Environmental Defense Fund

Committee on Agriculture, Forestry and Nutrition

United States Senate

March 5, 1998
 

Mr. Chairman and Members of the Committee:

 Thank you for extending to the Environmental Defense Fund  the opportunity to testify here today on the climate policy.  My name is Fred Krupp.  I am the Executive Director at EDF.  We are an organization of over 300,000 members around the country, with offices located in New York, Washington, California, Texas, North Carolina Colorado, and Massachusetts, and affiliated operations in the Midwest and the Pacific Northwest.

EDF's formal involvement with climate policy extends back over 15 years.  We have built an interdisciplinary team of scientists, economists and attorneys who are working to expand society's understanding of the problems associated with warming of the planet, and to develop economically sensible policies for reducing emissions of the greenhouse gases that are contributing to this warming.

Global warming will have a significant effect on American agriculture.  A growing body of work indicates that there will be noticeable regional changes, with state-specific impacts, resulting from warming of the atmosphere.  At the same time, if policies are  properly designed to reward innovation, American farmers may be able to seize opportunities to profit by reducing their emissions of greenhouse gases.  Specifically, they could earn emissions reduction credits by taking creative and entirely voluntary steps to reduce greenhouse gas emissions through improved management practices and energy efficiency.  Although the bulk of my testimony will focus on solutions, let me begin by describing some of the more negative changes that are possible.  These changes include the following:

          Elevated carbon dioxide concentrations may increase yields of some crops by enhancing photosynthesis, and by making water use more efficient.  However,  increases in the range and abundance of agriculturalpests, increases in the frequency of floods and droughts, and less predictable climate may negatively affect agricultural systems
 
         Warmer temperatures will lead to regional shifts in crop types as the length of growing season and local soil moisture conditions change.
 
         The highly productive corn and wheat belts of the Midwest and Great Plains will shift northward, as may the center of production for soybeans.  This could shift a portion of the production of these crops out of the United States and into Canada.
 
         States along the Gulf of Mexico are projected to experience significant declines in corn, wheat, soybean, and rice yields, particularly in fields that are not n- irrigated.
 
  Agricultural areas in low-lying coastal regions may be subject to saltwater intrusion and inundation resulting from sea-level rise.
 
 Throughout the United States, demand for irrigation is expected to increase as higher temperatures lead to higher rates of evaporation and lower soil moisture levels. For example, only about 10 to 15 percent of the corn and soybean crop acreage in the Southeast is irrigated currently.  Therefore, costly irrigation systems may need to be installed in this region to meet crop water needs. The ability to increase irrigation may be limited in areas such as California and Texas, where water resources are already in short supply.  In addition, climate change itself threatens existing water resources used for irrigation in those areas.
 
 Adaptations in the form of switching crops and crop varieties, improving irrigation systems and water-management, and changing planting schedules are sometimes possible, but often expensive and dependent on the availability of water resources and appropriate technologies.  Most analyses indicate that while the nation's overall food supply will probably not be threatened, there are clear and valid concerns about the impacts and disruptions that may result from regional changes, and that these potential problems add to the growing list of reasons why we should be putting in place the policy tools that can begin to deal with global warming.
 
 It is our view that delaying action to curb greenhouse gases would subject agricultural systems to more rapid warming.  This warming would also affect, and the natural ecosystems, such as watersheds, on which much of agriculture depends. In the broader U.S. economy, postponing action to reduce greenhouse gas emissions would force much steeper reductions later, with the attendant heavier economic burden.
 
 As I mentioned, EDF has put together an interdisciplinary team, of scientists, lawyers, and economists to study these problems.  Most important, this team focuses on developing practical, economically viable solutions.  We do so believing that early and significant action to reduce greenhouse gas emissions will put the nations of the world on an emissions-reduction path that could avoid these possibly damaging impacts and disruptive adaptive strategies, both for U.S. agriculture and the economy at large. In that regard, I should state that we see the Kyoto Protocol negotiated last December as a remarkable international political commitment, and as an essential first step in dealing with this most significant of global environmental problems.  While a second step, namely that of obtaining significant emissions reductions in the developing world, needs to be taken soon, a decision by the United States to forestall action would greatly increase the risk that drastic and much more expensive emissions cuts will be needed in the future.  We are hopeful that the United States and the world community will continue efforts to build on the important first step taken in Kyoto.
 
