For the past decade or so, discussions on the subject of Climate Change have gradually increased in importance and intensity. It is high on the priority list of the President and the majority party of both bodies of Congress. Climate Change Policy is rapidly becoming a reality.

The uncertainty of this policy’s impact poses the major concern. In general, added regulation to any industry increases the cost of doing business. The primary industry that this policy will affect is energy. The regulatory mechanism is yet to be worked out – there are two potential approaches:

1. Direct regulation - Requirement of industry to reduce/eliminate emissions. Polluters would be subject to a financial penalty for Greenhouse Gas emissions on a ton by ton basis for incompliance. In the opinion of most in industry, the less of this approach the better, since it allows the least flexibility in operating decisions.

2. Market-Based Regulation - Commoditization of emissions (Cap-and-Trade). Once emission reduction goals are set (called a baseline), the polluter chooses whether to implement technology that reduces emissions or offset their emissions by purchasing credits from others who have removed the same amount of pollutant from the atmosphere. The U.S. House passed a bill that contains a Cap-and Trade mechanism in July 2009.

A hybrid between the two approaches is also a possibility. A successful strategy to keep Climate Change Policy from passing is probably not a possibility. Policy can be either passed by Congress or implemented directly by the EPA through authority granted by the Clean Air Act. EPA Administrator Jackson has expressed that if Congress does not act, the Administration will.

Because of these multiple approaches and since details constantly and significantly change, it is difficult to pin down exactly how farms will be affected. Undoubtedly, when an industry sees costs increase, those increases are passed on (at least in part) to consumers. Obviously farmers buy a lot of inputs that are closely related to the energy industry. More severely, the possibility that farmers could be considered emitters (thereby subjecting their practices to be regulated) requires farmers to be keenly aware of this policy’s progress.

In a Cap-and-Trade program, income potential does exist for agriculture if the policy recognizes farmers’ ability to sequester greenhouse gasses. This is contained in the House bill. In an effort to familiarize members with this process, KyCGA has registered offsets for farmer members in a voluntary Cap-and-Trade model since 2006. Despite the income potential, the added regulation placed on the energy/utility industry will have a significant impact on farms’ bottom lines. Therefore, the major goal should be ensuring that the result of this policy helps farmers more than it hurts them – this is a very ambitious goal.

If you aren’t at the table, you’re on the plate. Farmers should understand the arguments surrounding climate change policy. Agriculture can play a very unique role in these conversations.