Can Farmers Rely on Efficiency Gains to Meet Cap and Trade Demands?

The House Energy and Commerce Committee’s Select Committee on Global Warming met last week to discuss the impacts of global warming on agriculture and forestry bill. Some of the more interesting testimony came from Ford B. West, President of The Fertilizer Institute, who elaborated on the challenges cap-and-trade legislation presents to the fertilizer industry. West began by noting his industry’s significant efficiency improvements in its use of energy over the past 23 years. However, he cautioned that government policy cannot count on future efficiency improvements occurring at the same pace as in the past. He explained,

While our industry is committed to additional energy efficiency projects, there will come a point where, due to the constraints of chemistry, the U.S. fertilizer industry will not be able to achieve additional efficiency gains.”

West went on to echo concerns voiced by Rep. Jim Sensenbrenner (R-WI), Ranking Member on the Select Committee on Global Warming, regarding the potential for cap and trade to drive up natural gas demand and commodity prices. In an international economic system where U.S. fertilizer companies are competing against firms in other parts of world without the same kinds of environmental regulation, the effect of increasing natural gas prices would be to put U.S. firms at a major competitive disadvantage. As recent experience demonstrates, the inevitable result of these kinds of price increases is plant closures and job losses. West elaborated further,

Since 2000, the U.S. nitrogen industry has closed 26 nitrogen fertilizer production facilities, due primarily to the high cost of natural gas. The fertilizer industry has grave concerns that our remaining domestic nitrogen production cannot stay operational through any transition period of a cap and trade system where utilities switch to natural gas and fertilizer producers are forced to buy emission credits on the open market.”

These concerns over the potential for outsourcing as a response to expensive and burdensome regulation are well-founded. And highly ironic: by undermining domestic firms committed to energy efficiency and effectively sending their business to other parts of the world untouched by either environmental regulation or a desire to curb emissions, cap-and-trade may in fact increase net global carbon output.