  As a part of the effort to achieve the Kyoto agreement, EDF's work most recently led to the development of a proposal for the use of emissions trading in the design of an international regime for managing greenhouse gas emissions internationally.  In EDF's view, both the position of the U.S. government and the text of the Kyoto Protocol incorporate include most of the critical elements needed to establish a successful global greenhouse-gas emissions trading program – one that can bring about important environmental benefits in an economically affordable way.
 
 To help explain the importance of market-based solutions to climate change problems, we are submitting three documents as part of my written testimony.  The first, "Emissions Budgets:  Building An Effective International Greenhouse Gas Control System", discusses in detail EDF's own proposal for the use of greenhouse gas emissions trading in an international climate regime.  The second, "The Kyoto Protocol on Climate Change:  Issues and Analysis,"  presents our preliminary analysis of the text of the Kyoto Protocol.  The third, "More Clean Air for the Buck:  Lessons from the U.S. Acid Rain Emissions Trading Program", is a report EDF issued last November on the U.S. experience to date under the Clean Air Act acid rain program, whose emissions trading mechanism offers what is perhaps the most extensive experience for anticipating how an emissions trading system for greenhouse gases might perform.  Together, these documents provide a foundation for the case that EDF would like to make here today.
 
 
 The Importance of The Market Mechanism
 
 It is EDF's view that the greenhouse gas emissions reduction objectives of the Protocol can be met in an affordable fashion through the use of the market mechanism of emissions trading, as generally incorporated in the current Protocol text.
 
 The importance of the emissions trading mechanism was explained a few weeks ago by Senator Robert Byrd of West Virginia, in a floor speech on the Kyoto Protocol.  Sen. Byrd said:
 
 "The purpose of these mechanisms is to allow advanced nations and their industries to satisfy their requirement for emissions limitations by  sharing, buying and selling credits internationally, and to fulfill part of their obligations by assisting developing nations in developing cleaner technologies and conservation.  These mechanisms are based on the environmental reality that cutting greenhouse gases anywhere on earth reduces the global concentration of greenhouse gases virtually everywhere on our planet.  It therefore makes economic sense to reduce those emissions wherever it is most cost effective to do so.  Emissions trading will allow the industrialized nations to buy and sell credits that will be created by the most cost effective reductions of greenhouse gases.  Through emissions trading, industrialized nations may transfer to, or acquire from, another country or party, emission reduction credits resulting from projects aimed at reducing greenhouse gases for the purpose of meeting its commitments under the treaty."
 
 The importance of the system Senator Byrd describes is that it will tap the creative energies of many differently situated buyers and sellers, encouraging them to engage in an unending search for ever-better ways to reduce emissions at lower and lower cost.  In short, a greenhouse gas emissions trading market first and foremost will do what markets do best:  continually drive costs down.
 
  Accordingly, the most striking result of the acid rain emissions trading program are its compliance costs, which are dramatically lower than predicted when the law was first proposed by President Bush.  One way of seeing this effect is to look at the price of emissions reductions, called allowances under the program, that are being traded today or saved for future use, as permitted under the program's emissions reduction banking provision.   Applying conventional discount factors to today's allowance prices, while assuming that allowances being banked today will be used some time during the decade between 2000 and 2010, suggests compliance costs of about $400 per ton of emissions reduced when the program is fully implemented beginning in year 2000.  Consider that, even taking into account the cost-savings potential of emissions trading, the U.S. EPA predicted that costs during this same period would be anywhere from $500 to $750 per ton, and you will see that an emissions trading market is reducing costs by 20% to 45%  from predicted levels.  The savings margin is even greater when compared with predicted compliance costs of $1,000 per ton or more in the absence of emissions trading.
 
