[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]




             HEARING TO REVIEW PENDING CLIMATE LEGISLATION

=======================================================================

                                HEARING

                               BEFORE THE

                        COMMITTEE ON AGRICULTURE
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 11, 2009

                               __________

                           Serial No. 111-20


          Printed for the use of the Committee on Agriculture
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                        COMMITTEE ON AGRICULTURE

                COLLIN C. PETERSON, Minnesota, Chairman

TIM HOLDEN, Pennsylvania,            FRANK D. LUCAS, Oklahoma, Ranking 
    Vice Chairman                    Minority Member
MIKE McINTYRE, North Carolina        BOB GOODLATTE, Virginia
LEONARD L. BOSWELL, Iowa             JERRY MORAN, Kansas
JOE BACA, California                 TIMOTHY V. JOHNSON, Illinois
DENNIS A. CARDOZA, California        SAM GRAVES, Missouri
DAVID SCOTT, Georgia                 MIKE ROGERS, Alabama
JIM MARSHALL, Georgia                STEVE KING, Iowa
STEPHANIE HERSETH SANDLIN, South     RANDY NEUGEBAUER, Texas
Dakota                               K. MICHAEL CONAWAY, Texas
HENRY CUELLAR, Texas                 JEFF FORTENBERRY, Nebraska
JIM COSTA, California                JEAN SCHMIDT, Ohio
BRAD ELLSWORTH, Indiana              ADRIAN SMITH, Nebraska
TIMOTHY J. WALZ, Minnesota           ROBERT E. LATTA, Ohio
STEVE KAGEN, Wisconsin               DAVID P. ROE, Tennessee
KURT SCHRADER, Oregon                BLAINE LUETKEMEYER, Missouri
DEBORAH L. HALVORSON, Illinois       GLENN THOMPSON, Pennsylvania
KATHLEEN A. DAHLKEMPER,              BILL CASSIDY, Louisiana
Pennsylvania                         CYNTHIA M. LUMMIS, Wyoming
ERIC J.J. MASSA, New York
BOBBY BRIGHT, Alabama
BETSY MARKEY, Colorado
FRANK KRATOVIL, Jr., Maryland
MARK H. SCHAUER, Michigan
LARRY KISSELL, North Carolina
JOHN A. BOCCIERI, Ohio
SCOTT MURPHY, New York
EARL POMEROY, North Dakota
TRAVIS W. CHILDERS, Mississippi
WALT MINNICK, Idaho

                                 ______

                           Professional Staff

                    Robert L. Larew, Chief of Staff

                     Andrew W. Baker, Chief Counsel

                 April Slayton, Communications Director

                 Nicole Scott, Minority Staff Director

                                  (ii)














                             C O N T E N T S

                              ----------                              
                                                                   Page
Baca, Hon. Joe, a Representative in Congress from California, 
  prepared statement.............................................     8
Boswell, Hon. Leonard L., a Representative in Congress from Iowa, 
  prepared statement.............................................     9
Cardoza, Hon. Dennis A., a Representative in Congress from 
  California, prepared statement.................................    10
Cassidy, Hon. Bill, a Representative in Congress from Louisiana, 
  prepared statement.............................................    10
Childers, Hon. Travis W., a Representative in Congress from 
  Mississippi, prepared statement................................    11
Conaway, Hon. K. Michael, a Representative in Congress from 
  Texas, prepared statement......................................    11
Cuellar, Hon. Henry, a Representative in Congress from Texas, 
  prepared statement.............................................    12
Ellsworth, Hon. Brad, a Representative in Congress from Indiana, 
  prepared statement.............................................    13
    Submitted statement on behalf of:
        Smith, Charlie, President and CEO, Countrymark 
          Cooperative, LLP.......................................   211
Fortenberry, Hon. Jeff, a Representative in Congress from 
  Nebraska, prepared statement...................................    14
Goodlatte, Hon. Bob, a Representative in Congress from Virginia, 
  opening statement..............................................     6
Herseth Sandlin, Hon. Stephanie, a Representative in Congress 
  from South Dakota, prepared statement..........................    15
Holden, Hon. Tim, a Representative in Congress from Pennsylvania, 
  opening statement..............................................     5
Johnson, Hon. Timothy V., a Representative in Congress from 
  Illinois, prepared statement...................................    15
Latta, Hon. Robert E., a Representative in Congress from Ohio, 
  prepared statement.............................................    16
    Submitted letters:
        Fisher, John C., Executive Vice President, Ohio Farm 
          Bureau Federation......................................   220
        Chakeres, James H., Executive Vice President, Ohio 
          Poultry Association....................................   221
        Wachtman, Mark, President, Ohio Wheat Growers Association   222
        Davis, John, President, Ohio Corn Growers Association....   224
Lucas, Hon. Frank D., a Representative in Congress from Oklahoma, 
  opening statement..............................................     4
Luetkemeyer, Hon. Blaine, a Representative in Congress from 
  Missouri, prepared statement...................................    18
McIntyre, Hon. Mike, a Representative in Congress from North 
  Carolina, prepared statement...................................    18
Minnick, Hon. Walt, a Representative in Congress from Idaho, 
  prepared statement.............................................    19
Moran, Hon. Jerry, a Representative in Congress from Kansas, 
  prepared statement.............................................    19
Neugebauer, Hon. Randy, a Representative in Congress from Texas, 
  prepared statement.............................................    21
Peterson, Hon. Collin C., a Representative in Congress from 
  Minnesota, opening statement...................................     1
    Prepared statement...........................................     2
    Submitted statement on behalf of:
        United Egg Producers.....................................   203
        Looney, Robert J., Vice President, Government Affairs, 
          CHS, Inc...............................................   204
        Loving, James S., President, National Cooperative 
          Refinery Association...................................   208
Roe, Hon. David P., a Representative in Congress from Tennessee, 
  submitted statement on behalf of:
        Upchurch, W. Lacy, President, Tennessee Farm Bureau 
          Federation.............................................   226
Schmidt, Hon. Jean, a Representative in Congress from Ohio, 
  submitted statement on behalf of:
        Naasz, Kraig R., President and CEO, American Frozen Food 
          Institute..............................................   226
        Garfield, Robert, Chairman, Food Industry Environmental 
          Council, submitted statement...........................   227
Smith, Hon. Adrian, a Representative in Congress from Nebraska, 
  prepared statement.............................................    21
Thompson, Hon. Glenn, a Representative in Congress from 
  Pennsylvania, submitted letter:
        Pennsylvania Public Utility Commission...................   228
Walz, Hon. Timothy J., a Representative in Congress from 
  Minnesota, prepared statement..................................    22

                               Witnesses

Vilsack, Hon. Thomas ``Tom'', Secretary, U.S. Department of 
  Agriculture, Washington, D.C...................................    22
    Prepared statement...........................................    27
Stallman, Bob, President, American Farm Bureau Federation; Rice 
  and Cattle Producer, Columbus, TX..............................    82
    Prepared statement...........................................    84
Ruddell, Steven, Senior Associate, First Environment, Washington, 
  D.C............................................................    93
    Prepared statement...........................................    95
Garber, Earl, Second Vice President and Chairman, Legislative 
  Committee, National Association of Conservation Districts; 
  Product Support Specialist, G&H Seed Co., Inc., Washington, 
  D.C............................................................   106
    Prepared statement...........................................   107
Yoder, Fred, Past President, National Corn Growers Association; 
  Corn, Soybean, and Wheat Grower, Plain City, OH................   110
    Prepared statement...........................................   111
Johnson, Roger, President, National Farmers Union, Washington, 
  D.C............................................................   115
    Prepared statement...........................................   116
Nobis, Ken, Treasurer, National Milk Producers Federation; Dairy 
  Farmer, St. John's, MI.........................................   128
    Prepared statement...........................................   129
English, Hon. Glenn, CEO, National Rural Electric Cooperative 
  Association, Arlington, VA.....................................   159
    Prepared statement...........................................   162
West, Ford B., President, The Fertilizer Institute, Washington, 
  D.C............................................................   169
    Prepared statement...........................................   171

                           Submitted Material

Agriculture Energy Alliance, submitted letter....................   231
American Bird Conservancy, et al., submitted letter..............   232
American Fisheries Society, et al., submitted letter.............   262
American Forest & Paper Association, submitted statement.........   234
American Sugar Cane League, et al., submitted letter.............   238
Minnesota Farm Bureau Federation, submitted statement............   240
National Alliance of Forest Owners, submitted statement..........   242
National Association of REALTORS', submitted statement   246
National Cattlemen's Beef Association, submitted statement.......   250
National Council of Farmer Cooperatives, submitted statement.....   251
National Meat Association, et al., submitted letter..............   255
National Pork Producers Council, submitted statement.............   257
Submitted questions..............................................   262

 
             HEARING TO REVIEW PENDING CLIMATE LEGISLATION

                              ----------                              


                        THURSDAY, JUNE 11, 2009

                          House of Representatives,
                                  Committee on Agriculture,
                                                   Washington, D.C.
    The Committee met, pursuant to call, at 2:00 p.m., in Room 
1300, Longworth House Office Building, Hon. Collin C. Peterson 
[Chairman of the Committee] presiding.
    Members present: Representatives Peterson, Holden, 
McIntyre, Boswell, Cardoza, Scott, Herseth Sandlin, Cuellar, 
Costa, Ellsworth, Walz, Schrader, Halvorson, Dahlkemper, Massa, 
Bright, Markey, Kratovil, Schauer, Kissell, Boccieri, Murphy, 
Pomeroy, Childers, Minnick, Lucas, Goodlatte, Moran, Johnson, 
Graves, Rogers, King, Neugebauer, Conaway, Fortenberry, 
Schmidt, Smith, Latta, Roe, Luetkemeyer, Thompson, Cassidy, and 
Lummis.
    Staff present: Nona Darrell, Adam Durand, John Konya, Scott 
Kuschmider, Robert L. Larew, Merrick Munday, John Riley, Lisa 
Shelton, Anne Simmons, Debbie Smith, Kevin Kramp, Josh Mathis, 
Josh Maxwell, Bill O'Conner, Nicole Scott, and Jamie Mitchell.

OPENING STATEMENT OF HON. COLLIN C. PETERSON, A REPRESENTATIVE 
                   IN CONGRESS FROM MINNESOTA

    The Chairman. The Committee will come to order.
    Good afternoon, everybody. Welcome to toady's hearing of 
the House Agriculture Committee.
    Secretary Vilsack, thank you for being here with us today. 
This is the first time that we have had an opportunity to have 
you to testify before the House Agriculture Committee, although 
you have been up here to meet with us, and I have met with you, 
as you know, many times.
    And you have one of the toughest jobs in Washington, and I 
think that you are off to a good start, so far. So welcome to 
the Committee, and we look forward to your thoughts today as 
you share your thoughts on climate change legislation that we 
are considering and offer suggestions to improve it.
    I am also interested to get an update from you on the 
Biofuels Working Group, which includes USDA and is supposed to 
be involved in the peer review of the RFS2 rule that EPA 
recently issued.
    Today's hearing is an opportunity for the Members of the 
House Agriculture Committee to review climate change 
legislation that Congress is considering, and to examine the 
impact it will have on agriculture in rural America. I know 
that Members have many questions about the proposals included 
in the legislation as it is currently drafted. I hope that 
witnesses joining us here today will be able to help us better 
understand what is being proposed and what can be done to 
improve the legislation.
    I look forward to hearing from our witnesses today and 
welcome everybody to the Agriculture Committee.
    I would to ask unanimous consent for the materials at each 
Member's place on top of the folders be submitted for the 
hearing record.
    Without objection, so ordered.
    [The prepared statement of Mr. Peterson follows:]

  Prepared Statement of Hon. Collin C. Peterson, a Representative in 
                        Congress from Minnesota
    Good morning and welcome to today's hearing of the House 
Agriculture Committee. Secretary Vilsack, thank you for being here 
today. This is the first time that we've had an opportunity to have you 
testify before the House Agriculture Committee, although you and I have 
been able to meet very regularly since you were named Secretary of 
Agriculture, and I know that you have heard from other Members of this 
Committee as well. You have one of the toughest jobs in Washington, and 
I think you are off to a good start, so far.
    I hope that today you can share with us your thoughts on the 
climate change legislation we're considering and offer suggestions to 
improve it. I'm also interested to get an update from you on the 
Biofuels Working Group, which includes USDA and is supposed to be 
involved in the peer review of the RFS2 rule that EPA recently issued.
    Today's hearing is an opportunity for Members of the House 
Agriculture Committee to review climate change legislation that 
Congress is considering and to examine the impact it will have on 
agriculture and rural America. I know that Members have many questions 
about the proposals included in the legislation as it is currently 
drafted, and I hope that the witnesses joining us here today will be 
able to help us better understand what is being proposed and what can 
be done to improve the legislation.
    I look forward to hearing from our witnesses today, and the 
Agriculture Committee will continue to address these important issues 
as Congress moves forward with energy and climate change legislation 
this year. We've got a lot to cover, so let's get started.
                               Attachment

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The Chairman. And, with that, I would recognize the Ranking 
Member, Mr. Lucas, from Oklahoma for his statement.
    Oh, and we are going to have opening statements by myself, 
Mr. Lucas, Mr. Holden, Mr. Goodlatte. And for the rest of you, 
we will allow you to make a statement but they will be closing 
statements. And so, if you are here at the end of the hearing, 
you will be allowed to make a closing statement.
    So, with that, we will proceed.
    Mr. Lucas?

 OPENING STATEMENT OF HON. FRANK D. LUCAS, A REPRESENTATIVE IN 
                     CONGRESS FROM OKLAHOMA

    Mr. Lucas. Thank you, Mr. Chairman. And I do appreciate 
your willingness to allow the Chairman and the Ranking Member 
of the Subcommittee of primary jurisdiction to also have an 
opening statement, and to provide Members of both sides the 
opportunity to express their observations from this important 
set of hearings. Thank you for that cooperation. And even more 
so, thank you for calling this hearing to review Waxman-Markey, 
the bill.
    I have said many times before, and I will say it again 
today, the most important thing we can do for our agricultural 
community is to allow the legislative process to work, to take 
the time to understand the consequences of our actions.
    There are still many unanswered questions surrounding the 
Waxman-Markey bill. And yet we have Speaker Pelosi and Chairman 
Waxman working to try and force this thing through Congress, by 
my definition.
    A thousand-page bill of this magnitude deserves thoughtful 
consideration and debate. The Committee is familiar with that 
kind of process. After all, we only recently completed a 5 year 
reauthorization of the 2008 Farm Bill. Consider the fact for a 
moment, because it offers an important contrast from where we 
are today.
    For roughly 2 years, this Committee held a series of field 
hearings across the country, multiple hearings on specific 
titles of the farm bill, in this very room, and enjoyed 
bipartisan discussion and collaboration between the Members. It 
took us 2 years to reauthorize a bill that would last for 5 
years. But here, today, we are to have our first public hearing 
to consider a bill that is written to last forever, no 
expiration date, forever.
    This is a bill that is enormous in size and consequence, 
that has the potential to permanently damage the standard of 
living of every man, woman, and child for decades to come. This 
legislation will span the working lifetime of every young 
farmer and rancher with no off-ramps, with no waivers from the 
negative impacts that it will have on rural economies. And yet, 
this Committee will hold one hearing, without a markup in 
sight, with the Speaker of the House insisting that this bill 
will be on the House floor for a vote before the 4th of July 
recess.
    The cap-and-trade part of the bill creates a national 
energy tax that will do more harm to production agriculture, 
American industry, and our standard of living than it will do 
any good for the environment. From the higher energy cost to 
lost jobs, higher food prices to cap-and-trade promises to cap 
our incomes, our livelihoods, our standard of living, while it 
trades away American jobs and opportunities.
    Agriculture is a prime target because it is energy-
intensive. Just this week, the Heritage Foundation released a 
economic study of how cap-and-trade will impact farmers. That 
study revealed that by 2035 the average net income for farmers 
will decrease by 57 percent. No wonder nearly 50 agricultural 
groups and food groups have expressed opposition to the bill, 
with more groups joining the cause every day. They understand 
that this legislation has the potential to destroy their 
livelihoods.
    Proponents of cap-and-trade--our Secretary is included in 
that--would like to claim that agriculture will be a net winner 
when it comes to climate change legislation. But they have 
failed to provide us with any numbers to make that case.
    This bill does not specifically recognize the role that 
agriculture can play in providing carbon offsets. It does not 
provide a meaningful way for farmers to participate in carbon 
tax credit programs.
    I am not convinced that agriculture could ever benefit from 
a cap-and-trade system. As a lifelong rancher, a student of 
agricultural economics, as the Ranking Member of this 
Committee, I cannot support a bill that will damage an industry 
that consistently provides America and the world with the 
safest, most abundant, affordable food supply and fiber supply.
    I cannot support a bill which, despite its magnitude, will 
be pushed through Congress without any respect to the regular 
legislative process. We need more hearings, more outreach, more 
information, more understanding about this bill. Instead, the 
Speaker is rushing it through Congress, I am afraid to the 
detriment of all of us.
    Again, Mr. Chairman, thank you for holding this hearing. I 
know you didn't have to do it. I realize it presents many 
challenges, but thank you for the opportunity.
    I yield back.
    The Chairman. I thank the gentleman for his statement.
    The Subcommittee Chairman, Mr. Holden, you are recognized.

   OPENING STATEMENT OF HON. TIM HOLDEN, A REPRESENTATIVE IN 
                   CONGRESS FROM PENNSYLVANIA

    Mr. Holden. Thank you, Mr. Chairman.
    If this climate change bill becomes law, it will have a 
broad effect on our nation's farms, agribusinesses, and 
consumers. And as our economy continues to change, we will rely 
more and more on renewable energy, including biofuels. Linking 
agriculture and renewable energy is important to diversify our 
energy market, protecting our environment and revitalizing 
rural America.
    However, the definition of renewable biomass contained in 
the renewable fuel standard of the Energy Independence and 
Security Act of 2007 is problematic because it could exclude a 
majority of the country's biomass. The definition would exclude 
much forestland because it was not clear-cut and then 
replanted. Hardwood forestland in my home State of Pennsylvania 
and much of the Northeast, as well as several other regions of 
the country, could be an important component in meeting the new 
renewable fuel standard but would be excluded by definition.
    Pennsylvania also has hundreds of thousands of acres of 
abandoned mine lands. These lands can be restored and planted 
with conserving grasses such as switchgrass, which could be 
used for cellulosic biofuel. Being able to use the abandoned 
mine land for growing feedstocks would create an economic 
incentive to restore the desolate landscape, which now relies 
on inadequate Federal and state funds, but not under the new 
renewable fuel standard, because the statute requires land to 
have been previously cultivated.
    If we continue with these provisions that were in H.R. 6, 
we will shortchange a large part of the country before we even 
get started. It is the statute, which was not created through 
regular order, that is the problem. And it needs to be changed 
to allow for greater flexibility.
    Pennsylvania is at the forefront of promoting renewable 
energy and will continue to be at the helm, but only if its 
feedstock potential is eligible for use under the new renewable 
fuel standard.
    There are also some other problems with the renewable fuel 
standard, and now is the time to fix them, when Congress is 
considering a bill dealing with renewable energy. I hope we can 
move forward to ensure agriculture's continued role in 
producing renewable fuels and energy.
    Thanks, Mr. Chairman.
    The Chairman. I thank the gentleman.
    I now recognize the Ranking Member of the Subcommittee, 
former Chairman and Ranking Member of the Committee, Mr. 
Goodlatte.

