Economic Analysis of U.S. Agriculture and the Kyoto Protocol

Executive Summary: In this analysis, we examine the potential costs and benefits for U.S. agriculture resulting from U.S. compliance with the Kyoto Protocol. We conclude that, if proper advantage is taken of the Protocol’s flexible, market-based mechanisms, the impact on American farmers would be relatively modest. Further, we conclude that various studies purporting to demonstrate more severe impacts on farm income are flawed because they fail to take adequate account of the adjustments that farmers would make to changes in production costs. When these flaws are corrected, it becomes apparent that, even if tradable emission permit prices turned out to be a good deal higher than we project them to be, the impact on farm income would be just a fraction of what these studies estimate. Finally, we note that addressing climate change could create opportunities for farmers to supplement their income through sequestering carbon or producing biomass that can be used to make fuels, energy, and chemicals.