 Right along with these cost-savings is another striking result produced by the acid rain emissions trading market.  Figure 1 illustrates the environmental performance of the acid rain market so far.  Under the program, utilities have cut their sulfur dioxide emissions by approximately 35% more than required – at least in part because the emissions trading market makes those extra reductions valuable.  This degree of overcontrol is a vivid demonstration of how powerful the incentives of an emissions
 
 
 
 Figure 1
 
 trading market can be.  These extra, early reductions obviously represent an environmental benefit beyond that provided by the required emissions reduction levels.  The same incentive power also provides the impetus for mobilizing a broad range of low-tech creativity and high-tech innovation of precisely the sort needed to reduce greenhouse gas emissions in an economically affordable way.
 
  EDF has not done its own analysis of the likely costs of compliance with the obligations of the Kyoto Protocol.  We believe that looking to experience, such as that provided by the acid rain emissions trading program, may provide the most compelling lesson of all:  that markets are both inherently unpredictable and inherently powerful in lowering cost and stimulating innovation.
 
  Accordingly, rather than simply repeat the results of analyses done by others, EDF would ask the Committee to focus on the potential interaction of a market- based policy and the immediate economic and environmental challenge the U.S. faces if it is to meet its responsibilities under the Protocol.  The approach I am about to describe not only represents an important policy initiative, but is also a perfect illustration of how the use of emissions trading will enable the U.S. to answer "yes" to the question:  can we afford to meet the greenhouse gas emissions limits established under the Kyoto Protocol?
 
 Meeting the Initial Challenge:  Using a Market Mechanism for Early Reductions
 
 Figure 2 depicts the challenge the U.S. faces in meeting the Protocol's greenhouse gas emissions requirements. This is what the economics boils down to: according to some analyses, U.S. greenhouse gas emissions could be more than 30% above 1990 levels if our economy hews to a "business-as-usual" course.  If the U.S. remains on its current course and follows the upward curve of greenhouse gas emissions shown in figure 2, then the country will be faced with the prospect of making abrupt changes in order to bring its greenhouse gas emissions down to required levels.
 
 
 
 Figure 2
 
  It is the abrupt change that threatens to inflict the greatest economic pain in the near term, increasing political resistance to compliance with the treaty's obligations and limiting the range of innovative choices our society can make in responding to the climate challenge. The upward curve poses a serious environmental risk, too.  Greenhouse gases do their damage by staying in the atmosphere for long periods of time, from decades in the case of a carbon dioxide to centuries in the case of other greenhouse gases.  That is why preventing their release in the first place is so important.  Because the Protocol's limits do not begin to kick in until 2008, however, the atmosphere faces ten more years of what could be an unchecked rise in greenhouse gas emissions of the sort shown by the upward curve.  Those continued increases in greenhouse gas emissions represent that much more warming added to the atmosphere, a warming that could occur much faster than either the natural world or human societies can tolerate.
 
 Fortunately, however, the market-based emissions trading approach embraced first by the U.S. and then by the drafters of the Protocol text offers the critical solution to this dilemma. Again, starting in 2008, the Protocol would create a world-wide market for greenhouse gas emissions reductions.  In such a market, companies and countries that could make more greenhouse gas reductions than required would be able to earn money by selling them to countries and businesses facing greater difficulty in making their own cuts.  Thus, companies will have a positive economic incentive for making extra greenhouse gas emissions reductions.
 
 An identical economic incentive system can be put in place – and put in place quickly – to stimulate businesses to begin making such greenhouse gas reductions before 2008.  Under this approach, companies that made such early reductions would be able to earn greenhouse gas emission reduction credits that they could save and use to meet their mandatory greenhouse gas emissions reduction requirements.  They could also sell them to other companies who might need them for the same purpose.  In either case, such a program would make greenhouse gas reductions achieved today or any time before 2008 financially valuable to the companies who made such reductions, in just the same way that extra reductions made after 2008 would be valuable in a greenhouse gas emissions trading market after 2008.
 
 The goal of such an early reduction program for greenhouse gases would be to achieve the same results now being produced by the acid rain program: through market forces, give businesses an economic incentive to reduce their greenhouse gas emissions before they have to.  At the same time, such a program could be strictly voluntary.  Paralleling the exact design of the acid rain program, figure 3 shows how such a program can be designed.  Participants who chose to join the program would agree to keep their greenhouse gas emissions at a certain level – somewhere between the levels specified in the Kyoto Protocol and the business-as-usual curve shown in Figure 2.
 
