Implications of a Carbon-Based Energy Tax for U.S. Agriculture Report as inadecuate

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Policies to mitigate greenhouse gas emissions are likely to increase energy prices. Higher energy prices raise farmer costs for diesel and other fuels, irrigation water, farm chemicals, and grain drying. Simultaneously, renewable energy options become more attractive to agricultural producers. We consider both of these impacts, estimating the economic and environmental consequences of higher energy prices on U.S. agriculture. To do this we employ a price-endogenous agricultural sector model and solve that model for a range of carbon-tax-based energy price changes. Our results show mostly positive impacts on net farm income in the intermediate run. Through market price adjustments, fossil fuel costs are largely passed on to consumers. Additional farm revenue arises from the production of biofuels when carbon taxes reach $30 per ton of carbon or more. Positive environmental benefits include not only greenhouse gas emission offsets but also reduced levels of nitrogen leaching.

Keywords: energy tax ; greenhouse gas policy ; U.S. agricultural sector ; bioenergy ; mathematical programming

Subject(s): Environmental Economics and Policy

Issue Date: 2005-10

Publication Type: Journal Article

PURL Identifier: Published in: Agricultural and Resource Economics Review, Volume 34, Number 2 Page range: 265-279

Total Pages: 15

Record appears in: Northeastern Agricultural and Resource Economics Association (NAREA) > Agricultural and Resource Economics Review

Author: Schneider, Uwe A. ; McCarl, Bruce A.


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