 OPENING STATEMENT OF HON. BOB GOODLATTE, A REPRESENTATIVE IN 
                     CONGRESS FROM VIRGINIA

    Mr. Goodlatte. Thank you, Mr. Chairman. I very much 
appreciate your holding this hearing today.
    Cap-and-trade legislation has the potential to devastate 
the agriculture community with higher operating costs and 
destroy ways of life in rural America. This Committee should be 
looking intensely into how this legislation will affect farmers 
and producers, as well as consumers of agricultural products.
    It is my hope that this is only the first hearing this 
Committee will hold and that Members of this Committee will 
have a chance to mark up this far-reaching legislation. The 
impact that this legislation will have on our economy and our 
lives is extensive. We should make sure that we fully vet this 
bill.
    The cap-and-trade proposal is really an $846 billion 
national energy tax that will hit nearly every American. Moving 
into a cap-and-trade system will place the United States 
economy at a distinct competitive disadvantage because it would 
place significant additional costs on every American business, 
farmer, manufacturer, and American family.
    This bill will raise electric bills across the country by 
hindering the development of traditional energy sources while 
also, ironically, limiting the development of renewable energy.
    Coal provides the majority of the electric generation in 
our country, and this bill will effectively stop coal-fired 
power plants from being built in the United States at the same 
time that one new coal-fired electric generating plant per week 
is being built in India and China. They will manufacture 
products previously manufactured in the United States and build 
on cheap electricity at the expense of the United States, at 
the same time that they are putting into the air the 
CO2 gas emissions that this bill purports to 
prevent.
    Nuclear, the second largest source of electricity 
generation and the largest source of CO2-free 
energy, is effectively ignored by the bill.
    Also concerning to me is the one-size-fits-all renewable 
electric standard. This legislation assumes that all states 
have the exact same amount of renewable resources and can 
develop them and penalize states when they cannot.
    Furthermore, this legislation excludes far too many people 
who should be able to participate in the renewable energy 
market. I know I speak for Members on both sides of the aisle 
in this Committee when I say that the biomass definition in 
this bill is inadequate. Woody biomass is a clean, sustainable 
form of energy that deserves encouragement from the Federal 
Government, not unneeded restrictions. Given the restrictions 
already placed on woody biomass by the renewable fuel standard, 
we should not be repeating the same mistake in this bill.
    We must keep in mind that agriculture is an energy-
intensive industry, and this legislation will make the cost of 
energy even higher. It is estimated that the Waxman legislation 
will raise electricity rates 90 percent, after adjusting for 
inflation; gas prices, 74 percent; and natural gas prices, 55 
percent.
    There is no doubt that this legislation will also raise the 
cost of fertilizer, chemicals, and equipment which farmers use 
daily. This will cause economic harm for the American farmer. 
According to the Heritage Foundation, farm income is expected 
to drop because of this legislation by $8 billion in 2012, $25 
billion in 2024, and over $50 billion in 2035. These are 
decreases of 28 percent, 60 percent, and 94 percent, 
respectively. I do not know how we can expect American 
agriculture to survive when we cut farm income by 94 percent.
    What I find even more frustrating is that the impetus for 
this legislation is to reduce carbon emissions, yet it does not 
recognize the role that agriculture and forestry play in 
sequestering carbon. The legislation does not specifically 
provide for agricultural or forestry offsets, but rather leaves 
eligible offsets to the discretion of the Environmental 
Protection Agency.
    To add insult to injury, over 30 pages of this bill are 
devoted to developing international forestry offsets, including 
provisions to send American taxpayer money overseas to forest 
owners in developing countries while disregarding our own 
forest owners.
    Quite frankly, leaving these offsets at the discretion of 
the EPA makes me very nervous. The EPA is not known to have the 
best working relationship with farmers and ranchers. The U.S. 
Department of Agriculture has a long record of working with 
farmers and ranchers, and they have the extensive expertise in 
agriculture and forestry that will make an agricultural offset 
program successful. This legislation needs to be amended to 
allow the USDA, not the EPA, to be in charge of administering 
agricultural offsets.
    This legislation has far-reaching consequences for every 
person, farmer, and business in this country. We cannot ignore 
that America's economy is intrinsically linked to the 
availability and affordability of energy. During this economic 
slowdown, we should be adopting policies that seek to rebuild 
our economy and create more jobs. We need reliable and 
affordable energy supplies from all sources: from renewable 
fuels, from new technologies, from wind and solar, but also 
from coal, nuclear, natural gas, and oil production 
domestically here in the United States.
    Unfortunately, cap-and-trade legislation will only further 
cripple our economy. Instead of government mandates and 
bureaucracy, we should focus on policies that support 
technological advances and consumer choices. The bottom line is 
we need policies which encourage investment in environmentally 
sound, cost-effective practices without stifling innovation and 
setting our economy further back. The simple truth behind the 
Waxman energy plan is that it raises taxes, kills jobs, and 
will lead to more government intrusion.
    Mr. Chairman, I would encourage you to encourage all the 
Members of this Committee to be able to speak out about this 
legislation at this hearing. We are very pleased to have with 
us the primary representative of the Administration for 
agricultural policy, Secretary Vilsack, with us today. I think 
it is important for him to hear from people on both sides of 
the aisle the grave concerns that we have about the dramatic 
effect that this legislation will have upon rural America.
    We need to take this legislation and completely redo it in 
a completely different fashion and offer a competing version 
that people on both sides of the aisle can join together, in a 
bipartisan fashion and path, to promote a sound energy policy 
for America and address the environmental concerns that some 
have raised.
    Mr. Chairman, thank you very much for holding this hearing.
    The Chairman. I thank the gentleman for his statement. The 
chair would request that other Members submit their opening 
statements for the record.
    [The prepared statements of Representatives Baca, Boswell, 
Cardoza, Cassidy, Childers, Conaway, Cuellar, Ellsworth, 
Fortenberry, Herseth Sandlin, Johnson, Latta, Luetkemeyer, 
McIntyre, Minnick, Moran, Neugebauer, Smith, and Walz follow:]

Prepared Statement of Hon. Joe Baca, a Representative in Congress from 
                               California
    The potential role of forests in any climate change legislation 
cannot be undervalued. With more than 700 million acres of forestland 
in the United States, this large natural resource could serve to 
improve our environment, secure our energy independence, and continue 
to enhance rural and urban communities.
    To efficiently and effectively make use of all the benefits of 
American forests, both public and private, it is important to clearly 
include a broad definition of renewable biomass in any climate change 
legislation. As Chairman of the Subcommittee on Department Operations, 
Oversight, Nutrition, and Forestry, this definition was a large part of 
the testimony and discussion during our hearing on forestry policy on 
June 3, 2009.
    During testimony and in response to questions by the Subcommittee, 
all seven witnesses expressed concerns about the ability of public and 
private forests to participate in programs aimed at reducing carbon 
emissions. Specifically, the current version of H.R. 2454 has a 
definition of renewable biomass on Federal lands that would hinder the 
ability of the U.S. Forest Service to make full use of the available 
feedstock. Although the U.S. Forest Service fully supports language 
that will protect wilderness, roadless, primitive, wild, scenic, late 
successional and old growth forests, inclusion of the term ``mature'' 
in the definition, is vague and confusing. Until this word is removed 
or replaced with clearer language, useable biomass will remain on the 
forest floor, increasing the fire hazard, limiting good forest 
management activities, and emitting, rather than sequestering, carbon.
    I remain committed to improving our nation's emissions of 
greenhouse gases, and believe forests, like the San Bernardino National 
Forest that borders my district, are one of the keys to a successful 
Federal program. But until the legislative language in any climate 
change legislation coincides with the realities of forests and forest 
policies, we will poorly serve our nation's people, forests, and 
environment.
                                 ______
                                 
  Prepared Statement of Hon. Leonard L. Boswell, a Representative in 
                           Congress from Iowa
    Thank you Mr. Chairman for holding this important hearing. I would 
like to welcome and thank the witnesses testifying before the Committee 
today to offer their insight on the effects of climate legislation on 
the agriculture community. I would especially like to recognize my 
fellow Iowan, Secretary Vilsack. I look forward to hearing all the 
witnesses' testimony.
    We are all aware of the challenges posed by global climate change, 
and of H.R. 2454, the American Clean Energy and Security Act. Our 
particular challenge today is to assess H.R. 2454's effect upon 
agriculture producers, and to identify how best the agriculture 
community may be utilized as partners in preserving and protecting our 
environment. I am concerned that in our justifiable haste to confront 
climate change, agriculture and rural communities will be unduly 
harmed.
    I have several concerns that I hope will be addressed before moving 
this legislation to the floor. Currently, there is no mention of 
agricultural offsets in the bill. Without an ag offset program, 
America's farmers and ranchers will have no incentive to act on their 
ability to capture as much as 20 percent of domestic carbon dioxide 
emissions through soil sequestration, and no opportunity to benefit 
from doing so. As a result, they will have to bear the brunt of 
increased input costs such as fuel and fertilizer.
    Another issue is what to do with early adopters. I have said this 
many times over the years, but bears repeating: farmers and ranchers 
were the first environmentalist in this country, and remain some of the 
strongest. Whatever an agriculture offset provision looks like, we must 
ensure that those early adopters are not penalized for doing the right, 
environmental thing, and ensure they get credit for their actions.
    An additional concern is that the current legislation has no role 
for USDA outlined in the text. As the agency that is responsible for 
conservation and forestry programs, which have effectively sequestered 
carbon for years, it is critical that USDA be involved.
    Some people might argue that not all issues that this Committee 
would like to address are agricultural issues, such as indirect land 
use. I would dispute their logic. In today's modern agricultural 
economy renewable fuels such as biodiesel and ethanol are very much 
part of that economy. It is vital to fix the indirect land use issue so 
we do not cripple our biofuels industry before it learns to walk. In 
order for advanced biofuels to come along, such as cellulosic ethanol, 
we must have the infrastructure in place of corn-based ethanol and 
current biofuels.
    Infrastructure is very important and that is why I have actively 
pushed for the inclusion of H.R. 864, the Renewable Fuel Pipeline Act 
which I introduced earlier this year. This bill would help transport 
biofuels from the Midwest to the East or West Coasts.
    A renewable fuels pipeline will also reduce greenhouse gas 
emissions (GHG). Pipeline transport has the lowest input energy 
requirements and emissions among the four inland transportation models.
    Rail and barge transport are higher, and truck transport is the 
highest in input energy requirements and emissions.
    CO2 emissions are reduced by 30% when comparing ethanol 
transported by pipelines versus railcars and 87% when comparing 
pipelines to trucks.
    By reducing the cost of transporting this homegrown fuel, we will 
be able to lower costs for both producers and consumers.
    One fundamental question I have is this: will the Waxman-Markey 
legislation disproportionately affect midwestern states? Many states in 
the Midwest, such as Iowa, heavily rely on coal for energy and their 
electricity. While Iowa has been aggressively moving towards more 
alternative energy (like wind energy) we must ensure that many 
midwestern constituents will not have the greatest cost assessed to 
them.
    As a farmer, I understand and appreciate the concern for preserving 
our rich natural resources. Agricultural producers are some of our 
greatest environmentalists. However, I fear that agriculture's unique 
opportunities to combat climate change are being overlooked, and as a 
consequence this indispensable community will be placed in a terrible 
position. We cannot afford to treat farmers and rural America as 
obstacles to environmental integrity. They can and must be partners in 
crafting a safer, cleaner, more sustainable future, and I look forward 
to your comments in how best to achieve that goal.
                                 ______
                                 
   Prepared Statement of Hon. Dennis A. Cardoza, a Representative in 
                        Congress from California
    Thank you, Mr. Chairman, for holding this important hearing today. 
I appreciate your leadership on this issue and I'm very glad to see 
agriculture and this Committee stepping forward in this debate.
    There is no debate that our Earth and our climate are changing. 
Temperatures across the globe are rising and in California, we are 
already seeing incremental and irreversible change to our environment.
    Years of scientific research tells us that human activity--our own 
habits, behaviors, and prosperity--has caused this dramatic change in 
Earth's health and therefore it is our responsibility to find a cure 
for what ails us.
    In developing a cure, however, it is imperative that we do not 
inadvertently kill the patient. We must craft a plan that negates our 
impact on our environment while still maintaining jobs, homes, 
neighborhoods, and our economy as a whole.
    Unfortunately, in Central California we have seen what can happen 
when well-intentioned environmental policy is implemented without a 
balanced and practical approach.
    To put it mildly, my district in California's Central Valley is 
hurting. In the Valley, global warming hasn't reduced the amount of 
water. Instead, severe and short-sighted environmental regulations have 
caused this devastation. These man-made policies have resulted in 
hundreds of thousands of acres of prime agriculture land being 
fallowed. More acres are forecasted to be left out of production 
because farmers cannot get the water they need to grow crops.
    Unemployment in some Central California towns has reached more than 
40 percent due to out-of-work farm laborers. To add insult to injury my 
district has the highest foreclosure and unemployment rates in the 
country. In Central California, we cannot take much more.
    I want a climate change bill that helps our environment and 
preserves our Earth for my grandkids. But I don't want to sacrifice the 
health, the jobs, or the homes of my kids, my neighbors, and all my 
constituents.
    This climate change bill must be based on reality and implement 
practical solutions. To ignore economic reality is no better than 
ignoring the problem.
    Thank Mr. Chairman. I yield back my time.
                                 ______
                                 
 Prepared Statement of Hon. Bill Cassidy, a Representative in Congress 
                             from Louisiana
    Thank you, Mr. Chairman.
    Anyone who drives a car, heats or cools their home, or eats food 
will be affected by the legislation we're discussing today.
    The non-partisan Congressional Budget Office says Cap & Trade is an 
$846 billion tax on energy. Higher energy taxes mean higher energy 
prices. Higher energy prices will affect every sector of the economy 
and make nearly every thing we do more expensive.
    From the Brookings Institution on the left to the Heritage 
Foundation on the right, there is agreement that this $846 billion tax 
will harm the economy. The exact estimates vary, but the conclusions do 
not. This bill will lead to greater unemployment, a significant spike 
in energy prices, and greater dependence on foreign sources of energy.
    Even President Obama confesses, ``Under my plan electricity rates 
would necessarily skyrocket.''
    Louisiana, my home state, is an energy state, where over 320,000 
people owe their livelihoods to the energy sector. Cap & Trade will 
have severe consequences for our economy and workforce. In fact, the 
Brookings Institution estimates that Cap & Trade will reduce employment 
in the energy sector by roughly 40 percent. That translates into 
substantial job losses for Louisiana.
    Like the domestic energy economy, Cap & Trade will have 
particularly harsh consequences for farmers and rural communities.
    Because agriculture is an energy-intensive industry, even modest 
fluctuations in energy prices produce profound ripple effects.
    It is estimated that fuel, electricity, fertilizer, and chemicals 
account for 65 percent of a farmer's overhead costs. By imposing 
substantially higher energy costs on farmers, this legislation will 
eliminate agriculture jobs and increase prices in grocery stores.
    Proponents of the bill argue it will stave off global warming and 
its harmful effects. However, they cannot point to any reasonable 
analysis suggesting this bill will accomplish their goal. Passing this 
bill incentivizes carbon-emitting industries to move their operations--
and jobs--offshore, resulting in more, not less, greenhouse gas 
production in countries with more relaxed environmental regulations 
than our own. At best, its effect on global warming is miniscule.
    On the other hand, it is an absolute certainty that energy prices 
will rise, our economy will shrink, and jobs will be lost if this bill 
passes.
                                 ______
                                 
  Prepared Statement of Hon. Travis W. Childers, a Representative in 
                       Congress from Mississippi
    First, I would like to thank Chairman Peterson for holding this 
important and necessary hearing. I would also like to thank Secretary 
Vilsack and the other witnesses for joining us today. Along with many 
of my colleagues, I have some concerns and frankly some fundamental 
objections to the current version of the energy legislation that we are 
looking into this afternoon. I believe that the bill, as it stands, 
fails to recognize the important contributions the agriculture 
community can and must play in energy legislation if we have any hope 
of curbing climate change and achieving true energy independence.
    As we look for ways to advance our current energy policies we must 
look to our friends in agriculture for common sense solutions. 
America's farmers and ranchers have been at the forefront of developing 
innovative environmental practices for years. We must recognize these 
advances and ensure that they are utilized as we look to reduce our 
carbon emissions nationwide. At a time when feed, fertilizer, fuel, and 
production costs are at their highest, it is necessary for Congress to 
create policies that allow producers to participate in offset programs.
    It is also my hope that we can understand from the witnesses here 
how we can make definitional changes to terms such as biomass to again 
ensure that agriculture has ample opportunity to contribute to new 
energy initiatives. America has continually proved itself to be a 
country of innovation and our farmers and producers are working hard to 
continue this tradition. If we truly consider what is best for our 
nation, we will be able to create a comprehensive energy plan that 
allows the agriculture community to play an integral part in addressing 
our current environmental situation. I look forward to hearing the 
testimony of all of the witnesses and I would like to thank them for 
taking the time to be here today.
                                 ______
                                 
  Prepared Statement of Hon. K. Michael Conaway, a Representative in 
                          Congress from Texas
    Mr. Chairman, thank you for calling this hearing today. I 
appreciate the opportunity to discuss the impacts that the Waxman-
Markey bill will have on the food and fiber producers in Texas and 
throughout our nation. I would also like to thank our three panels 
today for taking the time to prepare, to travel to Washington, and to 
appear before us today. Your input is important and will hopefully not 
be in vain because of political considerations are once again trumping 
the legislative process.
    To clarify, I am encouraged by the words and efforts of my good 
friend, Chairman Peterson. The Chairman has consistently placed the 
concerns and interests of rural America above that of partisan ploys 
and flawed ideas. It is my hope that other Democratic Chairmen will 
follow Mr. Peterson's lead and stand up for working families and small 
businesses across their Congressional districts. It is our duty to 
ensure that the needs and concerns of the agricultural community and 
rural America are heard and addressed before this legislation moves any 
further.
    Although I remain highly skeptical of the science underlying this 
debate and dispute the fundamental need for this legislation, today's 
hearing is not about computer modeling and variables or formulas and 
graphs; it is about the very real costs that this bill will impose on 
our families, our businesses, and ultimately, our economy.
    Today, we will have an opportunity to hear from America's 
agricultural community about what burdens they expect this national 
energy tax scheme to present. Further, we will have an opportunity to 
discuss whether or not we feel these costs are appropriate and 
worthwhile responses to the assumed threat posed by global warming.
    Global warming, as its name suggests is an issue that ignores 
national boundaries. If the science is correct, which is in no manner 
an agreed upon issue, then the carbon dioxide emitted in China is just 
as bad as carbon dioxide emitted in America. America, while the world's 
most industrialized nation, is no longer the largest emitter of carbon 
dioxide. Recently, the United States was passed by China in total 
tonnage emitted, and India is close at our heels. Both China and India 
have declared that global warming is a problem of the industrialized 
world, and that they will not deny their citizens the increased 
standard of living that cheap, abundant energy provides. With a 
population of over 2.5 billion people between them, these two rising 
economies represent the overwhelming bulk of new emissions for the 
foreseeable future. Reliable and affordable sources of energy represent 
a path out of crushing poverty for hundreds of millions of Chinese and 
Indians, and it is irrational to expect their leaders to surrender that 
tool. Yet, a plan to curb emissions that does not include them, will 
not be worth the paper on which it is printed. Any emissions savings 
that we can produce will simply be swamped by the new emissions coming 
from these to economies. The United States cannot unilaterally address 
such an issue. A global problem requires a global solution.
    The Waxman-Markey bill is expected to hit agricultural producers 
particularly hard. According to a recent study by the Heritage 
Foundation, the legislation would shear $8 billion from farm income in 
2012 and $50 billion by 2035. This is too steep a price to pay for a 
plan that cannot even begin to guarantee that it will be able to meet 
its objectives. Again, this is principally because the problem lies 
largely outside of the jurisdiction of the legislation at hand.
    Because the Waxman-Markey bill is silent on specific agricultural 
provisions, or exemptions, we are left to speculate at how this bill 
will directly impact production agriculture. Already concerns have been 
voiced that the EPA may move to regulate farms and ranches for 
greenhouse gasses. Without an explicit exemption from an emissions cap 
for agriculture, it is not in my opinion a matter of IF production 
agriculture will be regulated but WHEN.
    In Texas, our state officials from our the State Agriculture 
Commissioner, to the Comptroller, and up to the Governor, have 
expressed grave concerns and even opposition to the legislation. They 
have studied it and determined that it would bring more harm than 
benefit to our great state. Further, a growing number of Texas 
agriculture organizations that span the entire spectrum of production 
have reviewed this bill and come to the same conclusion. I plan to 
submit their letters for the record so that even in their absence here 
today, their voices and concerns may be heard. These producers and 
organizations, involved in the day-to-day operations of farms and 
ranches realize full well the pending disaster that the Waxman-Markey 
legislation would cast upon rural America.
    These fundamental concerns of rural communities and production of 
agriculture have not been explored by the Energy and Commerce Committee 
and will remain unaddressed in today's hearing. Although I believe the 
opportunity to point out how this legislation will adversely impact the 
people of my district and to hear directly from those who understand 
the agricultural economy is important, a hearing cannot and will not 
make the Waxman-Markey legislation a better bill. At the conclusion of 
this hearing, the legislation will remain unchanged and the concerns of 
rural America will remain unaddressed.
    Mr. Chairman, I urge you to continue your demand of the Speaker 
that the Agriculture Committee be allowed to exercise its jurisdiction 
over this legislation and that a proper full Committee markup take 
place.
    Thank you.
                                 ______
                                 
