Energy costs: Pay now or pay later
No matter what one thinks about the proposal of the Obama administration to eliminate direct payments to farms with gross sales in excess of $500,000, it is becoming clear that they want to put their own imprint on farm policy. That can be seen in the argument that farmers could make up their loss of direct payments with payments for environmental benefits and carbon sequestration.
The issue of improving the environment through carbon sequestration fits in with the emphasis Obama has given to green energy investments, the reduction of atmospheric emissions of fossil-fuel-based carbon dioxide, and reducing the dependence of the U.S. on imported oil.
Farmers have made significant investments in biofuels as a means of both increasing farm income and reducing the number of barrels of oil that are imported by the U.S. every day. Public support is conditioned on the ongoing acceptance of these goals as important elements of public policy.
On a recent trip to talk to farmers in Texas, a look out the window as the plane landed at Abilene gave evidence of the benefits that farmers can receive from green energy -- at least farmers who live in windy places. Here in east Tennessee we don't see many wind turbines, but the Abilene landscape was dotted with a large number of them being used to generate electricity. Farmers receive a variety of payments for turbines that are located on their land.
What about the carbon sequestration issue? Encouraging new forms of energy generation such as from wind and solar is one thing -- achieving a switch in technologies of existing electrical and other plants to reduce atmospheric emissions is quite another.
In some ways action or inaction on the carbon sequestration issue will reveal how serious we are about moving to a new energy paradigm.
If we are really serious about reducing our atmospheric emissions of fossil-fuel-based carbon dioxide (CO2), there are two ways to go about the task: Write regulations or provide incentives.
Regulation has been the traditional way of achieving a policy goal like CO2 reduction. Fossil fuel burning power plants can be required to install equipment to prevent CO2 from entering the atmosphere. The regulations can be implemented in a number of different ways.
Critics of environmental regulation argue that they add to the cost of electricity for consumers so in some way they are an indirect tax on all electricity consumers. Labeling something as a tax is a way to get the attention of many voters.
Another argument is that regulation is inefficient and greater CO2 reduction can be achieved at a lower cost by providing incentives to the companies involved. One way to provide those incentives is through a cap and trade program.
In some ways, cap and trade is an indirect means of regulation in which the government sets a cap on CO2 emissions that is lower than the current level and then allows the companies involved to determine how they are going to achieve the goal of the reduction of CO2 emissions.