage, methane capture in livestock operations, improved rangeland management and increased forestation.

However, there also is a possibility that agriculture could be adversely impacted by increased EPA regulation. Fertilizers are energy intensive and could face regulation or have a cap imposed. Likewise, livestock operations have large methane emissions from either the animal itself (enteric fermentation) or waste storage facilities. Either of these types also could be controlled. Instead of having an opportunity to generate credits for use in other industries, these agricultural activities would face increased regulation and be looking to adjust or purchase needed credits elsewhere.

Gustafson is a biofuels economist with the NDSU Extension Service