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How Would Cap-and-Trade Climate Policy Affect Agricultural Producers in North Dakota? An Economic Analysis
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Abstract
The purpose of this study is to examine the possible impacts of cap-and-trade climate policy on agricultural producers in North Dakota. In this study, we focused on carbon sequestration potential and production cost impacts of carbon prices, and explicitly considered farmer preferences and adaptation behavior to estimate the benefits and costs of greenhouse gas cap-and-trade. Based on empirically estimated farmer behavior models, a policy simulation with agricultural census data identified farmer acreage allocation for carbon sequestration, carbon offset supplies and revenues, the production cost impacts of carbon prices, and impacts on net farm income and their distributions among heterogeneous farmers. Our analysis found that: 1) farmer ex ante preferences in general were biased against carbon sequestration participation although farmer involvement increased with carbon prices; 2) with the fertilizer industry exempted from cap-and-trade regulation, the production cost impact would be small, and more than half of the farms would gain with a carbon price possibly greater than 10permetrictonofcarbon;and3)theproductioncostimpactwithacappedfertilizerindustrywouldbe2timeshigher,andmorethanhalfofthefarmsorfarmlandwouldloseunlessthecarbonpricecouldreachmorethan55 per metric ton of carbon.cap-and-trade, climate change, agricultural impacts, economics, carbon sequestration, Agricultural Finance, Financial Economics,