Prepared Statement of Hon. Henry Cuellar, a Representative in Congress 
                               from Texas
    Thank you Chairman Peterson and Ranking Member Lucas for holding 
today's hearing of the House Committee on Agriculture on climate change 
legislation. I am pleased we can engage in a healthy debate on the 
legislation at hand, and offer our expertise as it pertains to the 
agriculture community.
    I wish to represent the concerns of my constituents concerning the 
bill H.R. 2454, the American Climate and Energy Security Act of 2009. I 
represent a district in southern Texas that is not only rich in 
agriculture, but blessed with a diverse energy portfolio (including 
fossil fuels and renewable energies). More specifically, my district is 
the #1 producer of natural gas production in Texas, and the #5 producer 
of petroleum in Texas. These resources have served to keep energy costs 
low in South Texas, allowing residents, small business, and producers 
to thrive collectively.
    However, as rich as my district is in its resources, low incomes 
are not uncommon. In fact, the median household income in my 
Congressional District is $15,000 lower than the national average. We 
must be sure that we do not overlook the possible costs to these low 
income families as a result of the final legislation that will be 
brought to the House floor. I ask that we keep these families in mind, 
especially those sustaining on a modest income as we examine this 
legislation and its economic impact.
    I have approached this issue with an open mind, and I have done my 
best to learn the impact this legislation will have in its current 
form. I look forward to a substantive and productive debate with my 
colleagues on the Committee on Agriculture, as I know many of them 
share my concerns. That is why I am hopeful and confident that our 
discussions here today will help move us to a final piece of 
legislation I support.
    Again, I thank the Chairman and the Ranking Member for holding 
these hearings. As a native of South Texas, I understand the unique 
relationship that agriculture and energy share. Advancements in energy 
production are crucial, but we must be careful to not over reach, and 
put ourselves at a competitive disadvantage. I look forward to the 
testimony today, and our continued work on this Committee.
                                 ______
                                 
Prepared Statement of Hon. Brad Ellsworth, a Representative in Congress 
                              from Indiana
    Chairman Peterson, thank you for holding this timely and important 
hearing to consider the impact of climate change legislation on rural 
America and agricultural producers. I also want to thank our witnesses 
today for sharing their insights and expertise with the Committee on a 
complex topic.
    America faces serious consequences if we continue to rely on 
foreign energy sources that contribute to rising global temperatures. 
This constitutes a real threat to our economy, our environment, and our 
way of life. However, if America is going to take the necessary steps 
to produce and consume energy in an environmentally sustainable way, we 
must ensure the transition to a clean energy economy is made carefully 
and takes into account the stresses it will put on every part of our 
economy.
    Like many here today, I have serious concerns about the American 
Clean Energy and Security Act. While it is an ambitious attempt to 
remake our energy economy, the bill's costs would fall most heavily on 
the Midwest--including my constituents in south and west Indiana. In 
addition, the Waxman-Markey legislation does nothing to lay out how 
America's farmers, ranchers, and forest landowners can contribute to 
reducing our carbon emissions. A workable program for agriculture to 
participate in offsetting carbon emissions is central to this effort. 
There are many people in this room who have been working to do just 
that, but more must be done.
    We must also address some of the other sections of the bill that 
will have a disproportionate cost to farmers and rural communities. I 
am particularly concerned that farm cooperative-owned businesses could 
be subject to emissions caps and would feel their effects more severely 
than other segments of capped industries. For example, a co-op-owned 
refinery in my district, CountryMark, provides much of the fuel Hoosier 
farmers need to run their operations. This supply is especially 
critical during planting and harvest seasons.
    Provisions in the current draft do not take into account the unique 
circumstances of these farm co-ops and could threaten their ability to 
operate. I don't need to tell my colleagues here that this could 
trigger a domino affect, hindering farmers' ability to supply America 
with the food and fuel it needs every day.
    I am also deeply concerned with the formula currently proposed for 
allocating carbon emission allowances. As it currently stands, 
utilities would receive half of their allowances based on their 
electricity sales, completely regardless of their actual carbon 
emissions. This will badly distort the allowance system, delivering a 
glut of allowances to some areas that have no need for them while 
leaving much of the country without needed help.
    It should come as little surprise that those areas in need will 
include rural regions in the Midwest, including south and west Indiana. 
Every Hoosier electric customer, and especially rural electric coop 
customers, will suffer because of this. The 132,775 rural electric coop 
customers in my district will have only 62% of their carbon emissions 
allocated under the current plan, leaving a very significant 38% to be 
purchased. In contrast, we see that some utility companies--
particularly those in coastal areas with large populations--will 
receive well over 100% of the allocations they need. In fact, some 
areas will receive an average of 3,741% of what they actually need. 
This situation puts rural Hoosier rate payers at a massive disadvantage 
while delivering windfalls to those who don't need them. If this is 
truly going to be a national effort, the burdens for implementing these 
policies must be shared more evenly.
    Mr. Chairman, I see many areas where improvement is needed before 
the American Clean Energy and Security Act can realistically deliver on 
its promises to revolutionize our energy use and address climate 
change. I hope we have the opportunity to make those improvements, 
because without them I fear this legislation will cripple our farmers 
and rural communities. Again, I thank you for holding this important 
hearing and look forward to working with everyone here today to deliver 
a workable solution to our energy and environmental challenges.
                                 ______
                                 
   Prepared Statement of Hon. Jeff Fortenberry, a Representative in 
                         Congress from Nebraska
    Thank you, Mr. Chairman for calling this important hearing to 
review pending climate change legislation.
    We are witnessing today an unparalleled environmental experiment 
with regard to carbon dioxide and other greenhouse gases in our 
atmosphere. Reducing greenhouse gas emissions is critically important 
to our environmental health and societal well-being, and a serious 
discussion of how America should address this challenge is timely and 
necessary. I believe we need a bold, new sustainable energy vision for 
our country.
    While I support the goal of reducing greenhouse gas emissions, I do 
have serious concerns about the American Clean Energy and Security Act 
(H.R. 2454) and its effectiveness in achieving meaningful emissions 
reductions. A review of the European Union's cap-and-trade system, 
implemented in 2005, is relevant to our deliberations. Thus far, the EU 
effort has resulted in significant complications, creating windfall 
profits for utilities at the expense of energy users while achieving 
negligible reductions in emissions.
    I am also concerned that this legislation would prompt a 
significant shift of America's already diminished manufacturing base to 
countries, such as China, India, and Brazil that are not bound by 
similar restrictions. Our national economy, made ever more vulnerable 
by an over-dependence on the financial service industry, should be 
encouraging a revitalization of the manufacturing sector, not placing 
unwelcome signs at its doorstep. A new wave of transferring more 
manufacturing overseas would most likely achieve no net reduction for 
our planet in greenhouse gas emissions. In fact, it may well contribute 
to an increase.
    Meanwhile, one of the world's largest manufacturers, China, shows 
little sign of self-regulation. A recent report issued by China's 
National Development and Reform Commission, which oversees that 
country's climate change policy, urges developed countries to reduce 
their greenhouse gas emissions by at least 40 percent below 1990 levels 
by 2020. At the same time, China has steadfastly refused to be bound by 
any hard limits on its own greenhouse gas emissions. A 2008 Chinese 
Academy of Sciences report states that China's greenhouse gas emissions 
could more than double by 2020.
    My academic background is in economics. I understand the appeal of 
the theory behind the ``cap-and-trade'' approach. It may look good on 
paper, but I fear that this approach is unworkable in practice and 
would not achieve the desired outcome of protecting the environment by 
reducing emissions. I believe that enactment of H.R. 2454 in its 
current form would put the U.S. at a serious economic disadvantage and 
impose significant costs on families (some analysts estimate costs of 
$1,500 to $3,000 annually) with no assurance of corresponding 
environmental benefits. Another concern is the implication of creating 
a new, increasingly complex financial market in the wake of the recent 
collapse of Wall Street.
    Our sustainable energy future must include the integration of 
conservation and new technologies powered by clean renewable sources, 
such as wind, solar, geothermal, biomass, and biofuels.
    While challenges of clean energy production, such as transmission 
and small-scale distributed generation, must be addressed, public 
policies that focus on the development of clean energy efforts, as well 
as increased energy efficiency practices on the part of businesses and 
individuals, will help meet multiple objectives of energy independence, 
increased economic opportunities, and environmental protection. In the 
transportation sector we must also look at other opportunities, such as 
a plug-in, hybrid, flex-fuel vehicle. The technology is here.
    There is much to be said about how we can help achieve the goals of 
addressing climate change concerns while also protecting the well-being 
of rural America. I am hopeful that America can address the serious 
challenge of climate change in a responsible manner that is 
constructive to our nation's long-term energy, economic, and 
environmental security.
                                 ______
                                 
Prepared Statement of Hon. Stephanie Herseth Sandlin, a Representative 
                     in Congress from South Dakota
    Chairman Peterson, Ranking Member Lucas, thank you for calling this 
hearing today. I am grateful we now have the opportunity to call 
attention to ways that we can improve this legislation to take the 
needs of rural America, including our agriculture and forestry sectors, 
into account.
    I am opposed to the ACES bill as it currently stands. It is 
incomplete and imperfect. Some of my goals for energy and climate 
change legislation include: protecting South Dakotans from a rise in 
electricity rates; recognizing the essential role coal-fired power 
plays in keeping electricity rates affordable for South Dakotans; 
ensuring agriculture and forestry play a significant role in the 
climate change debate; ensuring a definition of biomass that allows 
rural states like South Dakota to fully participate in the new energy 
economy and improve forest health.
    Agriculture and forestry can play a significant role in the climate 
change debate. With an estimated potential to offset 10-25% of all U.S. 
greenhouse gas emissions from agriculture and forestry lands, it is 
important for America's farmers and ranchers to have a seat at the 
table while Congress proceeds in crafting a cap-and-trade program. The 
current offsets program in the ACES legislation, H.R. 2454, does not do 
enough to include agriculture and forestry. A robust offsets program 
must include USDA, whose institutional resources, technical expertise 
and existing infrastructure of local offices provide USDA are essential 
to successfully administering the agriculture and forestry offset 
program.
    H.R. 2454, as passed by the Energy and Commerce Committee, applies 
a flawed definition of biomass both to the Renewable Fuels Standard and 
to the Renewable Electricity Standard contained in the bill. This 
restricted definition of biomass is a non-starter for me because it 
excludes far too much slash and other wood waste materials that should 
be put to use generating electricity. A broader definition of renewable 
woody biomass, like the one I have championed for the Renewable Fuels 
Standard, or the very similar one contained in the farm bill, would 
also strengthen the Forest Service's ability to manage hazardous fuels 
loads and reduce wildfire frequency and severity.
    I'd like to commend our Chairman for his leadership on this issue, 
and will work very hard with my colleagues on both sides of the aisle, 
Republican and Democratic--from the western states, the northern 
states, and the southern states--to ensure that any bill considered on 
the House floor has a sufficiently broad definition of biomass.
                                 ______
                                 
  Prepared Statement of Hon. Timothy V. Johnson, a Representative in 
                         Congress from Illinois
    I would like to thank Chairman Peterson and Ranking Member Lucas 
for holding this hearing to discuss H.R. 2454, the Waxman-Markey 
climate change legislation.
    I have served on the Agriculture Committee since coming to Congress 
in 2001 and have always known this Committee to serve the best 
interests of American agriculture while maintaining civil 
bipartisanship. I trust this tradition will continue as we debate this 
bill.
    I would like to welcome Secretary Vilsack as well as the eight 
other witnesses testifying today. We have representatives from American 
Farm Bureau, National Farmers Union, National Association of Corn 
Growers, National Cattlemen's Beef Association, the Fertilizer 
Institute and the National Rural Electric Cooperative Association, all 
of which have members in my district. My staff and I have reviewed your 
testimony and look forward to hearing more of your views this 
afternoon.
    The agricultural community has expressed strong concern over H.R. 
2454 and how it will affect the livelihoods of America's farmers. As we 
all know, agriculture is a high cost, energy intensive business and 
many are concerned that this new policy will increase energy inputs 
(fuel, fertilizer, etc.) without an opportunity for farmers to receive 
credit for their environmental contributions. According to a 2008 Doane 
Advisory Services study, corn farmers would experience a $40-$79 per 
acre increase in production costs under this bill. Soybean farmers 
would experience an $11-$20 increase in production costs.
    In my view, it is a mistake for Speaker Pelosi to force this bill 
through the House by the end of this month, without a full 
understanding of its ramifications. H.R. 2454 represents a national 
energy tax with preliminary estimates indicating it will cost the 
average household anywhere from $98 to $3,100 a year. With such 
disparate estimates, Congress should take the time to debate and 
clearly explain this issue to the American people before rushing into a 
vote.
    This legislation totals nearly one-thousand pages and creates 
permanent authorizations that will be felt for generations to come. 
However, seven of the eight committees that H.R. 2454 has been referred 
to will not have an opportunity to conduct a mark-up. In fact, this 
hearing is likely our only opportunity to advocate for changes to H.R. 
2454 that will reflect the positive impact certain agricultural 
practices have on sequestering greenhouse gas (GHG) emissions.
    According to the Environmental Protection Agency (EPA), agriculture 
and forestry are responsible for seven percent of the total GHG 
emissions, but also have the potential to sequester in between 15 and 
20 percent of total U.S. emissions. Through conservation practices such 
as no-till or reduced-tillage, farmers can effectively store carbon, 
yielding a positive benefit to the environment and they should be given 
credit for doing so.
    Yet, H.R. 2454 all but ignores agriculture when it comes to a cap-
and-trade system. Regardless of individual views on the underlying 
legislation, everybody in this room today believes that this bill needs 
to do more for American agriculture. We need an agriculture offset 
program that makes economic sense for farmers. USDA needs to play a 
prominent role in this program because they have the necessary 
resources and expertise. Finally, early actors who have been engaging 
in environmentally sensitive practices on their farms need to be 
recognized.
    Farmers in the 15th Congressional District of Illinois compete in a 
worldwide marketplace. The legislation we are talking about today 
applies to U.S. producers and not their foreign competitors. If we pass 
a bill that raises farmers' production costs without allowing them an 
opportunity to trade carbon credits and recoup these costs, then we 
have just put them at a tremendous disadvantage. We cannot reduce the 
foreign competitiveness of our producers.
    Mr. Chairman, Ranking Member Lucas, we may only have one shot to 
get this legislation right. I thank you for holding this hearing and 
look forward to a healthy discussion on how farmers can play a positive 
role in reducing carbon emissions in our country.
    Congressman Tim Johnson.
                                 ______
                                 
    Prepared Statement of Hon. Robert E. Latta, a Representative in 
                           Congress from Ohio
    Good afternoon, Chairman Peterson and Ranking Member Lucas:

    We meet today to examine H.R. 2454, The American Clean Energy and 
Security Act of 2009, otherwise known as cap-and-trade. I represent 
Ohio's Fifth Congressional District, the largest agricultural and 
largest manufacturing district in Ohio. I strongly feel that cap-and-
trade legislation is a transfer of wealth and an attack on the Midwest. 
I have been working with my Republican Colleagues on the Agriculture 
Committee, as well as the Rural American Solutions Group and American 
Energy Solutions Group to show how this legislation will really harm 
America. The individuals who are pushing this legislation through 
Congress are individuals whose districts do no rely on coal for their 
energy generation, and whose districts do not have manufacturing and 
agriculture like states such as Ohio. The ramifications of this bill 
will be severe job losses and a national energy tax on every American.
    This legislation will kill jobs in the United States, and will hit 
citizens' pocketbooks hard. Agriculture is the number one industry in 
the State of Ohio. Unfortunately, only 0.8 percent of Ohioans are 
actively employed agriculture. Farmers in my district are not solely 
farmers; they are producers who farm full time and many also have full 
time jobs in industries such as manufacturing. Ohio boasts over 900,000 
manufacturing jobs. These are the people who will be hit the hardest if 
this cap-and-trade legislation is passed. This legislation strikes the 
agriculture and manufacturing sectors the hardest because of the 
massive amount of energy they consume.
    My district's main crops are corn, soybeans, and wheat. All of 
these crops have a significant operating cost for fuel, seed, 
electricity, fertilizers, and chemicals, all of which will increase 
heavily under this cap-and-trade legislation. Operating costs amount to 
71 percent for corn, 50 percent for soybeans, and 72 percent for wheat. 
Farmers in my district will not be able to sustain their farms and 
support their families with these high costs.
    According to the Heritage Foundation, farm income is expected to 
drop $8 billion in 2012, $25 billion in 2024 and over $50 billion in 
2035 if this legislation is enacted. This represents decreases of 28, 
60 and 94 percent, respectively. In addition, I have farmers in my 
district that strongly believe in domestic energy production to reduce 
our costs at the pump and our dependency on foreign oil. With rising 
gasoline and diesel prices, the only thing this legislation will reduce 
is their pocketbooks, with gasoline and diesel costs projected to be at 
least 58 percent higher.
    If H.R. 2454 is enacted, job losses are projected at 1,105,000, 
with peak unemployment projected at 2.5 million. This legislation will 
have even more devastating effects by 2035, as by that time this 
legislation will have reduced our gross domestic product by $9.6 
trillion. This legislation will result in nothing more than higher 
energy costs for consumers, particularly in areas such as mine, where 
coal is the primary energy source. Over 86 percent of Ohio's 
electricity is generated by coal. The costs incurred from this 
legislation on the electricity generators will be passed along to the 
consumers. Not only will farmers in my district, and throughout the 
country, be burdened with not being able to afford to operate their 
farms, this legislation will raise their electric rates, gasoline rates 
and place an even larger burden on their family. A family of four could 
incur costs anywhere from $1,500 to $4,300 per year. In these tough 
economic times, this is an unbearable cost on the taxpayer.
    According to the Heritage Foundation's Manufacturing Vulnerability 
Index which calculates Congressional districts' affects of cap-and-
trade legislation, the Fifth Congressional District of Ohio will be the 
third most affected Congressional district in the United States. This 
week the Brookings Institution said that cap-and-trade legislation to 
reduce carbon dioxide emissions would lower the nation's gross domestic 
product in 2050 by 2.5 percent, compared with levels it would reach if 
the legislation was not implemented. The Brookings Institution went on 
to say that about 35 percent of all crude-oil related jobs and 40 
percent of coal-related jobs would be lost in 2025.
    In 2006, China surpassed the United States as the world's largest 
carbon dioxide emitter. According to data from the Global Carbon 
Project, from 2000 through 2007, global total greenhouse gas emissions 
increased by 26 percent. During that same period, China's carbon 
dioxide emissions increased 98 percent, India's increased 36 percent, 
while the United States' carbon dioxide emissions only increased by 
three percent. If the United States were to completely cease using 
fossil fuels, the increase from the rest of the world will replace 
United States' emissions in less than 8 years.
    We have an Administration that has stated they do not want to 
burden tax increases on anyone making under $200,000 per year. However, 
Americans who make under this amount still use electricity and gas, 
they still go the service station to fill their gasoline tanks, and 
they purchase things that have to be manufactured, processed and 
transported. With each of these respective items, cap-and-trade will 
drive up prices.
    A 2008 study by Doane Advisory Services calculated the per-acre 
production cost increases under a cap-and-trade scheme. With my 
district's main crops being corn, soybeans, and wheat, we would see an 
increase in production costs of each by 27 percent, 15 percent and 27 
percent, respectively. These are direct prices only and would not take 
into account the high costs of transportation, manufacturing, and 
processing these crops.
    The Fifth District's rural community relies on eleven different 
electric cooperatives to supply electricity throughout the district. 
Rural utility companies such as the ones in Ohio are more dependent on 
coal for electricity generation than utilities in urban areas. 
According to data from the National Rural Electric Cooperative 
Association, eighty percent of electricity production by a rural 
electric co-op is generated by coal compared to fifty percent 
nationally.
    This legislation is a detriment to America's agriculture. The 
Administration states that the agricultural community will benefit 
significantly from this legislation, however no details have been 
provided and no benefits are shown for the agriculture and 
manufacturing sectors. Plain and simple, this is a national tax on 
energy and will cost Americans jobs and place an even greater burden on 
their family budget. We need American farmers to feed America.
    It is time for Congress to take a strong look at this legislation 
and the devastating effects it will have on our economy, especially how 
hard it will affect the midwestern states that rely heavily on 
agriculture and manufacturing.
                                 ______
                                 
