Project Summaries

08-403  Project Manager: J. M. Reeves

THE NEW ENERGY ECONOMY: OPPORTUNITIES AND CHALLENGES FOR US COTTON PRODUCERS

George B. Frisvold, University of Arizona

During 2012, this study focused on greenhouse gas emissions. Pending legislation to mitigate climate change would affect cotton producers in multiple ways. First, costs of fertilizers, electricity, and fuel would rise, affecting both production and ginning costs. The potential for growers to sell carbon offsets, however, represents an additional source of income. Offsets from tree planting could significantly reduce cotton acreage in some areas, leading to higher cotton prices. This study evaluates implications of these countervailing effects on producer returns. Negative effects of pending legislation could be reduced or delayed substantially, depending on how programs are implemented. However, large uncertainties about implementation translate into large uncertainties about how cotton producers will be affected. This study estimated effects on the U.S. cotton sector of legislation to reduce U.S. greenhouse gas emissions using the U.S. Agricultural Resource Model (USARM). The simulations are based on potential impacts of the American Clean Energy and Security Act (HR 2454). The bill would impose a cap and trade system on CO2 emitters. While agricultural emissions are not regulated directly, the bill would increase costs of fuel, fertilizers, electricity, and groundwater pumping. It also contains provisions allowing growers to earn carbon-offset payments for planting trees on cropland (afforestation). Compared to baseline 2020 projections, under the cap and trade program, U.S. cotton production would fall 5% and price would rise 3%. With afforestation included, production would fall 11% and price would rise 6%.  Because of higher cotton prices, cotton purchasers would suffer losses of $89 million under cap and trade and $190 including afforestation. Net returns to U.S. growers would fall by $77.5 million under cap and trade, but rise by $8.5 million including afforestation. Farm returns increase with afforestation as marginal lands are taken out of cotton production. Although carbon offsets may provide an additional source of income for cotton farmers, the model results suggest large reductions in Delta cotton acreage and production. This could have large, negative consequences for agricultural input suppliers and cotton ginning operations in the Delta.

 

Project Year: 2012
 

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