Proposed climate change legislation is a mixed bag for farmers and ranchers in the Southwest, finds a study co-authored by a University of Arizona (UA) scientist.

Farmers can expect slight increases in energy and fertilizer costs but also improved revenue from higher crop prices, new bio-fuel crop markets, and opportunities to sequester carbon, the study shows.

In Arizona, traditional ranching operations are likely to face increased challenges, mostly because of higher costs for feed and fuel.

The study, funded by the American Farmland Trust, assesses the impact of climate change legislation – including the American Clean Energy and Security Act of 2009 – on agriculture in Arizona, Colorado, and New Mexico.

The study is the first of its kind for the Western U.S.

"We set out to answer the question whether climate change legislation is a threat or an opportunity, and the answer is yes," said George Frisvold, professor in the UA's department of agriculture and resource economics, who co-authored the report.

According to Frisvold, some farming operations are likely to benefit from higher crop prices and greenhouse gas sequestration programs, while others, especially traditional ranching and dairy operations, could face rising fuel and feed costs.

The authors note that agriculture in the Southwest is diverse, ranging from large-scale orchards of citrus and tree nuts to vegetables, cotton, and a variety of row and field crops to cattle grazing and large-scale dairy production.

Carbon sequestration and offsets could become key sources of revenue for farmers who sequester carbon, for example by planting trees, and then generate income by selling credits to other industries emitting greenhouse gases above the limits prescribed by the cap and trade legislation.

"Because greenhouse gases are a global problem, it does not matter too much where you cut back," Frisvold said. "For example, there may be a scenario in which an electrical power company in New York would pay credits to dairy farmers in Arizona. Some farmers can also benefit from reducing tillage and putting land into conservation reserve and grass."

According to the study, dairy producers and concentrated livestock feeding operations may be able to generate additional income by capturing and converting methane to electricity, thus providing not only revenue through carbon-offset markets but also through electricity sales.

While cattle and dairy operations in the Western states will face higher feed and energy prices, the study also showed that expected cost increases are well within the range of recent energy-price variability, leading the authors to conclude farmers may get some measure of confidence that they should have time to adjust to the increases.

"It's clear that there will be a relative rise in energy and fertilizer costs,” said Chris Goemans, a co-author from Colorado State University. “But we were surprised to learn that provisions in the legislation would likely limit fertilizer cost increases to between 0.3 percent and 2 percent by 2020, and that estimates from a variety of studies show energy cost increases of between 4 percent and 13 percent in 2020. Although modest increases, it's always a factor for farmers who operate on thin profit margins.”

Studies estimate different fertilizer cost increases depending on whether they account for special provisions in the House bill for energy-intensive, trade-exposed (EITE) industries. These provisions protect U.S. industries from foreign competitors that do not implement climate change regulation.

Frisvold noted, "The EITE provisions will substantially reduce and delay fertilize costs increases for 15 years or more."

Goemans added, "In many cases, the higher commodity prices that are estimated by many studies will contribute to farm revenues and could largely offset these projected cost increases."

"Farmers and ranchers have a great deal at stake in federal legislation," said Jon Scholl, American Farmland Trust president. "Agriculture can play an important role in helping reduce and mitigate greenhouse gases, and if no clean energy bill is passed, the Environmental Protection Agency is mandated by the Supreme Court to enact regulations under the Clean Air Act, which will affect agriculture. And they are implementing those regulations now. Regulations without opportunities only brings costs to producers."

Scholl also pointed out that the impacts of climate change – changes in weather, some extreme and volatile – on agriculture are projected to be significant.

In addition to Frisvold, authors of the study, "Impacts of Climate Change Legislation on Agriculture in the Rocky Mountain States: Arizona, Colorado and New Mexico," include: Brian Hurd (New Mexico State University), Christopher Goemans (Colorado State University) and Janine Stone (Colorado State University).

A pdf of the report is available for download on the American Farmland Trust Web site.