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Implications of a Carbon-Based Energy Tax for U.S. Agriculture

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  • Schneider, Uwe A.
  • McCarl, Bruce A.

Abstract

Policies to mitigate greenhouse gas emissions are likely to increase energy prices. Higher energy prices raise farmer costs for diesel and other fuels, irrigation water, farm chemicals, and grain drying. Simultaneously, renewable energy options become more attractive to agricultural producers. We consider both of these impacts, estimating the economic and environmental consequences of higher energy prices on U.S. agriculture. To do this we employ a price-endogenous agricultural sector model and solve that model for a range of carbon-tax-based energy price changes. Our results show mostly positive impacts on net farm income in the intermediate run. Through market price adjustments, fossil fuel costs are largely passed on to consumers. Additional farm revenue arises from the production of biofuels when carbon taxes reach $30 per ton of carbon or more. Positive environmental benefits include not only greenhouse gas emission offsets but also reduced levels of nitrogen leaching.

Suggested Citation

  • Schneider, Uwe A. & McCarl, Bruce A., 2005. "Implications of a Carbon-Based Energy Tax for U.S. Agriculture," Agricultural and Resource Economics Review, Cambridge University Press, vol. 34(2), pages 265-279, October.
    • Handle: RePEc:cup:agrerw:v:34:y:2005:i:02:p:265-279_00
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    References listed on IDEAS

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    1. Uwe Schneider & Bruce McCarl, 2003. "Economic Potential of Biomass Based Fuels for Greenhouse Gas Emission Mitigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 24(4), pages 291-312, April.
    2. Puppim de Oliveira, J. A., 2002. "The policymaking process for creating competitive assets for the use of biomass energy: the Brazilian alcohol programme," Renewable and Sustainable Energy Reviews, Elsevier, vol. 6(1-2), pages 129-140.
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    6. Alig, Ralph J. & Adams, Darius M. & McCarl, Bruce A., 1998. "Impacts Of Incorporating Land Exchanges Between Forestry And Agriculture In Sector Models," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(2), pages 1-13, December.
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    12. Harry S. Baumes & Bruce A. McCarl, 1978. "Linear Programming And Social Welfare: Model Formulation And Objective Function Alternatives," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 26(3), pages 53-60, November.
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    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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