  Prepared Statement of Hon. Blaine Luetkemeyer, a Representative in 
                         Congress from Missouri
    Thank you, Chairman Peterson and Ranking Member Lucas for holding 
this hearing and giving me the opportunity to voice the concerns of my 
constituents about the grave consequences of this national energy tax 
proposal.
    I have traveled Missouri's 9th Congressional District extensively, 
and this cap-and-tax plan is a top concern of my constituents, 
particularly among the more than 34,000 farm operators in my district 
and the 650,000 rural electric cooperative members in Missouri. 
Agriculture is the backbone of the economy in my state, and this 
proposal will have disastrous consequences for Missouri.
    This bill will increase taxes, eliminate jobs or drive them 
offshore, and raise the energy costs of those hard-working farm 
families trying to make ends meet.
    American agriculture prides itself on the safe, affordable, and 
abundant supply of food, fiber, and increasingly fuel that it produces 
for American consumers. This legislation will undermine that system. By 
unilaterally imposing new taxes and regulatory burdens on American 
farmers and ranchers, we are ensuring that our products will not be 
able to compete in the global market. We will become dependent on 
foreign countries for our food, just as we are dependent upon them for 
our oil today.
    This national energy tax discriminates against rural communities. I 
come from Saint Elizabeth, Missouri a town of about 300 people in 
central Missouri. Rural residents must travel 25% further for routine 
errands than urban households. Rural households also spend 58% more on 
fuel than urban residents as a percentage of income.
    In addition, the industries that will be most negatively impacted 
by higher energy costs such as agriculture, manufacturing, 
construction, transportation, mining and utilities comprise 31% of all 
rural employment--compared to only 19% of urban employment.
    As a farmer, I know first-hand that agriculture is not only an 
extremely energy intensive industry, but it is also often a high 
volume, low profit margin industry: 65% of farmers' variable input 
costs are fuel, electricity, fertilizer, and chemicals. All of these 
inputs will go up, and that doesn't even take into effect the increased 
costs that farmers will have to pay for seed, equipment, machinery, and 
other farming supplies. As a result, this will devastate the farm 
economy and put significant hardships on the rural communities that 
depend on it.
    If this disastrous bill passes, the production costs for American 
farmers will skyrocket and their foreign competitors will not.
    It will put American agriculture at a competitive disadvantage in 
the global economy and strip away the livelihood of many of my 
constituents, all for an idea that does not have the support of sound 
science on its side.
    And with our current economic difficulties, we should not be adding 
yet another burden to our family farmers and rural communities.
    I urge my colleagues to oppose this dangerous national energy tax 
scheme that, if passed, threatens the very livelihood of America's farm 
families and rural communities.
                                 ______
                                 
Prepared Statement of Hon. Mike McIntyre, a Representative in Congress 
                          from North Carolina
    Thank you, Chairman Peterson and Ranking Member Lucas for holding 
this hearing and giving Members of the Agriculture Committee a chance 
to weigh in on this extremely important issue of climate change 
legislation.
    While I support efforts to reduce pollution in our atmosphere and 
address the issues associated with climate change, I remain concerned 
about the real impact to consumers. The southeastern region of the 
United States does not have the same renewable generation capacity as 
states out West blessed with ample sunlight to warm solar panels and 
constant wind to drive turbines. I am concerned that the costs 
associated with both cap-and-trade and the Renewable Electricity 
Standard will be merely a tax on consumers without the benefits of 
reduced emissions or more renewable generation. I am also concerned 
that our farmers and forest landowners do not have a clear role in 
providing carbon offsets.
    Our agricultural lands across the country store a significant 
amount of carbon, and that must not be overlooked.
    I am eager to hear from our witnesses today and other Members on 
the Committee. Climate change legislation will have significant impacts 
on rural America, and it is vitally important that we have a robust and 
comprehensive debate about what those impacts could be, both positive 
and negative. Mr. Chairman, thank you again for your leadership on this 
issue, and I yield back the balance of my time.
                                 ______
                                 
 Prepared Statement of Hon. Walt Minnick, a Representative in Congress 
                               from Idaho
    Mr. Chairman. As we move through consideration of the cap-and-trade 
bill, I urge the consideration of a segment of industry that is 
critical to not only the farmer community but also to the community of 
consumers at large. That segment is the food processing industry. Under 
the bill as reported from the Energy and Commerce Committee, the food 
industry is treated like other industries, except that it is not in the 
category as eligible for allocations and offsets. So bottom line, the 
food industry is taxed for its direct emissions and bears increased 
costs for indirect emissions in the form of higher prices for energy, 
transportation fuels and inputs.
    On this Committee we talk frequently about the need for ``food 
security'', but it seems that often times the actions we take ignore 
the important policy interest of keeping not only our farms and ranches 
viable, but also our food processing capacity strong.
    Most of our energy output, primarily in heating and cooling, is 
used to make our food safer. The Energy and Commerce Committee is right 
now working on a food safety bill. It is ironic that as the Committee 
is demanding more from processors in terms of food safety, they pass 
another law penalizing the energy they use to process that food and 
ensure its safety.
    Higher costs on food processing are felt in one of two ways or 
both--either lower prices to the raw material supplier, or higher 
prices to the consumer, and if neither of those are effective, the 
operations will generally cease due to unprofitability.
    Mr. Chairman, if this bill moves forward, I urge strong 
consideration of several items because we cannot afford to violate the 
law of unintended consequences in this situation: (1) a comprehensive 
review of the implications for the food and agriculture sector; (2) 
special consideration for facilities that use clean natural gas as 
their primary fuel; and (3) a direct allocation for food manufacturing 
plants.
    Mr. Chairman--the above only addresses the costs associated with 
direct emissions. Indirect costs, or those costs associated with the 
electricity purchased for the plants will also go up, notwithstanding 
the allocations given to utilities. Consideration should also be given 
to somehow offsetting those costs.
    Thank you for your consideration of this important issue.
                                 ______
                                 
 Prepared Statement of Hon. Jerry Moran, a Representative in Congress 
                              from Kansas
    Thank you Mr. Chairman. After hearing the testimony of today's 
witnesses, I am convinced this legislation could be one of the most 
detrimental policy changes we will consider this Congress. From its 
inception in the House Energy and Commerce Committee less than 1 month 
ago, this approximately 1,000 page document has been forced upon 
Members of Congress with little time to consider its real consequences. 
One of the problems we encountered here today is that there is no solid 
economic analysis on how this ill-conceived legislation will really 
affect the economy. Preliminary evidence shows that it will increase 
the cost of energy and with it the cost of everything we utilize on a 
daily basis. In its current form, agriculture will have little, if any, 
ability to recover additional costs. This will not only lead to 
decreased profitability in agriculture, but increased food prices.
    What we do know is the Congressional Budget Office (CBO) says this 
bill will raise government revenue by $846 billion in the first 10 
years of this legislation's life. In laymen's terms, this means a huge 
tax increase. It is a tax increase so large it could more than 24 times 
over pay for all the agriculture commodity programs contained in the 
2008 Farm Bill for the entire life of the bill. In addition, according 
to the 2007 U.S. Agriculture Census, $846 billion is over 15 times 
total U.S. agricultural sales less production expenses in 2007.
    This is only the beginning. The legislation we discussed today is 
permanent and after the 10 year period analyzed by CBO, free carbon 
allowances are phased out, while auctioned carbon allowances are phased 
in. This means future generations will be forced to pay more than the 
initial 10 year budget analysis conducted by CBO discloses.
    Although billed as a cap-and-trade bill, in reality H.R. 2454 is a 
cap-and-tax bill. It is a tax that will be forced not only on 
agriculture and rural America, but the entire nation. Instead of 
government levying a tax directly on the American public, this 
legislation disguises the tax as a carbon allowance auction that 
subsequently requires electrical generation companies, refiners, 
manufacturers, and others to collect the tax imposed through increased 
costs.
    What is worse, due to the way this legislation is written, 
midwestern states would bear the brunt of the economic blow because of 
the inequitable way carbon allowances are allocated--giving excess 
carbon allowances to East and West Coast power plants, while 
shortchanging allowances given to midwestern electric cooperatives. I 
have seen preliminary estimates that indicate rural electric 
cooperative customers in Kansas could have their utility bills increase 
anywhere from $200 to $1,000 per year. The consequences go beyond our 
ability to turn on the lights in rural America. Our rural communities, 
where we must travel greater distances for work, school, and medical 
care will pay disproportionately compared to our urban cousins who have 
shorter distances to travel and can use public transportation.
    I am particularly concerned that many in agriculture believe that 
agriculture will somehow be made whole under this legislation. Under 
the Waxman-Markey bill, we know this not to be the case. The word 
``agriculture'' is only mentioned seven times. It is not mentioned once 
in the section that defines offsets. Instead, H.R. 2454 directs the 
Administrator of the Environmental Protection Agency (EPA) to define 
the world of carbon offsets. This is a mistake that will lead to few 
benefits for agriculture and increase the ability of EPA to further 
intrude on our farms. We know that EPA is not farmer friendly or even 
farmer neutral. It has consistently made determinations that harm 
producers and fail the common sense test.
    This includes the recent EPA finding that agriculture will 
sequester significantly less carbon than determined under a similar 
2005 EPA study, it includes a proposed rule that takes indirect land 
use into consideration when determining the carbon footprint of 
biofuels, as well as EPA's recent decision to regulate every farmer 
with a sprayer as a point source and impose a costly and unnecessary 
permit system. EPA cannot be trusted to handle agricultural carbon 
offsets. Unless agriculture offsets are expressly defined and sole 
authority given to the U.S. Department of Agriculture (USDA), farmers 
will never see benefit from this legislation.
    Even if offsets are defined and USDA is given authority over them, 
on a macro-scale, it is difficult for me to see that agriculture will 
even get close to mitigating the increased cost of inputs caused by the 
cap-and-tax system. Some sources disclose that agriculture can 
sequester nearly half a ton of carbon through practices like no-till. 
If, as some preliminary studies suggest, carbon trades between $15 to 
$40 per ton and costs per acre for corn production increase by $40 to 
$80, the numbers just do not add up. In a best case scenario, a farmer 
could mitigate half the cost of this legislation. In a worst case 
scenario, a farmer could mitigate about ten percent of the cost of this 
legislation. Either way, it does not bode well for agriculture. This 
analysis does not even take into account the livestock sector, which 
will be especially disadvantaged. Unlike crop farmers, operations like 
cow/calf operations and feedyards have few opportunities to accumulate 
carbon offsets. While operations like swine and dairy farms may be able 
to construct methane digesters, this equipment is not cheap and can 
cost millions of dollars. This certainly is not something the small to 
medium-sized farmer can afford and it will only hasten their demise.
    This Committee must act responsibly and continue to hold hearings. 
Further examination of this legislation is a necessity. The current 
pace set by the Speaker of the House must be abandoned until better 
objective research can be conducted. Regardless of the legislative 
pace, we must act to correct the irresponsible decisions included in 
this legislation.
    The Agriculture Committee must hold a markup to allow Members to 
address the many flaws contained in this legislation. This includes 
amendments to fix the disproportionate geographical distribution of 
carbon allowances; amendments to define the contributions that 
agriculture can make by sequestering carbon; amendments to place 
authority for agricultural offsets squarely in the hands of USDA and 
not EPA; amendments to properly define biomass; and most importantly, 
amendments to prevent the inflationary effect this legislation will 
have on goods needed to conduct our daily lives. If this cannot be 
achieved, then we must do what common sense demands and defeat this 
bill. Congress infrequently gets things right when it has ample time to 
properly consider policy changes, but it has never made good decisions 
when rushed by arbitrary deadlines.
    Much emphasis has been placed on our nation's economic recovery 
since the market collapse last fall. Whether you agree or disagree with 
the policy decisions that have been implemented to help that recovery, 
this bill is almost certain to unravel any chance at economic recovery 
if enacted in its current form. I hope that as a result of today's 
dialogue this Committee will continue to investigate the impact of this 
bill. Once reliable data has been collected, it should commence a 
markup to correct what are significant problems with this cap-and-tax 
legislation. Agriculture demands it, rural America demands it, the 
American public demands it. Anything less would abdicate our 
responsibility as elected officials.
                                 ______
                                 
   Prepared Statement of Hon. Randy Neugebauer, a Representative in 
                          Congress from Texas
    Chairman Peterson, thank you for calling today's hearing to review 
pending cap-and-trade legislation.
    Let me start off by saying the farmers and ranchers in my district 
are opposed to this legislation. The change this legislation will bring 
to the South Plains of Texas will be further losses of family farms. 
This energy tax will raise the cost of fuel and electricity in ways 
people have never seen before, and it will prove detrimental to rural 
economies.
    In the last year, farmers in my district have seen their input 
costs skyrocket and their market prices decline. The dairy producers I 
represent are currently loosing money on every gallon of milk they 
produce. Peanut farmers are coming off one of the worst years they have 
ever had, and many of them were unable to even get contracts for this 
crop year. Cotton farmers are equally stressed from the roller coaster 
ride they went on last summer with the markets. And now we want to pass 
legislation to tax the most efficient farmers in the world by pushing 
their input costs to even higher levels?
    Why do we want to do this to our farmers while none of their 
competitors throughout the world are subject to a cap-and-tax system? 
This country has already learned what dependence on foreign energy can 
do to an economy. If this legislation passes, I think the chances of 
the United States becoming dependant on foreign sources of food and 
fiber will become much greater.
    Mr. Chairman, I look forward to hearing from our witnesses today 
and getting their analysis of what this legislation will do to 
agriculture. I specifically look forward to hearing the 
Administration's perspective of the proposed legislation and finding 
out whether they still believe cap-and-trade will benefit farmers. 
Thank you again for calling this timely and important hearing so the 
Agriculture Committee can rightly have a voice in this debate.
                                 ______
                                 
 Prepared Statement of Hon. Adrian Smith, a Representative in Congress 
                             from Nebraska
    Thank you, Mr. Chairman, for holding today's hearing on the 
American Clean Energy and Security Act (H.R. 2454). The Agriculture 
Committee deserves an honest and open debate on this measure, 
especially as it seeks to impact every aspect of farming operations.
    This proposal is a national energy tax which will be passed onto 
the American people. The stakes are even higher for our agriculture 
industry--the very industry which drives Nebraska's economy. As we all 
know, agriculture is an energy-intensive industry, relying on fuel for 
the pick-up truck, fertilizer for the crops, generators to keep heaters 
on during the winter. In 2008 alone, farmers and ranchers spent $60 
billion on inputs such as fuel, electricity, fertilizer, and chemicals.
    The Third District of Nebraska is one of the largest agricultural 
districts in the country, home to more than 30,000 farmers and 
ranchers. Every one of those producers will confirm that even a small 
increase in the operating costs would have dire results. As higher 
energy prices hit other areas of our economy, farmers and ranchers will 
pay more for seed, equipment, steel, and other supplies. As the cost of 
production increases, so will the price of food on the shelves in urban 
areas.
    Some of our witnesses will propose a voluntary agriculture offset 
program to allow for farmers and ranchers to reduce emissions and 
recover a portion of their increased input costs. Over the past decade, 
improved agricultural practices such as no-till cropping, targeted 
chemical applications through global positioning satellite technology, 
and methane digesters have reduced emissions from the agricultural 
sector. Unfortunately, the bill before us today does not offer such 
relief for farmers. The Environmental Protection Agency has revised the 
2009 projections for potential agriculture offsets effectively zeroing 
out any benefit from soil conservation.
    As a Member of this Committee, I want more careful deliberation on 
the pending legislation and the opportunity for a markup session. This 
matter deserves a full and open legislative process.
    Thank you, Chairman. I look forward to hearing the testimony of our 
witnesses.
                                 ______
                                 
    Prepared Statement of Hon. Timothy J. Walz, a Representative in 
                        Congress from Minnesota
    Mr. Chairman, Mr. Ranking Member, Members of the Committee, our 
witnesses here, thank you for this very important hearing.
    First of all, I want to be very clear; climate change is real, and 
is a serious problem. Concentrations of carbon dioxide in the 
atmosphere are up 30 percent in the industrial age, causing massive 
changes to the climate and affecting hundreds of millions of people. 
Nearly all national and international scientific bodies agree that 
human activities are impacting climate change. In fact, 97.4 percent of 
all climatologists who deal specifically with the science of climate 
agree on a consensus that it's a concern. There is only one, not an 
individual voice, but only one national or international scientific 
agency that will not agree with that, and that's the American 
Association of Petroleum Geologists.
    We have an obligation to our children to address this problem, to 
set an example for the world, to strengthen our economic security and 
energy independence. However, we must do it wisely, it must make sense, 
and it must not do more harm than good.
    Mr. Chairman, I thank you for the opportunity to bring together 
these experts to help address the serious concerns I, and many of my 
fellow Committee Members, have with this legislation in its current 
form--particularly as it pertains to the agriculture community and 
rural America.
    We all must do our part to reduce our carbon footprint and I know 
that our agriculture producers have been leaders in this area--and I am 
proud to say that southern Minnesota is a leader in renewable energy 
technology. We're the fourth leading producer in wind energy in the 
nation, and we're leading in biofuels. We've moved to a level now where 
we have entrepreneurs creating small, mobile ethanol plants of 1 
million gallons that are using very little energy. This has a great 
potential to reduce the carbon footprint in the developing world, 
create jobs in southern Minnesota, and move us to the next level.
    I do have concerns about certain provisions in this legislation. It 
is important that Congress get it right. So far, USDA has set a good 
example as a regulating agency. It is important to use their expertise 
to help shape any climate change legislation that affects our 
producers.
    I know our agriculture community can be part of the solution and 
want to be part of the solution. We are all looking for common ground 
and this is a good starting point from which we can all move forward if 
the different committees work together.
    It is my hope that the testimony we heard today can help us make 
significant progress in addressing these issues. We've got our work cut 
out for us, but I'm optimistic.

