Effects of the Energy Innovation and Carbon Dividend Act on U.S. and Global Agricultural Markets

Jerome Dumortier () and Amani Elobeid

Center for Agricultural and Rural Development (CARD) Publications from Center for Agricultural and Rural Development (CARD) at Iowa State University

Abstract: We use a global agricultural outlook model to analyze changes in agricultural production,prices, trade, and greenhouse gas (GHG) emissions from land-use change triggered by a carbon tax in the United States. The carbon tax scenario is consistent with proposed U.S. legislation starting at $15 t-1 CO2-equivalent (CO2-e) and increasing annually by $10. The scenario covers carbon taxes from $15 to $105 over the 10-year projection period. Our results show that at the end of the projection period, the production cost for corn and soybeans increases by 16.4% and 11.9%, respectively at a carbon tax of $105 t-1 CO2-e. The increase in the cost of production is compensated in part by a slight increase in commodity prices and a contraction in area. Hence, the decrease in net returns for corn, soybeans, and wheat is 7.4%, 4.2%, and 8.0%,respectively, for the highest carbon price. Exports from the U.S. decrease for all commodities except rapeseed and wheat which experience an increase by 1.4% and 0.1%, respectively. Corn and soybean exports decrease by 5.0% and 0.8%, respectively. These changes in trade patterns also result in a re-allocation of land-use in the rest of the world leading to a slight increase in GHG emissions representing 0.6% of total U.S. emissions in 2017. It is important to note that our study only covers one particular sector of a carbon tax and the increase in emissions is small compared to the overall projected reduction.

Date: 2020-01
New Economics Papers: this item is included in nep-ene and nep-env
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