 
 
 Figure 3
 
 
 As shown in figure 4 below, for any greenhouse gas reductions they made below the specified level, businesses would receive greenhouse gas emissions reduction credits (drawn from the total U.S. emissions budget for 2008-2012), which they could use to comply with any future, post-2008 obligations.  Under such a program, early greenhouse gas reductions – as in the case of SO2 reductions made between 1995 and 2000 – would have tangible financial value.  As a result, companies with opportunities to make greenhouse gas reductions before 2008 would have a compelling financial reason for doing so.
 
 As also shown in figure 4, an effective early reduction program would slow, and possibly even reverse, the climb of the upward curve shown in Figure 2.  As a result, the U.S. economy's transition to compliance with the Kyoto Protocol's greenhouse gas emissions limits would be that much smoother and more affordable.  Companies that had been able to build up a "bank" of early reduction credits would have a cost-effective compliance option already on hand when they faced mandatory compliance obligations after 2008.  In addition, by giving businesses a direct financial incentive for investing in early greenhouse gas reductions,  an emissions-trading-based early reduction program would ensure that cost-saving innovations were put in place that much sooner.  Consequently, besides addressing the short-term economic costs of an abrupt transition to compliance, such a program would lay the foundation for cost-effective compliance over the long term as well.
 
 
 
 Figure 4
 
 At the same time, the environment would benefit directly through the avoidance of additional greenhouse gas emissions prior to 2008, and the discovery and use of environmental innovations could begin that much sooner.
 
 Finally, although the climate issue is likely to remain politically contentious, a strictly voluntary program such as this, which delivered both economic and environmental benefits, would almost certainly command the support of the business community and of both political parties.  In addition to its voluntary nature, such a program could be established without creating large new bureaucracies, but by relying on private mechanisms.  Ultimately, such a program would put U.S. businesses, large and small, in a position to protect themselves against untoward economic cost during the implementation of the Protocol.
 
 In sum, the market-based early reduction strategy laid out here is intended to serve two purposes.  First, it offers an illustration of how important the emissions trading policy tool is in ensuring that compliance with the Kyoto Protocol is economically affordable.  Second, the early reduction strategy is a critical means in and of itself to guarantee affordability – and bring about critical environmental benefits as well.
 
 
 Market Mechanisms, Credit for Early Reductions and Agriculture
 
 What challenges and opportunities would a voluntary early reductions program offer for American agriculture?  We see two areas in which such a program might interface with our nation's farmers.  First, an early reductions program can soften the adverse impacts of climate change on U.S. agriculture.  As a nation and as a world, our success at stabilizing the concentrations of carbon in the atmosphere at manageable levels will determine the severity of impacts and therefore the stringency of adaptive strategies.  Our concern about the risks posed, including those to agriculture and the communities it supports, has led us to conclude that early action should begin to help manage that risk.  Conversely, failure to begin early action likely makes any eventual action more costly, and more disruptive.  In other words, failure to begin to take steps now will mean that agriculture, and the nation as a whole, will pay a price.
 
 Because the Protocol's limits do not require reductions until 2008, the atmosphere faces ten more years of what could be unchecked greenhouse gas emissions increases of the sort shown by the upward curve.  Those continued greenhouse gas emissions increases represent that much more warming added to
 the atmosphere, a warming that could also occur much faster than many agricultural communities can manage.   An early reductions approach, then, becomes a mechanism for directly reducing the potentially negative impacts on agriculture.
 
  Second, an early reductions program can offer American farmers the opportunity to reap the benefits of credits for taking wholly voluntary actions  to reduce emissions from the agricultural sector.  In an emissions trading market, these early reduction credits can have real value, and farmers  should not be shut out of that market if they wish to participate. As I have described, the Protocol would generally require greenhouse gas emission reductions to begin after 2008 Under a voluntary early reductions program, those who choose to make reductions prior to 2008 would be able to earn credits -- basically putting into a savings account the reductions achieved before 2008 -- and these credits could be used, that is, emitted later or sold to others who need them to meet  future emissions reduction requirements.  Such a "credit for early reductions" program would make greenhouse gas reductions voluntarily achieved today, or any time before 2008, financially valuable to those who made such reductions.  Depending on how the policy context is designed, we think this approach has the potential to create real opportunities for agriculture, opportunities to profit from improvements in management practices and energy efficiency.
 