    The Chairman. And, Mr. Secretary, again, we appreciate your 
being with us today and look forward to your testimony.

         STATEMENT OF THE HON. THOMAS ``TOM'' VILSACK,
           SECRETARY, U.S. DEPARTMENT OF AGRICULTURE,
                        WASHINGTON, D.C.

    Secretary Vilsack. Thank you, Mr. Chairman, and to the 
Ranking Members and Members of the Committee. Thank you for the 
opportunity to discuss the American Clean Energy and Security 
Act and the role of agriculture and forests in mitigating the 
buildup of greenhouse gases in the atmosphere.
    Climate change is one of the great challenges facing the 
United States and the world. The science is clear: The planet 
is already warming. This is an international problem that will 
require commitments and actions from all countries.
    Later this year, countries will meet in Copenhagen to seek 
agreement on a path towards tackling climate change. 
Ultimately, the world must transition from an economy that 
generates significant pollution and waste to one based on clean 
energy and new technologies.
    Yet America has been on the sidelines on this issue for 8 
years, putting us at a significant disadvantage. We must 
understand that countries that make this transition to clean 
energy will be in a much stronger position to prosper in a 
world economy. America cannot allow its economy to be left 
behind; America must lead.
    As we prepare for Copenhagen's conference this summer, 
President Obama has made clear that American leadership is 
absolutely crucial and critical. The President has called upon 
Congress to pass legislation that tackles climate change, that 
creates millions of clean energy jobs, and enhances U.S. 
competitiveness; that catapults American innovators into the 
forefront of the green energy economy; that reduces our 
dependence on foreign oil; and that begins to make America 
truly energy-independent.
    Passing legislation in the U.S. House of Representatives 
would send an important message that America is ready to lead. 
The legislation that Chairman Waxman and the Energy and 
Commerce Committee have written is an important first step in 
putting America back into the forefront in creating a new 
energy economy and in addressing global climate change.
    In meeting the President's call for Congress to enact 
comprehensive legislation, the House Agriculture Committee has 
a crucial and critical role to play in delineating the role 
that agriculture and forestry can play in helping to address 
climate change. As part of the Congressional actions, what this 
Committee does is absolutely vital in passing comprehensive 
climate and energy legislation.
    Congressional enactment will make a significant statement 
to other countries around the world as to the seriousness of 
America's commitment to tackle this global problem. And I 
believe it is critical that we engage the participation of 
farmers, ranchers, and forest landowners so that they can 
contribute to, and potentially profit from, efforts to reduce 
global warming. This issue is too important for agriculture and 
forestry to sit on the sidelines.
    I would like to commend the Committee and the Chairman for 
the important role you all are playing in this debate. In 
particular, we appreciate your efforts to survey public views 
on options being considered to reduce greenhouse gas emissions. 
The 2,000+ pages of responses to the survey released by the 
Committee are an indicator of the high level of public interest 
in the role of agriculture and forest in climate change 
mitigation. There is, indeed, a wealth of ideas and experiences 
contained in the responses that can be drawn upon in developing 
policy.
    Within the USDA, we are reviewing the responses you 
received, and we thank the Committee and those that responded 
for making this information available. The interest that you 
have tapped into with this survey is similar to the level of 
interest we are seeing at USDA when we talk with our 
stakeholders around the country.
    There are obvious challenges for climate change, for 
agriculture, and for natural resource management. Many farmers 
and ranchers are concerned about the impact of climate and 
energy legislation on the cost of diesel fuel and other inputs, 
but I believe there are significant opportunities for 
agriculture and forestry, as well, if we seize them.
    That is why, when I travel around the country, I ask 
farmers and ranchers to look at climate change not simply as a 
problem but also as an opportunity for those who make a living 
on the land. A viable carbon offset market, one that rewards 
farmers, ranchers, and forest landowners for stewardship 
activities, has the potential to play a very important role in 
helping America address climate change, while also providing a 
possible new source of revenue for landowners.
    The President has offered a clear vision for the future. 
Together with our colleagues elsewhere in the Administration, 
USDA is working to bring this vision into reality. We are 
continuing to actively review and analyze a full range of 
policies that implement the President's vision.
    We look forward to working with this Committee and other 
committees, producers, forest landowners, other Federal 
agencies, state, local, and tribal governments, as we work 
together in the creation of an effective and comprehensive 
solution to address global climate change in an overall market-
based program. Allowing agriculture and forestry an efficient 
mechanism to offset the emissions of regulated countries, if 
properly designed, will help enable lower overall costs for 
everyone, including those making a living off the land.
    USDA will have an important role in helping farmers improve 
efficiency, reduce energy and fertilizer uses, as well as 
helping farmers become self-reliant for their energy needs. A 
number of emerging, renewable technologies, such as anaerobic 
digesters, geothermal, and wind power, can reduce farmers' 
reliance on fossil fuels. USDA research will need to contribute 
to the development of other technologies, and outreach and 
extension networks will be needed to help make them available 
to farmers, ranchers, and land managers.
    The potential of our working lands to generate greenhouse 
gas reductions is significant. In fact, today, our lands are a 
net sink of greenhouse gases. Based on the latest statistics 
from the EPA's Inventory of U.S. Greenhouse Gas Emissions and 
Sinks, forest and agricultural lands in the U.S. take up more 
greenhouse gases in the form of carbon dioxide than is released 
from all other of our agricultural operations.
    A wide range of practices exists to reduce greenhouse gas 
emissions, including carbon sequestration, development of 
renewable energy, improved energy efficiency on farms and 
forestlands. These opportunities take many forms. Some are 
relatively simple, like planting trees on marginal farm lands 
or shifting cultivation from conventional tillage to reduced 
tillage or no-till. Some will involve advanced technologies 
that are currently available, such as precision nutrient 
management, wind power, and anaerobic digesters.
    To fully realize the potential for greenhouse gas 
mitigation from lands, we will need to go beyond what is 
available now and develop new farming methods and energy 
conservation technologies, such as advances in genomics, feed 
additives for feedstock, and cellulosic ethanol, among others.
    In other areas where there is scientific uncertainty 
regarding global climate change adaptation and mitigation, 
priorities will need to be aligned to conduct research that can 
help inform decision-making about climate change adaptation and 
mitigation.
    To capture these opportunities, farmers and landowners will 
need to rethink business models and develop ways to partner 
with industries that will be their customers for greenhouse gas 
reductions through a carbon offsets market or through expanding 
markets for renewable energy.
    To be effective in reducing climate change, the actions 
need to be implemented on a scale large enough to matter. The 
availability of carbon offsets from agriculture and forestry 
will contribute to a comprehensive, cost-effective cap-and-
trade program. But in order to make a dent in greenhouse gas 
emissions nationally, we need to think about increasing the 
rates of continuous conservation tillage and no-till as a 
component of overall emissions reduction strategies. We will 
need to consider planting trees on millions of acres of 
marginal crop and pastureland or elsewhere. Farmers across the 
country will need to adopt advanced nutrient management and 
manure management systems to reduce nitrous oxide and methane 
emissions.
    Unlike other sectors where greenhouse gas policy could 
affect hundreds or possibly thousands of companies to be 
effective, greenhouse gas mitigation on the land will involve 
hundreds of thousands of individual farmers, ranchers, and 
forest landowners. The system we establish will need to 
recognize the scale of the changes needed, the capabilities of 
our farmers and landowners involved, and the infrastructure 
necessary and required to develop information, manage data and 
resources, and maintain records and registries.
    In addition to bringing offsets to scale, we must also 
ensure that offset markets have high standards of environmental 
integrity to ensure that offsets result in real and measurable 
greenhouse gas reductions while bolstering efforts to conserve 
soil, water, fish, and wildlife resources.
    I believe the USDA can work with a wide range of 
stakeholders to play an important role in working with farmers, 
ranchers, and forest owners in both bringing offsets to scale 
and ensuring that offsets have environmental integrity. This 
will ensure, in turn, that land-use offsets fit seamlessly 
within the overall market-based program. This will mean that 
USDA and other Federal agencies will need to work well 
together. I am confident we can do that.
    As we think through how a greenhouse gas offset program 
could work in the forest and agricultural sectors, it is 
important to understand the specific elements that will be 
needed. These might include procedures to determine eligibility 
practices, establish metrics for qualifying real and additional 
greenhouse gas benefits, establish reporting requirements, 
providing technical assistance to landowners to familiarize 
them with offsets and how they might participate, ensure that 
the activities to reduce emissions or increase sequestration 
have been implemented, provide a repository for reporting and 
record-keeping, conducting audits and spot checks, monitoring 
how activities impact ecosystem functions and values, and 
monitor an account for potential losses of carbon that is 
sequestered, and award offset credits.
    Within a comprehensive effort involving private landowners, 
regulated entities, and Federal, state, local, and tribal 
governments, USDA is well-positioned, I believe, to work with 
farmers, ranchers, and forest landowners as we work through how 
such a new system will function.
    USDA has many tools and capabilities that we can bring to 
bear. We have built an extensive network and infrastructure to 
implement commodity and conservation programs in the farm 
sector. Our experience with these programs provides a platform 
that could be used to help bring an offsets program to scale. 
In particular, existing USDA programs and systems could be used 
to bolster greenhouse gas mitigation markets.
    USDA's ability to contribute to this effort is the result 
of the following experiences: the administration of 
conservation and commodity programs that involve millions of 
landowners on hundreds of millions of acres around the country; 
our field technicians who oversee the development of 
conservation plans and approve contracts; we certify private-
sector technical service providers that develop and implement 
conservation plans for farmers; and we conduct audits and spot 
checks to ensure the provisions of conservation contracts and 
agreements are adhered to while maintaining records and 
registry of program participants.
    Let me give you a few examples of the scale of these 
activities that USDA provides nationwide. Under the 
Conservation Reserve Program, USDA manages over 750,000 
contracts with landowners who take environmentally sensitive 
land out of production. USDA's NRCS manages a network of 1,300 
registered technical service providers nationwide. To bring the 
offsets market to scale quickly will require significant 
outreach and communication with landowners. USDA is well-
positioned to help efforts that can make that happen.
    We can also continue to develop technical capabilities 
specific to greenhouse gases. Our research programs are at the 
forefront of reducing uncertainties in the measurement of 
greenhouse gas emissions and carbon sequestration on farms and 
forestlands.
    In 2006, USDA released guidance to farm and forest 
landowners to allow them to estimate their greenhouse gas 
footprint. We are developing user-friendly tools that can help 
farmers and ranchers make these calculations. And the 
Department of Energy has adopted USDA's technical greenhouse 
gas methods for use in their Voluntary Greenhouse Gas Reporting 
Registry.
    We plan to make improvements to these technical guidelines 
in light of new authorities provided under the 2008 Farm Bill 
and are planning a process that is rigorous, science-based, 
transparent, and comprehensive. We envision a process that can 
engage the public and technical experts at every step to ensure 
that the most recent information is included and there is high 
confidence in the emission productions produced through 
agriculture and forestry offsets. In addition, USDA will need 
to improve upon the job we are doing in providing landowners 
assistance and ensuring that conservation activities are 
carried out properly.
    Concerns regarding equivalents between agriculture and 
forestry offsets and emission reductions in other sectors of 
the economy have led some to argue that many agriculture and 
forestry practices should be excluded from the offset market or 
their benefits should be significantly discounted.
    If agriculture and forests are to play a major role in 
addressing climate change, the benefits that carbon offsets 
provide need to go beyond what would have happened anyway. 
Qualification and reporting systems need to be rigorous, 
verifiable, and transparent, and review and auditing systems 
will need to be put in place. Uncertainties must be accounted 
for and reduced. Greenhouse gas benefits accrued through carbon 
sequestration will need to be monitored over time to ensure 
that benefits are maintained and that reversals are accounted 
for if they occur.
    If these principles are followed, the resulting offsets 
should be real, additional, verifiable, and lasting.
    I would like to close again by thanking the Agriculture 
Committee for taking up this important issue for agriculture, 
for rural lands, and the environment. As I stressed in the 
opening, America must demonstrate leadership on energy and 
climate legislation. Doing so will benefit our economy, while 
also making it possible for countries to commit to address this 
problem as well.
    I believe that agriculture and forestry can and should play 
a vital role in addressing climate change and that, if done 
properly, there are significant opportunities for landowners to 
profit from doing right by the environment. And USDA is ready 
to make that happen.
    Thank you, Mr. Chairman. I would be glad to answer 
questions.
    [The prepared statement of Secretary Vilsack follows:]

  Prepared Statement of Hon. Thomas ``Tom'' Vilsack, Secretary, U.S. 
              Department of Agriculture, Washington, D.C.
    Mr. Chairman, thank you for the opportunity to discuss the American 
Clean Energy and Security Act and the role of agriculture and forests 
in mitigating the buildup of greenhouse gases in the atmosphere.
    Climate change is one of the great challenges facing the United 
States and the world. The science is clear that the planet is already 
warming. This is an international problem that will require commitments 
and actions from all countries. Late this year, countries will meet in 
Copenhagen to seek agreement on a path to tackling climate change.
    Ultimately, the world must transition from an economy that 
generates significant pollution and waste to one based on clean energy 
and new technologies. Yet, America has been on the sidelines on this 
issue for 8 years, putting us at a significant disadvantage. We must 
understand that the countries that make this transition to clean energy 
will be in a much stronger position to prosper in the world economy. 
America cannot allow its economy to be left behind. America must be a 
leader.
    As we prepare for the Copenhagen conference late this year, 
President Obama has made clear that American leadership is absolutely 
critical. President Obama has called upon Congress to pass legislation 
that tackles climate change, that creates millions of clean energy jobs 
and enhances U.S. competitiveness, that catapults American innovators 
into the forefront of the green energy economy, that reduces our 
dependence on foreign oil and that begins to make America truly energy 
independent.
    Passing legislation in the U.S. House of Representatives would send 
an important message that America is ready to lead. The legislation 
that Chairman Waxman and the Energy and Commerce Committee have written 
is an important first step in putting America back into the forefront 
in creating a new energy economy and in addressing global climate 
change. In meeting the President's call for Congress to enact 
comprehensive legislation, the House Agriculture Committee has a 
critical role to play in delineating the role that agriculture and 
forestry can play in helping address climate change. As part of 
Congressional actions, what this Committee does is absolutely vital in 
passing comprehensive climate and energy legislation. Congressional 
enactment will make a significant statement to other countries around 
the world as to the seriousness of America's commitment to tackle this 
global problem. And, I believe it is critical that we engage the 
participation of farmers, ranchers and forest landowners so that they 
can both contribute to and potentially profit from efforts to reduce 
global warming.
    This issue is too important for agriculture and forestry to sit on 
the sidelines. I'd like to commend the Committee for the important role 
it is playing in this debate. In particular, we appreciate your efforts 
to survey public views on options being considered to reduce greenhouse 
gas emissions. The 2,000+ pages of responses to the survey released by 
the Committee are an indicator of the high level of public interest in 
the role of agriculture and forests in climate change mitigation. There 
is a wealth of ideas and experiences contained in the responses that 
can be drawn upon in developing policy. Within USDA, we are reviewing 
the responses you received and we thank the Committee and those that 
responded for making this information available.
    The interest that you've tapped into with this survey is similar to 
the level of interest we are seeing at USDA when we talk with our 
stakeholders around the country. There are obvious challenges with 
climate change for agriculture and for natural resource management. 
Many farmers and ranchers are concerned about the impact of climate and 
energy legislation on the costs of diesel fuel and other inputs. But, 
there are significant opportunities for agriculture and forestry as 
well if we seize them.
    That is why when I travel around the country, I ask farmers and 
ranchers to look at climate change not as simply a problem but as an 
opportunity for those who make a living on the land. A viable carbon 
offsets market--one that rewards farmers, ranchers and forest 
landowners for stewardship activities--has the potential to play a very 
important role in helping America address climate change while also 
providing a possible new source of revenue for landowners.
    The President has offered a clear vision for the future. Together 
with our colleagues elsewhere in the Administration, USDA is working to 
bring this vision into reality. We are continuing to actively review 
and analyze a full range of policies that implement the President's 
vision. We look forward to working with this Committee and other 
Committees, producers, forest landowners, other Federal agencies, and 
state, local, and Tribal governments as we work together in the 
creation of an effective and comprehensive solution to address global 
climate change and an overall market-based program.
    Allowing agriculture and forests an efficient mechanism to offset 
the emissions of regulated companies, if properly designed, will help 
enable lower overall costs for everyone including those making livings 
off of the land.
    USDA will have an important role in helping farmers improve 
efficiency and reduce energy and fertilizer use as well as helping 
farmers become self-reliant for their energy needs. A number of 
emerging renewable energy technologies such as anaerobic digesters, 
geothermal, and wind power can reduce farmers' reliance on fossil 
fuels. USDA research will need to contribute to the development of 
these technologies and our outreach and extension networks will need to 
help make them available to farmers, ranchers, and land managers.
    The potential of our working lands to generate greenhouse gas 
reductions is significant. In fact today, our lands are a net sink of 
greenhouse gases. Based on the latest statistics from EPA's Inventory 
of U.S. Greenhouse Gas Emissions and Sinks, forest and agricultural 
lands in the U.S. take up more greenhouse gases in the form of carbon 
dioxide than is released from all of our agricultural operations.\1\
---------------------------------------------------------------------------
    \1\ Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990 * 
2007. U.S. Environmental Protection Agency, 2009. EPA 430-R-09-004. 
Pages ES-4-6.
---------------------------------------------------------------------------
    A wide range of practices exist to reduce greenhouse gas emissions, 
increase carbon sequestration, develop renewable energy, and improve 
energy efficiency on farms and forest lands. These opportunities take 
many forms. Some are relatively simple, like planting trees on marginal 
farmlands or shifting cultivation from conventional tillage to reduced-
tillage or no-till. Some will involve advanced technologies that are 
currently available--such as precision nutrient management, wind power, 
and anaerobic digesters. To fully realize the potential for greenhouse 
gas mitigation from lands, we will need to go beyond what is available 
now and develop new farming methods and energy conversion 
technologies--such as advances in genomics, feed additives for 
livestock, and cellulosic ethanol, among others. In other areas where 
there is scientific uncertainty regarding global climate change 
adaptation and mitigation, priorities will need to be aligned to 
conduct research that can help inform decision-making about climate 
change policy, adaptation, and mitigation strategies.
    To capture these opportunities farmers and land owners will need to 
re-think business models and develop ways to partner with industries 
that will be their customers for greenhouse gas reductions through a 
carbon offsets market or through expanding markets for renewable 
energy.
    To be effective in addressing climate change, the actions need to 
be implemented on a scale large enough to matter. The availability of 
carbon offsets from agriculture and forestry will help contribute to a 
comprehensive, cost-effective cap-and-trade program. In order to make a 
dent in greenhouse gas emissions nationally, we need to think about 
increasing the rates of continuous conservation tillage and no-till as 
a component of the overall emissions reduction strategy. We will need 
to consider planting trees on tens of millions of acres of marginal 
crop and pasture lands or elsewhere. Farmers across the country will 
need to adopt advanced nutrient management and manure management 
systems to reduce nitrous oxide and methane emissions. Unlike other 
sectors--where greenhouse gas policy could affect hundreds or possibly 
thousands of companies--to be effective, greenhouse gas mitigation on 
the land will involve hundreds of thousands of individual farmers, 
ranchers, and forest land owners. The systems we establish will need to 
recognize the scale of the changes needed, the capabilities of farmers 
and land owners involved, and the infrastructure that will be required 
to deliver information, manage data and resources, and maintain records 
and registries. In addition to bringing offsets to scale, we must also 
ensure that the offsets markets have high standards of environmental 
integrity to ensure that offsets result in real and measurable 
greenhouse gas reductions while bolstering efforts to conserve soil, 
water, and fish and wildlife resources. I believe USDA can work with a 
wide range of stakeholders to play an important role in working with 
farmers, ranchers and forest landowners in both bringing offsets to 
scale and ensuring that offsets have environmental integrity. This will 
ensure, in turn, that land-use offsets fit seamlessly within the 
overall market-based program. This will mean that USDA and other 
Federal agencies will need to work well together. I am confident that 
we can do that.
    As we think through how a greenhouse gas offset program could work 
in the forest and agriculture sectors, it is important to understand 
the specific elements that will be needed. These might include 
procedures to:

   Determine eligible practices;

   Establish metrics for quantifying real and additional 
        greenhouse gas benefits;

   Establish reporting requirements;

   Provide technical assistance to landowners to familiarize 
        them with offsets and how they might participate;

   Ensure that the activities to reduce emissions or increase 
        sequestration have been implemented;

   Provide a repository for reporting and record-keeping;

   Conduct audits and spot checks;

   Monitor how activities impact ecosystem functions and 
        values;

   Monitor and account for potential losses of carbon that is 
        sequestered; and

   Award offset credits.

