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Costs Outweigh Benefits

By Mark Lange
NCC President & CEO

A National Cotton Council analysis of House-passed energy legislation finds that the resulting higher costs of energy and other crop production inputs would far outweigh any resulting benefits.

What are the House energy bill’s important agricultural provisions?

The American Clean Energy and Security Act (H.R. 2454) authorizes USDA to develop and administer agricultural offsets in a cap-and-trade program to reduce U.S. greenhouse gas emissions. Agriculture is exempted from emission reduction requirements, and agricultural offsets can be sold in Commodity Futures Trading Commission-regulated markets.

How will the legislation affect U.S. cotton?

The NCC supports development of these offsets as a means to partially mitigate the impact of significantly higher costs of energy and other production inputs to agriculture and agribusiness. Unfortunately, we cannot support the bill as it is written because these higher costs far outweigh any benefits resulting from offsets.

Production, marketing and processing will be adversely affected in varying degrees. A preliminary analysis of direct energy costs related to production, ginning, marketing and yarn spinning indicates that each 10 percent increase in input prices raises costs to those U.S. cotton sectors by at least $175 million. The latest analysis by the Environmental Protection Agency indicates that when the legislation is fully implemented, there would be increases of 30 percent in electricity and natural gas prices and a 15 percent increase in petroleum prices. The total annual effect of those percentage increases on the U.S. cotton sector would range between $300 and $400 million. This also does not fully account for the many ripple effects that higher energy costs will have on all industries that supply inputs to the entire U.S. raw cotton industry.

Further, we are concerned that under this legislation, existing conservation efforts will not qualify as mitigating practices.

Would the bill create international disparity?

Yes. The additional production costs that will result from this bill’s implementation would place U.S. cotton and cotton products at a clear disadvantage in international markets – markets that are critically important to the U.S. cotton industry’s future health. The most prominent examples of this are China and India – the world’s largest cotton and textile producing countries – which are international competitors. Even though both are significant – and growing – greenhouse gas emitters, these two countries thus far have refused to sign onto any agreement to curtail their emissions.

Again, without significant modifications and improvements to address the concerns outlined above, the NCC cannot support this bill. The Senate has begun work on its energy bill. It may be late summer or early fall before any Senate legislation is marked up in committee.

Mark Lange is president and chief executive officer for the National Cotton Council of America. He and other NCC leaders contribute columns on this Cotton Farming page.

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