Cost-shifting policies, input expenditures, and U.S. farm structure

Little is known about how various greenhouse gas mitigation policies will impact the market structure of U.S. agriculture. Existing and proposed policies can increase the cost of carbon-intensive farm inputs, directly or indirectly, similar to a carbon price or tax. Using farm-level data, we assess the ex-ante distributional impacts of a hypothetical carbon price on fuel-intensive inputs. Structural cost functions are first estimated for corn operations by farm typology in the Corn Belt, and the results are used to predict the effects of a carbon price on short-run total costs. A novel statistical test is then employed to determine if a carbon price would be regressive across farm typologies. Our findings suggest that a short-run exogenous carbon price would be regressive for smaller farms, while larger farms are able to better adapt to higher input costs. This regressivity becomes especially noticeable at threshold level above $10 per ton of carbon.