    Within a comprehensive effort involving private landowners, 
regulated entities, and Federal, state, local, and Tribal governments, 
USDA is well positioned to work with farmers, ranchers, and forest land 
owners as we work through how such a new system will function. USDA has 
many tools and capabilities that we can bring to bear.
    USDA has built extensive networks and infrastructure to implement 
commodity and conservation programs in the farm sector. Our experience 
with these programs provides a platform that could be used to help 
bring an offsets program to scale. In particular, existing USDA 
programs and systems could be used to bolster the greenhouse gas 
mitigation market. USDA's ability to contribute to this effort is a 
result of the following experiences:

   The administration of conservation and commodity programs 
        that involve millions of land owners on hundreds of millions of 
        acres around the country;

   Our field technicians oversee the development of 
        conservation plans and approve contracts;

   We certify private sector technical service providers that 
        develop and implement conservation plans for farmers;

   USDA conducts audits and spot checks to ensure that 
        provisions of conservation contracts and agreements are adhered 
        to; and

   We maintain records and registries of program participants.

    Let me give you a few examples of the scale of these activities 
that USDA provides nation-wide. Under the Conservation Reserve Program, 
USDA manages over 750,000 contracts with landowners who have taken 
environmentally sensitive land out of production. USDA's NRCS manages a 
network of over 1,300 registered technical service providers 
nationwide. To bring the offsets market to scale quickly will require 
significant outreach and communication with landowners. USDA is well-
poised to help efforts that can make that happen.
    We are also continuing to develop technical capabilities, specific 
to greenhouse gases. Our research programs are at the forefront of 
reducing uncertainties in the measurement of greenhouse gas emissions 
and carbon sequestration on farms and forest lands. In 2006, USDA 
released guidance to farm and forest landowners to allow them to 
estimate their greenhouse gas footprints. We are developing user-
friendly tools that can help farmers and landowners make these 
calculations. The Department of Energy adopted USDA's technical 
greenhouse gas methods for use in their Voluntary Greenhouse Gas 
Reporting Registry.
    We plan to make improvements to these technical guidelines in light 
of new authorities provided under the 2008 Farm Bill, and are planning 
a process that is rigorous, science-based, transparent, and 
comprehensive. We envision a process that can engage the public and the 
technical experts at every step to ensure that the most recent 
information is included and that there is high confidence in the 
emissions reductions produced through agricultural and forestry 
offsets.
    In addition, USDA will need to improve upon the job we are doing in 
providing landowners with assistance and in ensuring that conservation 
activities are carried out properly.
    Concerns regarding equivalence between agricultural and forestry 
offsets and emissions reductions in other sectors of the economy have 
led some to argue that many agriculture and forestry practices should 
be either excluded from an offset market or their benefits should be 
significantly discounted.
    If agriculture and forests are to play a major role in addressing 
climate change, the benefits that carbon offsets provide need to go 
beyond what would have happened anyway. Quantification and reporting 
systems need to be rigorous, verifiable, and transparent--and review 
and auditing systems will need to be in place. Uncertainties must be 
accounted for and reduced. Greenhouse gas benefits accrued through 
carbon sequestration will need to be monitored over time to ensure that 
the benefits are maintained and that reversals are accounted for if 
they occur. If these principles are followed, the resulting offsets 
should be real, additional, verifiable, and lasting.
    I would like to close by again thanking the Committee for taking up 
this important issue for agriculture, rural lands, and the environment. 
As I stressed in my opening, America must demonstrate leadership on 
energy and climate legislation. Doing so will benefit our economy while 
also making it possible for all countries to commit to address this 
problem. I believe that agriculture and forestry can play a vital role 
in addressing climate change and that, if done properly, there are 
significant opportunities for landowners to profit from doing right by 
the environment. USDA is ready to help make that happen.