  For example:
 
  Agriculture contributes approximately 31% of all methane emissions, the second most prevalent category of greenhouse gases.  In addition, methane is approximately 21 times more effective at trapping heat than carbon dioxide, the most common anthropogenic greenhouse gas.  About one third of agricultural methane emissions result from manure management practices, the majority of which are concentrated at larger livestock operations.
 
 Because methane is a source of energy as well as a greenhouse gas, however, recovery of methane from livestock manure, with its subsequent use as energy, can 1) offset recovery costs through improved energy efficiency, and 2) reduce greenhouse gas emissions.  In this case, a mechanism for providing additional value in the form of a marketable credit for the greenhouse gas reductions would add directly to the benefits of such practices, providing an additional revenue stream.
 
  Credit could also be earned through other livestock management  practices that resulted in lower methane emissions through improved animal digestion.  Currently, some 64% of agricultural methane emissions are from this source.  Changes in feed and in production efficiency could  produce sizable improvements in this area.
 
  In the Northwest, the installed electricity generation capacity of the Columbia hydropower system can be used to enhance agricultural incomes and reduce GHG emissions.  Through the voluntary transfers of agricultural water rights under existing state laws, irrigators can be paid for taking water conservation actions that leave more water in rivers.  This extra river flow is a new fuel source that generates additional electricity by passing through existing hydropower facilities.  This extra power avoids any GHG emissions, and if generated prior to 2008 could produce early reduction credits.  EDF has worked to develop water markets allowing irrigators to voluntarily transfer and lease water rights in the Northwestern states, and is now working to link such transfers to GHG early reductions.
 
  Another area of potential credit is know as carbon sequestration. This includes managing crop rotation, tillage, crop selection, and other agricultural activities, including conversion of cropland to forested land, with the goal of  preventing the loss of carbon to the atmosphere or actually removing carbon from the atmosphere by increasing the carbon uptake of the land and crops. For example:
 
  In New England and the Southeast, many farmers also manage forest parcels for supplemental income.  Allowing credit for carbon sequestration in these wood lots will provide farmers and livestock producers with an additional source of income that will also contribute to GHG offsets.  Even a simple lengthening of the rotation time for such wood lots will provide a carbon sequestration benefit which, when multiplied over many farmers' wood lots, will produce significant additional income from GHG offset payments to these agricultural sectors.
 
  The creation of new forests on existing cropland, particularly if those forests are developed and managed with carbon in mind, is an explicit quantifiable creation of carbon sinks, for which, under an early reductions program, marketable credits could be generated.  For example, there is a  potential for carbon sequestration, and therefore credit,  in forest types such as the bottomland systems of Louisiana and Mississippi, where previously productive forest acreage has been converted to cropland.   Remaining forests can also be managed less intensively producing both carbon credits and high quality lumber.
 
  In addition, the production of high energy-content crops to be used as biomass fuels allows electricity generation with relatively small, if any, net emissions of carbon dioxide into the atmosphere.  Such crops can help to reduce the GHG emissions from fossil fuel- based electricity generation.
 
In essence, each of these examples is simply an expansion of the conservation ethic so important to successful, sustainable agriculture.  The Conservation Reserve Program and the Forestry, Stewardship, and Environmental Quality Improvement Programs already reflect the concepts of providing incentives for increasing the environmental values related to farming.  The value provided by an early-reductions program would be a direct economic one, as marketable credits for carbon benefits get added to the mix of incentives.  And the environmental benefits would be extremely helpful.

In summary, EDF believes that global warming will significantly affect American agriculture. Noticeable regional changes, with state- specific impacts, will likely result from warming of the atmosphere.  Market-based approaches can provide practical mechanisms for taking appropriate steps now to help reduce the threats to agriculture and to the nation at large.  EDF's work on solutions also indicates that, as is so often the case, opportunity is the mother of invention.  The need to reduce atmospheric concentrations of greenhouse gases could create real opportunities for agriculture, opportunities to profit from innovation in management practices and energy efficiency.    Thank you for the opportunity to testify.