    The Chairman. Thank you, Mr. Secretary, for your testimony.
    As you can see, we have votes. We are going to keep going 
through this first process, and we will recess when we are 
voting on the motion to recommit, probably 10 minutes into that 
vote. But we are going to keep going through this. Mr. Holden 
is coming back. You know, so to try to save the Secretary's 
time----
    Mr. Lucas. So, Mr. Chairman, when you go vote, we should go 
vote at the very least by then?
    The Chairman. Right. So you can go vote, if you are down 
the line, but come back if you can. We are going to try to move 
this along.
    Mr. Secretary, I think most of us, all of us on the 
Committee believe that USDA should run an offset program. We 
think that that is the way to do things. But we are having 
people tell us that the USDA doesn't have the expertise to run 
a credible offset program for ag and forestry projects and that 
you don't have the science capabilities.
    What is your response to those that are saying that?
    Secretary Vilsack. Well, Mr. Chairman, let me, first of 
all, say that there is always room for improvement. It is 
fairly clear that, over the last several years, there have been 
some criticisms leveled at the way in which we have managed 
some of our programs. We are addressing those concerns and 
trying to improve our process.
    Having said that, I think USDA has a unique opportunity to 
contribute and to partner. I believe that we have the research 
capabilities, the economic capabilities, access to data, the 
technical experience, and also the significant outreach network 
throughout the country. With 2,250 offices in our FSA program 
and our approximately 850 offices in our rural development 
area, we have significant outreach. I think we have a 
relationship with farmers and ranchers that has been built over 
time.
    So, as a result of all of that, I think we are in a 
position to assist in providing technical assistance to farmers 
to understand compliance. I think we are in a position to 
assist in the implementation of whatever offset program might 
be created, and to make sure that farmers and ranchers 
understand fully and completely their opportunities under it.
    I think we can provide and will provide technical 
experience and assistance to allow farmers to look at ways in 
which their inputs might, in fact, be reduced. I think we can 
provide assistance in the application process that might be 
required, in the implementation of an offset program, in the 
auditing and reviewing of the implementation, and in the 
reporting.
    I think we are well-positioned, and that we can provide 
assistance and benefits. And I would hope that, as Congress 
acts on this and as you all exercise your judgment about how 
this should be structured, that you will recognize those 
qualifications and those opportunities, as well.
    The Chairman. Well, if the Congress gives you the authority 
to run this program, can you run it? You know, I understand 
what you are saying, but----
    Secretary Vilsack. Well, I tell you, Mr. Chairman, if I had 
a dollar for every time during my confirmation process I had to 
commit to doing something consistent with the intent of 
Congress, we wouldn't have a deficit.
    We will do what you tell us to do, and we will try to do it 
as best we can consistent with the intent, so long as you are 
clear in your intent.
    The Chairman. All right.
    Are you familiar with this chart here that was put out? EPA 
came out with this new analysis of the greenhouse gas 
mitigation potential a couple days ago, I guess. Have you seen 
this thing?
    It says ``FASOM.'' I have no idea what that means, what 
that stands for. But apparently they have done some new study, 
and they have significantly cut back what they think can be 
done in agriculture with these offsets. They have almost no 
benefit that we can give in soil sequestration, and it is a 
mystery to me how they came up with this.
    Have you or anybody down there studied this, and do you 
agree with this?
    Secretary Vilsack. Mr. Chairman, our staffs have begun the 
process, and I want to emphasize begun the process, of taking a 
close look and analysis of the recent EPA analysis.
    While I don't want to speak for EPA, I believe that they 
would, at least, have acknowledged that perhaps they were 
trying to respond to deadlines and timelines. We think we can 
add additional information to the analysis that may very well 
change some of these numbers and the calculations.
    It is part of what I think is important in the partnership 
I have talked about. We do have technical expertise. We do have 
access to data. We do understand the potential. We have been 
studying this for some time, and we can add to this 
calculation. I think we can help and assist in providing more 
specific information and more accurate information as time goes 
on, as all of us better understand the modeling that is 
required.
    The Chairman. Well, for your colleagues in the 
Administration, you should let them know that this kind of 
stuff is not helpful. This EPA rule that came out on the RFS2 
and them bringing in this international indirect land use, 
which I don't think holds water at all, and then coming up with 
these kinds of projections that I don't agree with, this is why 
a lot of us on the Committee do not want the EPA near our 
farms, okay?
    And I don't think you are going to get any kind of a bill 
through the Congress that, whatever the Administration wants, 
that is going to have that kind of a system. That is just my 
reading of my Members here, so, for whatever that is worth.
    We have 5 minutes left. Mr. Holden isn't here. I think Mr. 
Holden is going to be back shortly. Do you want to start your 
questioning, and then ask one question and we will give you 
some more time when you get back? Is that okay?
    Mr. Lucas. Fair enough, Mr. Chairman, fair enough.
    Mr. Secretary, you are in an enviable position. For a 
century-plus, you and your predecessors in your role have been 
viewed as not only the Administration, and whoever's 
Administration it might be, as the voice of rural American 
agriculture within a Presidential Administration. But, you are 
also viewed out in the countryside as our champion, the 
individual who understands us, who works on our behalf in the 
Administration, just as your predecessors have been. And that 
is a tough, that is a tough position, I realize, and I respect 
that.
    You have also been quoted in recent weeks as saying that--
and even today in your testimony--that agriculture will be a 
net winner when it comes to climate change legislation.
    I have to ask, Mr. Secretary, the bill that we are 
discussing today, the bill that was marked up in the Energy and 
Commerce Committee, the bill that basically will not be marked 
up in any other committees, the bill that we will get to vote 
on most likely in a couple of weeks, this bill would 
dramatically raise the cost of everything farmers and ranchers 
buy. But, it does not specifically give agriculture, as I read 
the bill, the benefit for providing carbon offsets or benefit 
of anything.
    So I guess my first question would be--and we can go from 
there--do you, Mr. Secretary, support the bill that we are 
considering today, the bill as passed out by Energy and 
Commerce?
    Secretary Vilsack. Representative Lucas, what I support is 
the notion that there is obviously work yet to be done on this 
bill, as you have indicated earlier today in your statement. 
And I believe, at the end of the day, that agriculture and 
forestry's role in cap-and-trade will be recognized and 
appreciated for the opportunity and the challenges, as you have 
outlined them, that exist. I honestly believe that, if this is 
established and set up properly, that we can, in the 
countryside, benefit from a wide variety of options created 
from a cap-and-trade system.
    I think it is important to recognize agriculture's role, I 
think it is important to recognize forest's role. I think, and 
I have confidence, as Congress works on this, that if it is not 
expressly stated today, although some would suggest that it is 
in the bill, if it is not expressly stated today, that it will, 
by the end of the day, be recognized. I think it has to be 
recognized as important.
    Mr. Lucas. Mr. Secretary, does the Obama Administration 
support this bill as passed out of the Energy and Commerce 
Committee in its form now?
    Secretary Vilsack. Representative Lucas, what the President 
has indicated is support for Congress taking action to 
establish this year a cap-and-trade system that allows us to 
provide leadership on this very important climate change issue 
and believes that--he has the confidence, as he has expressed 
to us, in Congress's capacity to get that job done.
    We recognize it is a big job. You have outlined how big it 
is today. But it is an important job. It is absolutely 
essential that we take action. And here is why: The challenges 
of climate change aren't going to go away. The problems that 
climate change presents aren't going to go away. It is going to 
require a global response, and America has to be in a position 
to lead.
    Second, the economies and the countries that, essentially 
create a leadership opportunity are in the best position to 
create a new economy that moves away from pollution, that moves 
away from waste towards innovation, towards green-collar jobs. 
That is what the President believes in, that is what he 
supports, and that is what we support.
    Mr. Lucas. Mr. Secretary, the bill that is before us, the 
one that it appears that we will get to vote on, on the floor 
of the United States House in the coming weeks, the one that 
the Speaker of the United States House has been quoted as 
saying will pass, appears to have all of the cost for 
agriculture and rural America up front. I did not see in the 
language any of the benefits that you have discussed that I 
think most of us in this Committee are in favor of.
    We are, by the legislative nature of this body, compelled 
to vote on the bills brought before us. I fully expect, and 
this is speculation on my part, they either have a closed rule 
or a near-closed rule when the bill comes to the floor. So when 
my colleagues, who are right now on the floor doing their duty, 
return, when in 2 weeks they vote on this bill, they will not 
vote on the idealistic result of the bill, they will cast their 
votes, they will put their name on the line on this version of 
the bill.
    I guess my question, and maybe you can't answer this, but 
if you were a Member of Congress representing the great State 
of Iowa and you had to vote ``yes'' or ``no'' in 14 days on 
this bill, what would you do, Mr. Secretary?
    Secretary Vilsack. Well, Congressman, you are asking me a 
hypothetical----
    Mr. Lucas. But you are the voice of agriculture within the 
Administration, sir.
    Secretary Vilsack. I appreciate that, and I am going to 
answer your question. I am just, I am happy with the job I 
have.
    I would simply say this, and I don't know the process as 
well as you do, obviously, because I haven't been a Member of 
Congress. But, it seems to me as if the process envisions 
Members having the capacity to continue to work on a bill for 
the next 2 weeks to do what has to be done, in your view and in 
the Committee's view, to improve this bill, to be more 
specific, to clarify, to correct, whatever you believe is 
necessary. That is your responsibility.
    And we are looking forward to working with you to do 
whatever is necessary to make sure that agriculture and 
forestry are, in fact, part of this opportunity. And I am 
confident that that will happen. I am confident it needs to 
happen. And we will be glad to provide whatever assistance and 
help to whatever Member of Congress on either side of the aisle 
to allow that to happen.
    So I am not sure how else I can say it. I think agriculture 
and forestry need to play an important role. I think they will 
play an important role.
    Mr. Lucas. I respect your responses intensely. I know you 
are a chief executive officer of a state, you are a Cabinet 
officer. I truly appreciate the challenge you are in.
    But sitting on this side of the dais, looking at this bill 
before us now, a bill that this is the first time that we as a 
Committee have been able to address it, this is most likely the 
last time as a Committee we will be able to address it, a bill 
that will go across the floor. If something passes in the 
Senate that winds up in conference, conference reports that are 
unamendable by Members on the floor, we put our constituents on 
the line in the vote that is coming. And right now this bill is 
something I would hope my colleagues who care about rural 
America and their districts cannot vote for.
    Thank you, Mr. Secretary, for your observations.
    And thank you, Mr. Chairman.
    Mr. Holden [presiding.] The chair thanks the gentleman.
    Mr. Secretary, getting back to my opening statement with 
the definition of renewable biomass, I was wondering what is 
your and USDA's position on changing that definition. There was 
an attempt in the Energy and Commerce to change it to something 
that we would like in this Committee, and it was defeated.
    And second, along those lines, if we do not change the 
definition, will we be able to meet our requirements for RFS if 
we do not do that?
    Secretary Vilsack. It is our belief that you all have done 
a very good job working over the course of several years to 
craft a farm bill in an effort to try to promote the notion of 
bioenergy and biomass as an energy source.
    We think that the definition that you all have in the farm 
bill is a very good definition, a comprehensive definition. And 
it is one that I think it would be appropriate to look to, in 
terms of trying to determine how best to integrate agriculture 
and forestry into this system. And that would be our hope.
    Mr. Holden. Mr. Secretary, I want to get you a copy of a 
study done by the Pennsylvania Department of Environmental 
Protection on the switchgrass capabilities in abandoned mines. 
That is something that I really think USDA should take a look 
at that, because we were hoping you were going to have a 
greater role in this.
    Mr. Secretary, can you tell us about the meetings taking 
place of the President's Biofuels Working Group? Can you 
reassure us about the roles of USDA and DOE and the efforts on 
the RFS2? And, in particular, the remaining questions many of 
us have about many of EPA's assumptions and the way that they 
choose to pull together and separate economic models to try and 
achieve their purposes?
    Secretary Vilsack. Certainly.
    First of all, the working group has begun its work. The 
President's directive, first and foremost, directed the USDA to 
provide the rules and regulations, to the extent we could, 
within 30 days on the energy title of the farm bill. And last 
Friday we met that deadline.
    So we are prepared to work with folks to build new 
refineries, to retrofit existing biorefineries, to encourage 
the development of alternative feedstocks, switchgrass 
obviously being one of them, to continue the research, to 
provide effective and efficient ways and a variety of ways to 
produce biofuels.
    The President is quite committed to it. The members of the 
working group are committed to it and understand that that is 
an important step to take if we are to reach the goal of 
breaking our addiction to foreign oil and providing more 
homegrown fuel.
    USDA, at a technical level, has been participating on the 
RFS2 rule. We participated in a public hearing earlier this 
week. We participated in a 2 day technical workshop hosted by 
EPA relative to some of the issues involving the RFS2. We have 
committed to working with our colleagues in the working group 
to develop whatever final rules may be developed and generated.
    We, obviously, have encouraged and were pleased that there 
is going to be a peer review of the indirect land-use portion 
of that rule. And we await that analysis.
    Mr. Holden. Thank you.
    Mr. Secretary, has the Department looked at the impacts of 
H.R. 2454 on other programs at USDA, such as the RES, energy 
efficiency, and carbon catcher provisions, impacts on the RUS 
loan portfolio, or the impact of the green building code 
requirement of your housing program?
    Secretary Vilsack. We have not had a full and complete 
analysis of all of the potential impacts. We are just in the 
process of getting to have an understanding, a general 
understanding. We recognize and understand that this process 
has just begun. As soon as there is some indication of 
finality, we will make sure that we fully understand and 
appreciate how best to implement these provisions.
    I will tell you that we are working with--in connection 
with the Recovery and Reinvestment Act, we are working very 
hard with HUD and the Energy Department to try to ensure that 
the weatherization money that is available is used 
appropriately. So that we can begin the process of making sure 
that homes that are constructed, remodeled, or are purchased in 
rural America are given the benefit of weatherization, as is 
the case in urban centers. Because we understand and appreciate 
that energy efficiency is part of the equation--not, by all 
means, the only part of the equation, but part of the equation.
    Mr. Holden. Thank you, Mr. Secretary.
    I yield back, Mr. Chairman.
    The Chairman [presiding.] I thank the gentleman.
    The gentleman from Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Secretary, welcome. I think we had the opportunity to 
speak on the phone after you had been nominated, and I don't 
know if we have ever actually met in person. But we are 
delighted to have you with us today, and we appreciate the 
effort that you are making on behalf of American agriculture.
    You stated in your testimony that countries that make this 
transition to clean energy will be in a much stronger position 
to prosper in the world economy; America cannot allow its 
economy to be left behind.
    But do you believe that our economy will really be stronger 
under a cap-and-trade system? Won't the burdens and the 
increased costs posed by this legislation put domestic 
industries at a severe competitive disadvantage when compared 
to our international peers, especially with countries like 
China and India?
    Secretary Vilsack. I have, and I know that you do, have a 
profound confidence and faith in the capacity of Americans to 
be innovators. I believe that our success in the past, 
economically, has been directly tied and connected to our 
capacity to accept challenges and to be the innovator of first 
resort.
    I think the transition from an economy that is based on 
pollution and waste to an economy that is focused on clean 
energy and clean technology plays to the great strength of 
America. I can list a number of the components of that 
strength, starting with our university system, starting with 
the private sector and its capacity to solve problems.
    So I don't believe that it will put us at a competitive 
disadvantage. In fact, I have a strong belief that it will 
provide for opportunities for us to export technologies that 
will encourage and create jobs here in the United States. I am 
also of the belief that the jobs that can be created in this 
economy are those that will not necessarily be subject to 
outsourcing, as has been the case in the past.
    And, finally, the extraordinary opportunities that 
renewable energy and biofuels present, particularly for rural 
communities, offers a real opportunity for us. And when you 
look at the data----
    Mr. Goodlatte. Would that be under the bill as it is 
written now by the Energy and Commerce Committee?
    Secretary Vilsack. I think it is, in recognition that, as 
this process continues--and I get the impression, and I may be 
totally wrong about this, but I get the impression that this 
process is a continuing process. As this process continues, the 
role, this Committee's work, this Committee's hearing, the 
opportunity for dialogue and debate, the role of agriculture 
and forestry will be well-understood and appreciated and part 
of this process. And if it is, I think there is tremendous 
opportunity----
    Mr. Goodlatte. I hope you are right about that, Mr. 
Secretary, because I am very concerned that the countries that 
we compete with around the world, where we are already far 
superior in our environmental practices--you have talked about 
waste and so on. We are talking about countries that have not 
hesitated to take advantage of the difference in environmental 
policies that already exist. And we are handing them a huge 
advantage by tying our hands behind our back.
    And look at what we are doing to rural America in limiting 
access to other forms of energy that farmers, ranchers, and 
businesses that operate in rural areas need, like coal--coal is 
treated so poorly in this process, and yet we have more coal 
reserves than any place in the world--and nuclear. If you want 
to talk about reducing greenhouse gas emissions, nuclear power 
today, without any of the incentives that ought to be in a bill 
like this and aren't in a bill like this, already reduces 
greenhouse gas emissions by a factor of several times what all 
of the other renewable sources of energy do, and yet it is 
given short shrift in this legislation.
    The result of that, given that those provide about 75 
percent of our electricity in this country today, is going to 
be to drive up electricity costs in a dramatic way.
    You talk about the transition to a green economy. We are 
all in favor of that. You talk about the creation of green 
jobs. But isn't a fact that nowhere in your statement or in the 
Waxman bill is there any description of how we get there?
    We talk about things we would like to do, and we talk about 
our confidence in being able to do them, but nowhere is there a 
roadmap to show us how to do those things. And, therefore, we 
are taking a big risk when we enact legislation like this that 
cuts back on our reliance on a whole host of domestic sources 
of energy, and works on the promise that there will be 
something cost-effective to replace them.
    Secretary Vilsack. With respect, I think that we make some 
degree and reference it, in terms of agriculture's role and the 
steps and processes and procedures that agriculture can adopt 
and that can be encouraged that might provide real opportunity.
    Let me also say that this process is not static; that, 
indeed, what is happening, even as we sit here today, there are 
scientists, there are people working in laboratories, trying to 
figure out how we can produce more with less.
    I just had a conversation with one of the CEOs at one of 
the major seed companies not too long ago. And he was 
extraordinarily confident of the capacity of his company to 
come up with technology that would increase yields considerably 
and actually reduce inputs by perhaps as much as a third. So--
--
    Mr. Goodlatte. Do you think the EPA should have the 
authority to deal with those agricultural offsets? Or do you 
think that should be turned over to your Department or to 
somebody who has a greater understanding of agriculture?
    Secretary Vilsack. I am proud of what we do at the USDA. I 
think we have a role to play, and we have a lot of offer. We 
have a unique set of tools and resources that will be used in 
this process. The network of technical experience we have, the 
capacity that we have had in the past to handle the vast number 
of applications that may be forthcoming, the scaling up of 
this, when you take a look at agriculture and forestry's role--
--
    Mr. Goodlatte. I hope that is a ``yes.'' Maybe we agree on 
that point.
    Secretary Vilsack. I think it is a partnership. I think it 
is unrealistic to think that EPA is going to have no role in 
cap-and-trade, generally. I think it would be unwise for USDA 
not to have a role. I think we need to work to figure out how 
to integrate those roles to take advantage of the expertise of 
each agency to come up with the best possible program.
    Mr. Goodlatte. My time has expired. Just let me ask one 
last quick question. Has the USDA done an analysis on how this 
bill will affect the operating cost for American farmers and 
ranchers?
    Secretary Vilsack. Let me just double-check. I think I know 
the answer to that question, but I want to double-check.
    There has not been a USDA-specific analysis. We recognize 
that EPA did an analysis, which they are in the process of 
redoing. And we can't actually complete our analysis until they 
have completed theirs.
    So the answer to the question is we have not done a full, 
complete analysis of the bill. And, again, our assumption and 
belief is that this is a work in progress and a work in 
process.
    Mr. Goodlatte. Thank you, Mr. Chairman. I hope we will slow 
down this process to give USDA and others an opportunity to do 
those kinds of analyses before we put the cart before the horse 
and pass this legislation.
    The Chairman. I thank the gentleman.
    I remind Members that we will be recognizing people as they 
appeared at the Committee. So the next person is the gentlelady 
from South Dakota, Ms. Herseth Sandlin.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for your testimony today and your 
leadership of the Department.
    I want to associate myself with the questions and comments 
of Chairman Peterson and the former Chairman, Mr. Goodlatte, as 
it relates to the USDA's role, in better understanding what 
that role can be, in our opinion what it should be, and 
enhancing the opportunity for the Department to administer an 
offsets program for agriculture and forestry.
    I also know that Mr. Holden posed some questions with 
regard to the biomass definition. I encouraged one of your 
Under Secretaries, Mr. Jensen, for the Administration to get 
more into the debate and to take a position with regard to 
expanding the biomass definition. It would be good for 
agriculture and forestry as it relates to meeting our biofuels 
and renewable electricity demands that we would set out in, 
perhaps, an RES and to meet the targets we set forward in the 
RFS.
    And I know that you had a chance to address indirect land 
use. And I would hope that the Department would insist, and 
perhaps if it doesn't this Committee will insist, that USDA 
must play a role in the peer-review process that the EPA is 
undertaking as it relates to indirect land use calculations.
    And, finally, one further comment before posing my 
question. On the RFS2, I know that you had indicated, I believe 
in response to Mr. Holden's questions, that the USDA is 
involved as it relates to evaluating how the RFS2 is going with 
the EPA.
    I would caution against, and I would imagine other Members 
of this Committee would agree, any cap on grain-based ethanol 
should be avoided as we construct the RFS2. You just referenced 
meeting with a company as it relates to seed technology and 
advancements in projected yields. I have seen those same 
studies and calculations and think it would be very premature 
and not based on sound science, based on the new technologies 
coming on line and that are estimated in the next 5 to 10 
years, to put any kind of cap of 15 billion gallons, or 
whatever that number may be that has been discussed, on grain-
based ethanol.
    My question is an issue that many of the commodity groups 
state in their testimony today. It is a small but very 
important factor in an agricultural offsets program, and that 
is the idea of the stackability of credits to maximize economic 
benefits to producers.
    In South Dakota, as you know, many producers take advantage 
of programs like CRP, EQIP, the Wetlands Reserve Program. 
Carbon sequestration in CRP acres in the Upper Great Plains, 
including South Dakota, are among the highest in the country. 
We need to allow producers to see the full benefit of these 
carbon sequestration activities.
    And so I am wondering, Mr. Secretary, how do you see an 
agricultural offsets program fitting in with other USDA 
conservation programs as passed in the farm bill? And does USDA 
believe stacking credits is possible, especially given the 
reduction in CRP acres and other conservation program changes 
as mandated in the 2008 Farm Bill?
    Secretary Vilsack. Part of what our challenge is, is to 
make sure that whatever system is established is one where we 
are in a position to ensure that the benefits are real; they 
are credible; they are verifiable; they are durable; and that 
they are not necessarily things that would otherwise have taken 
place, that the qualification reporting system that is 
necessary is rigorous, is verifiable and transparent.
    One of the benefits that I think we have is the fact that 
we have been operating these conservation programs. We do 
understand how to go through that process. We have been rightly 
criticized in the past for not being as vigilant on some of 
these criteria as we should be on the conservation programs. We 
are addressing those issues. So, we are in a position to be of 
assistance and help.
    I think it is important for us to take a look at how we can 
continue to create as many options as possible for farm 
families and rural families to profit. We have some serious and 
interesting dynamics taking place in rural America.
    We have the emergence of small producers, 108,000 new farm 
operations in the last 5 years. These are very, very small 
operations. They aren't necessarily operations that would take 
full advantage of the conservation programs, but they are very 
important to repopulating rural America.
    There are very large production agriculture systems that 
provide 75 percent of what we consume. They obviously are users 
of those programs and need to be encouraged to continue to use 
them.
    Then there are the folks in the middle, where we lost 
80,000 operations in the last 5 years. And I am looking for as 
many ways as I possibly can, as the Secretary of Agriculture, 
to figure out how we can help those folks in the middle, 
between $10,000 in sales and $500,000 in sales, in continuing 
their operations.
    So, to the extent that we set up systems that provide 
income opportunities, we should always look for opportunities 
to maximize those opportunities.
    Ms. Herseth Sandlin. So stackability of credits is a 
concept that, as you do that evaluation, may enhance the 
potential for economic profitability for those mid-sized 
operations?
    Secretary Vilsack. Representative, we are looking for all 
of the options, all of the opportunities that may be possible 
and available. We want to make sure that we are able to always 
quantify, justify, and verify what we are reporting, because 
otherwise we undermine the integrity of the system, which we 
don't want to do.
    Ms. Herseth Sandlin. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary.
    The Chairman. I thank the gentlelady.
    The gentleman from Oklahoma. Oh, you have already gone? 
Okay, that is right.
    The gentleman from Kansas, Mr. Moran?
    Mr. Moran. Thank you for recognizing me.
    Mr. Secretary, welcome to the Agriculture Committee. When 
we first met in this room back in January, I invited you to 
Kansas, and I would again extend that invitation. We would 
welcome an Iowan to come to Kansas, someplace other than the 
basketball court. We would be delighted to have you.
    This is a serious issue for us, and I am delighted that Mr. 
Peterson has called this hearing. I am interested in following 
up on Mr. Goodlatte's question about USDA's analysis of this 
bill. I am interested in knowing whether USDA has completed, 
even in preliminary form, any assessment of the additional 
costs to farmers for fertilizer, for natural gas, for diesel 
fuel.
    Do we have any estimates of what increased costs may occur 
so that we have something to compare, at least, the 
hypothetical opportunity for an offset against? What are we 
offsetting?
    Secretary Vilsack. Well, we are offsetting--the answer to 
that question is we are offsetting the capacity of other parts 
of the economy not to meet whatever thresholds that are 
required under the cap-and-trade system and the capacity for 
them to purchase additional permission.
    Mr. Moran. Let me ask my question differently, because you 
answered my question correctly. My question is, what are the 
amounts of money that farmers are going to pay additionally 
under this legislation that we need to then worry about how 
they find income?
    You have talked a lot about the opportunity for farmers to 
generate income from these payments. What does USDA estimate 
the increased cost to production of agriculture to be as a 
result of this legislation?
    Secretary Vilsack. Well, I can't give you a specific number 
today, in large part because the analysis upon which we would 
make that determination has not been completed. The EPA is in 
the process of redoing their analysis based on changes that 
took place when the initial bill was passed by the Committee.
    I think it is fair to say that there may well be additional 
costs associated with a farming operation, but it is very 
difficult to quantify how specific and how much those costs 
will be. The reason I am hesitant about this is because there 
are so many factors apart from this legislation that impact 
that answer.
    First of all, are we talking about 1 year, are we talking 
about 5 years, are we talking about 10 years, are we talking 
about 20 years? Second, what assumptions are you going to make 
relative to new technologies, greater efficiency in machinery, 
new discoveries, crop rotations and impacts?
    All of that gets taken into account. So it is extremely 
difficult and a challenge for anyone to, specifically indicate 
with a high level of confidence, a precise number.
    Mr. Moran. That is the challenge we face in trying to 
decide whether this is a good idea. And we have often relied 
upon USDA and their Chief Economist to come tell us their best 
analysis of what costs and benefits might be.
    Secretary Vilsack. Well, one analysis is that, as this is 
structured and when it will be--and I believe it will be--
structured properly with a role for agriculture and forestry 
that you all contribute to creating, what you are going to see 
is, if we do this right, there is real opportunity.
    There is real opportunity in two respects. First, there is 
the opportunity to pay farmers and ranchers for certain 
practices that are used as offsets. And then, second, there are 
terrific opportunities in terms of economic development in 
rural communities of jobs and industries, activities that will 
be generated in small towns that will provide off-farm income 
in addition to the offsets.
    So, there are multiple opportunities here if we do this 
right and if we are aggressive about it.
    Mr. Moran. You indicated in response to Mr. Goodlatte's 
question that agriculture is--that there are offsets mentioned 
in the bill. And, at least as I read the bill, while the word 
agriculture is only mentioned seven times in the bill, it is 
never mentioned in relationship to any offset corresponding 
benefit to agriculture.
    And it seems to me that maybe one of the difficulties we 
have is that you come to the Committee in support of a concept. 
We are here ultimately to vote on a bill.
    And I guess my question would be, do you endorse this bill, 
or do you just endorse the concept behind the bill?
    Secretary Vilsack. Well, I respect the role that you will 
be playing in crafting and creating this bill. I think there is 
a Committee process for a reason and there is an amendment 
process for a reason. I don't know what the final bill is going 
to look like because I don't want to presuppose when you will 
or will not do, or what decisions will or will not be made by 
Congress.
    Let me just simply say, we are prepared at USDA to advocate 
agriculture and forestry's role in a cap-and-trade system and 
an offset process. And we are prepared to partner with Federal 
agencies, with state agencies, and others to administer this in 
a way that is fair and beneficial.
    Mr. Moran. I would ask you then, in your capacity as a 
representative of the President, of the Administration, to 
visit with our leadership. Because our frustration here is, 
while you continue to express the belief that we will work our 
way through this magic legislative process and there will be 
some final product, this hearing we are having today, unless 
Mr. Peterson has different plans, is our only opportunity not 
to amend, not really to debate, but simply to ask questions of 
witnesses.
    And so, there is going to be virtually no input or no 
change from the Members of this Committee. And with the 
Speaker's announcement that the bill's markup has to be 
completed in all committees by June the 19th and be on the 
floor the week of June the 22nd, 23rd, and 24th, something like 
that, the bill that is in front of us is the bill we have.
    So while I am appreciative of your desire to see that 
agriculture works its way in and that the ultimate legislative 
process reflects the concepts and things that you support, at 
least I have great concern that the bill before us will never 
reach the stage that you describe.
    And that is our problem, not yours. But if you could help 
us with President Obama in his encouragement to Congressional 
leadership to take a step back and say this is such an 
important issue for the country, for our economy, for the 
future of agriculture, let Congress take its time to do a 
better job than what I think is going to be.
    My time is well expired, Mr. Chairman. Thank you for the 
opportunity.
    The Chairman. I thank the gentleman.
    The gentleman from Iowa, Mr. Boswell?
    Mr. Boswell. Well, thank you, Mr. Chairman.
    Thank you, Mr. Secretary. And I appreciate your rural food 
providers' participation this morning. I believe you can build 
that partnership.
    However, I have serious doubt about this partnership, and I 
know from your history that you are a person that is very good 
at putting partnerships together. But, as this bill stands 
today, I don't see--I can't vote for it. I don't know if 
anybody else on the Committee can.
    And I talked to my constituency, and you know those folks 
out there about as well as I do, maybe better in some cases. We 
have to have USDA involved in this, and we have to have the 
confidence they will be, or I don't think we are going to have 
a bill.
    And I know it is very important to the Administration. Some 
of us were over there just the other day. And I would like for 
our President, I would like very much for our President to go 
to Copenhagen with something. But this is not getting there, I 
don't think, maybe I am wrong, but I don't think so.
    And I join with my Ranking Member from Kansas and from the 
Chairman, the Ranking Member of the Committee. We implore, we 
beg you to do whatever you can to say--repeating what you have 
been saying for the last little bit, that you have the staff, 
you have the tools, give you some time, you can do it. We think 
you have to do it. We feel very, very strongly. I don't know 
how I could emphasize it any more.
    And we want to help you to do that. We want a partnership 
with you on this. And whatever possibilities or things you can 
do with the folks in the Administration, more power to you. But 
we have quite a lineup of people, as you know, that are very 
uneasy on this.
    And I could go through a whole litany of things, which you 
have been talking about, we have to vote on. I know of a lot of 
people, myself included--but my part is not important; it is 
for the people I represent--that have been practicing good 
conservation measures to stop these kind of gas releases for a 
long time. They shouldn't be left out, because they have been 
good stewards.
    And then we can go on with the minimum-till, no-till, and 
right on down the line, but when you start matching that up 
with what it is going to cost them to keep doing that, as we 
see it now, it just won't work.
    And we have dairy farmers, as you well know--and you have 
been trying to help them; thank you--we have pork producers, as 
you well know, and right up and down the line, that it is 
really, really tight. And we can't throw something else at 
them, I don't think.
    So I pledge to help you any way you can to try to convince 
people that USDA has to be the player in this. We have to be. 
And whatever partnership you can work out with EPA, fine. That 
is okay. But we have to tell our producers and our people in an 
agriculture state like ours, like Mr. Moran and a whole bunch 
of others, that we have to be at the table. We have to be. And 
I can't say that strong enough.
    And I hope that I am not just singing to the choir, 
because, Mr. Chairman, we have to get this done. And I know 
that you know it; we have talked plenty. And I know, from 
talking to you, that you want to work with the Secretary. I 
know that. But, this Committee is going to stand together on 
this, and we want USDA to have hands on.
    Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman.
    We are going to try to sneak in Mr. King, and then we are 
going to have to recess for about 10 minutes. We apologize, Mr. 
Secretary, but we will do the best we can here.
    Mr. King, you are recognized.
    Mr. King. Thank you, Mr. Chairman.
    And, Mr. Secretary, thank you for your testimony. It is 
pretty rare in this Committee to have Iowans not just back-to-
back but in triplicate at least.
    And I know, from past history, that you have done a very 
good job of doing your homework. You understand the legalities, 
the policy and the science behind the things that you and I 
have worked together on, and the things we have produced good 
legislation from.
    And so, the question that doesn't seem to get asked, and 
that is this: that the underlying science that drives this 
entire global warming initiative, is that something that you 
have examined? And are you comfortable with the science?
    Secretary Vilsack. Representative King, it is good to visit 
with you, and thank you for that question.
    I have. Just to give you a sense of this, Governor Pataki 
and I co-chaired the Council on Foreign Relations Task Force on 
Climate Change prior to my having this opportunity. And we 
issued a report based on the international implications of 
climate change and some recommendations concerning domestic 
policy that would help enhance our position internationally.
    I would argue I have also seen firsthand the impact of 
climate change. I recently was in Colorado. And you are 
probably familiar with the pine bark beetle and the infestation 
of a lot of the timber in the Colorado area. It is absolutely 
heartbreaking to see that 90 percent of that timber stand of 
Lodgepole Pines may well be destroyed because----
    Mr. King. Mr. Secretary, not only am I familiar with that, 
I am familiar with that on up into Canada in very large areas 
that impact on our economy. And I recognize the point that you 
are making.
    I wanted to, though, ask if you could speak to the issue 
of--it seems to me that the meteorologists are very uneasy 
about this science. We have 31,000 scientists that have signed 
on and said that they don't accept the science. We have a whole 
group of others that have shifted their positions. And yet, 
when I trace the dollars, almost 100 percent of the dollars 
that are going into the research are the dollars that support 
the advocacy for addressing this as a global warming issue, or 
now it has been changed to a climate change issue.
    And are you familiar with the assumptions that have to be 
made in these models, such as, for example, do clouds actually 
warm the Earth or do they cool the Earth? And in that 
assumption lies the entire crux of this matter. Is that 
something that you have looked at from a scientific standpoint?
    Secretary Vilsack. Well, I wouldn't say that I am a 
particular expert in the science of this, Representative, but I 
do know this: I do know that we run a serious risk of inaction. 
A failure of this country to lead, and countries from around 
the globe to act, could result in significant temperature 
increases, which could increase the intensity of storms, that 
could change planting locations and planting seasons, that 
could result in temperatures increasing and seeing an increase 
in human disease and animal health being compromised----
    Mr. King. And watching my clock tick----
    Secretary Vilsack.--and shorelines being destroyed and mass 
migration. I think there is a serious risk of inaction.
    Mr. King. And I appreciate the Secretary's response to 
that. I recognize in your testimony you had also referenced 
where there is scientific uncertainty.
    But I would like to shift this thing over to the cap-and-
trade component of this. And you have emphasized the need to 
have a very solid, tight cap-and-trade program that has pole-
to-pole transparency. And if this happens, I fully agree with 
that.
    And I would just point out that we do have an experience 
with cap-and-trade here in the Capitol. When Speaker Pelosi 
first received the gavel, she decided we would be a 
CO2-emissions-neutral complex here and directed that 
the Capitol Power Plant be shifted over from coal to natural 
gas burning, and still found herself $89,000 short in carbon 
credits. So she went on the board and purchased those $89,000.
    I actually went and chased that down a little bit and found 
that some of that money went to no-till farmers in North 
Dakota. No particular objection there, although I am not 
convinced that it changed their behavior, which was the intent.
    But I did go to Chillicothe, Iowa, and I am sure you are 
familiar with that generating plant, the coal-fired generating 
plant that received a grant to burn switchgrass. And as I stood 
there on those bales where there hadn't been any switchgrass 
burned for 2 years and asked for the data on what they had 
learned, they told me they didn't have really a conclusion that 
they had drawn yet.
    But it looks to me like perhaps all of that $89,000 that 
Speaker Pelosi spent to purchase these carbon credits 
essentially brought about no change in anyone's behavior. In 
fact, if it had gone under your audit system, we might have 
found out that it was a complete failure.
    And I would ask if you are familiar with that plant in 
Chillicothe.
    Secretary Vilsack. Well, I am familiar with the specific 
plant, Congressman King. And I am assuming you are very 
familiar with the Stern Report, which suggests that the cost of 
inaction will be very, very severe internationally.
    And that is why, I think, it is important for us to work 
together to try to get this process to move forward and why, I 
think, and will continue to think and continue to state that 
agriculture and forestry have to play a role, because we have 
something to contribute.
    Mr. King. Thank you, Mr. Secretary.
    The Chairman. We have 1 minute or less. So thank you, Mr. 
Secretary. We will be back as soon as we can.
    [Recess.]
    The Chairman. All right, the Committee will come back to 
order. Everybody get back to order. We are finding the 
Secretary, and we will get going here.
    Welcome back, Mr. Secretary. We made that quick, huh?
    We will now recognize the gentleman from Minnesota, Mr. 
Walz.
    Mr. Walz. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here.
    I think that many of us, it has been very apparent, we 
share the deep concerns about the issues of climate change and 
carbon emissions, but we also are equally concerned that, as we 
do this legislation, we do what is right by our true stewards 
of the land, our agriculture producers. You have grown up and 
you know this as well as anyone, that our producers have done 
great good for the environment and they continue to do so.
    What I would say is more subjective-wise than specific on 
this. You are listening to this Committee, you are listening to 
your stakeholders who are out there, whatever. In your mind, 
what is it going to take to truly bring about the positive 
changes and hold those rural areas as harmless as possible, 
especially our ag producers, biofuels and those type of things? 
What do we need to make sure happens to ensure that, to ensure 
the vitality of our rural areas?
    Secretary Vilsack. Representative, I am going to limit my 
response as it relates to climate change, because there are an 
awful lot of things we need to do that haven't been done, or 
need to be done differently to be totally responsive.
    But, as it relates to climate change, it is a recognition 
that agriculture and forestry are a very small percentage of 
the problem, if you define the problem as the emission of 
greenhouse gases of all kinds, and represent, at least by some 
studies, as much as 20 to 25 percent of the potential solution. 
So you would want to make sure that that is recognized in 
whatever policy you advance.
    And what is significant is that USDA is prepared to work 
with our farmers and ranchers in maximizing those 
opportunities, because we understand what they do and why they 
do it and how they do it, and we are on the ground.
    And so, it seems to me that a recognition of the important 
role that agriculture plays and forestry plays, and a 
recognition that USDA can partner with Federal agencies, state 
agencies, local agencies, to make it work as well as possible.
    Mr. Walz. Well, I very appreciate hearing that, because I 
think that is what many of us want. I hope your voice is 
resonating with folks on that, because Mr. Goodlatte brought up 
a point that all of us know. Out in our districts, USDA is 
highly respected, and I wouldn't say the opposite is true of 
EPA, but the ability to work with them is more difficult.
    So, there is a sense of seeing us as the solution, seeing 
your agency can be part of this solution, instead of seeing us 
as another place possibly where things can fall down on us. And 
that is----
    Secretary Vilsack. Our goal is to work with folks.
    Mr. Walz. I appreciate that.
    I yield back, Mr. Chairman.
    The Chairman. I thank the gentleman.
    Let's see here, where are we? The gentleman from Texas, Mr. 
Conaway?
    Mr. Conaway. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    Prefacing my question, Galileo was the preeminent scientist 
of his era, probably the only one you and I know whose name it 
was. The clear science of his time said that the Earth was the 
center of the universe. The Roman Catholic Church believed it, 
and most of all the other scientists did. Galileo dared to say 
that the sun was the center of the universe and, for that 
heresy, spent the last years of his life in house arrest 
because the Roman Catholic Church disagreed with him. You and I 
both know, of course, that Washington, D.C., is the center of 
the universe, but that is a different conversation.
    Clear science--help me understand how you make that 
statement to us. I have a book here that has a list of almost 
32,000 American scientists who disagree vehemently with that 
particular position. So help me understand your statement to us 
that the science is clear.
    Secretary Vilsack. I think it is fair to say that 80 
percent of the scientists who----
    Mr. Conaway. Do you have a basis for that percentage?
    Secretary Vilsack. I can get you that basis.
    Mr. Conaway. Okay. I am a CPA by background, and when 
people start using percentages----
    Secretary Vilsack. I would be happy to provide that to you. 
I mean, there are a number of reports that have suggested it.
    I think there are some objective signs, as I indicated with 
Congressman King when we had a conversation about what is 
taking place in Colorado. I mean, you have trees being 
destroyed in large part because we can't get rid of this 
beetle, and we can't get rid of the beetle because it doesn't 
get cold enough, like it used to, to kill it off.
    So, I mean, there are some indications that----
    Mr. Conaway. All right. The beetle aside, can you help me 
with your understanding of the 21 climate change models that 
the Intergovernmental Panel on Climate Change uses as their 
prediction, and the first 9 years of the Earth's actual 
experience with those models?
    Secretary Vilsack. Well, if memory serves me correct, the 
significant percentage of those models suggest the possibility 
of a temperature increase of somewhere between 3 and 7.
    Mr. Conaway. Yes. And Earth's actual experience over the 
last 9 years?
    Secretary Vilsack. Well, I know that the last 100 years is 
the among the warmest we have experienced.
    Mr. Conaway. Okay. The last 9 years--and I have only got a 
limited amount of time, so if you are not going to answer my 
question, I will answer it for you.
    Over the last 9 years, that actual Earth's temperature----
    Secretary Vilsack. Oh, I am sorry. I thought you said the 
last century.
    Mr. Conaway. Yes, the last 9 years--is actually below the 
most conservative model and falling away from that. So I would 
disagree with your statement to us that the science is clear.
    As I mentioned, I am a CPA by background. I know that you 
had extensive experience, as Governor, balancing budgets. You 
make another statement to us in your testimony that allowing 
agriculture and forests an efficient mechanism to offset the 
emissions of regulated companies, if properly designed, will 
help enable lower overall costs for everyone.
    How do you add $600 billion to $800 billion in new costs to 
generating electricity and using energy to the system and look 
us in the eye and tell us that we are going to have lower costs 
for everyone?
    Secretary Vilsack. Well, the nature of the statement is 
that, by including agriculture and forestry in a significant 
way, you essentially provide opportunities for offsets, which 
in turn make it easier for those who are being regulated to 
comply with the law and potentially----
    Mr. Conaway. But lower costs for everyone?
    Secretary Vilsack.--potentially less expensive for them 
than otherwise would occur if you did not include agriculture 
and forestry in the offset program.
    Mr. Conaway. Okay. You also mentioned earlier in your 
testimony that your analysis of the existing bill is 
incomplete. As decision-makers, wouldn't you advise us to wait 
until you and your team have some clear understanding of what 
the costs and offsets and benefits, et cetera, are going to be, 
or should we rush to judgment on this and ignore whatever 
wisdom your team can provide to the decision-makers on what the 
bill would do? Wouldn't it be better to slow down just a mite?
    Secretary Vilsack. As you know, EPA is in the process of 
reworking its analysis of the energy costs. We will take that 
information and then do an evaluation of a best estimate that 
we have and that we can make.
    Mr. Conaway. But would you advise us to wait? Is your 
information irrelevant to the decision?
    Secretary Vilsack. It is not irrelevant, Representative, 
but here is my concern: I think you can give ranges, I think 
you can give an outline of the direction, but I am not sure 
that anybody can be as precise----
    Mr. Conaway. I am not asking for a precise number but just 
some broad category guess----
    Secretary Vilsack. Well, I think the broad----
    Mr. Conaway. Yes, let me finish this off.
    Your partnership with the EPA, all things climate change, 
will you be the limited partner in that deal, co-agenda 
partner? Will you work for--I mean, do you have as many lawyers 
as the new EPA will have to go toe to toe with them if you 
disagree with something that they put out?
    Secretary Vilsack. Well, we have a very large General 
Counsel's Office, and I am a lawyer myself, so I think we will 
hold our own.
    I think the point of this is, it is not a contest, it is 
not a competition. I think this is serious business, and it 
requires us to work cooperatively. I think it requires us to 
recognize the strengths that each of us bring to this overall 
conversation. I think the USDA has many, many strengths, many 
particular strengths and unique strengths----
    Mr. Conaway. Okay. And in those strengths, do you see 
yourself as an advocate for ag and you would oppose the EPA if 
you believe that they were going down the wrong track? Or does 
the EPA get the tiebreaker?
    Secretary Vilsack. Well, first and foremost, it depends 
obviously on how you all structure this. But I would say that 
the opportunity for cooperation involves an understanding of 
each position. I think the best position ought to be the 
position that ultimately is agreed upon. And I would do----
    Mr. Conaway. All right. Thank you, sir.
    Secretary Vilsack. If I can finish?
    Mr. Conaway. Sure.
    Secretary Vilsack. I will do my best to present as strong a 
case--if I feel strongly about something, I can guarantee you, 
you would know it, the EPA Administrator would know it, and 
rural America would know it.
    Mr. Conaway. Well, and not to be a contrarian, and I am out 
of time, but we have asked you some pretty point-blank 
questions, and you don't seem to be having any strong opinions 
on them that you shared with us this afternoon.
    Secretary Vilsack. Well----
    Mr. Conaway. So, anyway, thank you for your--I appreciate 
you being here. And I hope I wasn't rude, but I only get 5 
minutes--or 6 minutes and 23 seconds.
    And I yield back. Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman.
    The gentleman from Indiana, Mr. Ellsworth?
    Mr. Ellsworth. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary for being here. Good to see you 
again.
    Secretary Vilsack. Nice to see you.
    Mr. Ellsworth. My particular question today is about what 
you are seeing in the proposed legislation as it relates to 
farmer-owned cooperatives. I have a farmer-owned cooperative 
refinery in my district, a wonderful employer. And I would like 
to leave you with this summary, with you and your staff, before 
we leave today, if I could.
    But while agriculture activities are excluded from the 
current proposed legislation, I would like to know if you feel 
there has been adequate examination so far of the full effects 
of the proposed legislation on farm activities in rural 
communities. And if not, what do you think has been overlooked?
    And if you are familiar with, like I said, the farmer-owned 
cooperatives as it relates to refineries, what is your opinion 
on that and where we go from there?
    Secretary Vilsack. Well, I appreciate that the REC 
refineries are obviously concerned and have expressed those 
concerns.
    You know, I had the staff actually take a look at, back in 
the 1930s, what the reaction was when we first began to discuss 
rural electrification. And there were a lot of skeptics at that 
point in time, in terms of whether or not it would be a good 
thing for rural America. The co-ops have obviously answered 
that question in a very affirmative way.
    What I have been most intrigued by is the reaction of co-
ops to embracing renewable forms of energy, at least in my 
state. I have seen a real desire and interest in embracing 
renewable energy.
    And my sense and belief is that we need to do everything we 
possibly can to allow them to continue to provide the very 
important and vital service to rural communities, recognizing 
that their challenges are much different than the challenges of 
utility companies in urban centers because of the concentration 
of citizens served, and do everything we possibly can to give 
them as many options to continue promotion of renewable energy. 
Not only is it good for the environment, it is also good for 
the kinds of jobs that it is creating, at least in my state, 
with windmills and manufacturing coming back in part.
    I have learned that there are 8,800 parts to a windmill, 
and so somebody has to make those parts. They can be made, and 
ought to be made here, in the United States.
    Mr. Ellsworth. Let me take you to, besides the rural 
electric, in particular, refineries. We can't run the tractors 
and the combines on wind yet. It would be a good day when we 
can. But the small--and I am talking about the ultra-small 
refineries that these farmers rely on, that they can keep those 
gas prices steady, the fuel prices, that they rely on with 
these rural refineries. And what consideration might be taken 
in this legislation for them?
    Secretary Vilsack. Well, you obviously have to take a look 
at the way in which--depending upon whether a decision is made 
to auction off credits or to allocate them, you have to look at 
the way in which the auctions or the allocation will work to 
make sure that it is a fair and balanced approach.
    I would say that, again, I guess I am optimistic about the 
future of this country and the capacity to innovate. I am going 
to be anxious to see where we are 20 years from now in terms of 
the machinery that is used on the farm, what changes have been 
made.
    You know, I don't want to take time today, but I had an 
interesting experience in India relative to tractors that are 
made there and tractors that are made here. And it is pretty 
remarkable, the difference in technology, and we are just on 
the cusp of more innovation.
    Mr. Ellsworth. I share those feelings and that optimism. 
And I wouldn't go away--and I will yield back in just a 
second--but also the farmers and the ranchers in my community 
really want to see this kept under USDA and not EPA. That is 
just the message--when they heard you were going to be here 
today, they wanted me to tell you that.
    So thank you, Mr. Secretary.
    Thank you, Mr. Chairman. I yield back.
    The Chairman. I thank the gentleman.
    The gentleman from Nebraska, Mr. Fortenberry?
    Mr. Fortenberry. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for your testimony today. I 
appreciate your willingness to be here.
    And I agree that agriculture should play a key role in 
leading us to a renewable and sustainable energy future in our 
country. Clearly, we need a bold, new energy vision for 
America.
    I also believe that reducing greenhouse gas emissions is 
critically important to our environmental health as well as 
societal well-being. And a serious discussion of how America 
should address this challenge is appropriate, timely, and 
necessary.
    Our sustainable energy future must clearly include the 
integration of conservation and new technologies powered by 
clean, renewable sources such as wind and solar, biomass, 
biofuels. Chapter by chapter, I think we can build this future. 
While I would support the goal of reducing greenhouse gas 
emissions, I do have serious concerns about this approach and 
its effectiveness in potentially achieving meaningful emissions 
reductions.
    I cite the European Union's experiment with the cap-and-
trade system implemented in 2005. Thus far, the EU effort has 
resulted in significant complications, creating windfall 
profits for utilities at the expense of energy users, while 
achieving negligible results in emissions reductions.
    I am also concerned that the legislation would prompt, as 
has been addressed earlier, a shift of America's manufacturing 
and agricultural production to other countries, such as China 
and India and Brazil, that would not be bound by similar 
restrictions.
    One of our colleagues who used to serve here aptly pointed 
out that a significant portion of the mercury pollution in the 
Chesapeake Bay actually comes from China.
    Simply by shifting this production overseas, it would 
likely result in no net reduction in greenhouse gas emissions, 
and we may actually contribute to an increase inadvertently.
    As we all agree and know, through the hard work of many 
public policy officials before us, America's farmers and 
ranchers are the most productive in the world. However, as we 
will hear from a number of witnesses today, this proposal may 
seriously tie agriculture's hands. At the same time, many of 
our competitors, such as soybean growers in Brazil and cattle 
producers in Argentina, will not have to be bound by these 
restrictions that we will, potentially, place in our system.
    As a side note, by the way, Mr. Secretary, Nebraska has 
created one of the highest numbers of new green jobs without 
this particular mechanism.
    So, two questions for you. First, will you oppose a cow tax 
or similar fee based upon livestock emissions? And second, do 
you have--let's go back to that concern about shifting American 
agricultural production overseas because we would be placed at 
an economic disadvantage.
    Secretary Vilsack. I am sorry. I didn't hear the last part 
of your question.
    Mr. Fortenberry. Would this have a significant impact on 
American agricultural production and give incentive for it to 
shift overseas?
    Secretary Vilsack. Well, obviously, I am not supportive of 
the cow tax, and I don't really think, at the end of the day, 
we will have such a thing.
    Mr. Fortenberry. Are you going to move on from there?
    Secretary Vilsack. Go ahead.
    Mr. Fortenberry. I just want to clarify then what you--
let's unpack your statement where you said, ``Farmers across 
the country will need to adapt to advanced nutrient management 
and manure management systems to reduce nitrous oxide and 
methane emissions.''
    Secretary Vilsack. Well, I think that the reason for that 
will be an economic one. I think that they will be encouraged 
to be as efficient and as effective as possible with their 
farming practices.
    Mr. Fortenberry. Of course, we do that through regulation--
--
    Secretary Vilsack. Just in the same way that we are 
currently using technology to reduce the amount of pesticides 
and chemicals, seed technology to reduce the overall costs, we 
will continue to see that kind of adoption and acceptance of 
new practices.
    Mr. Fortenberry. But the enforcement mechanism?
    Secretary Vilsack. I am really not quite sure----
    Mr. Fortenberry. Well, would the farmer, in effect, have to 
buy an offset in order to continue to allow his herd----
    Secretary Vilsack. I don't think that is what is being 
suggested or proposed. At least, that is not what my 
understanding of it is. My understanding is that we are looking 
at the impact, sort of, indirectly on input costs because of 
other aspects of the economy being subject to emission 
standards or emission requirements, and then the economic 
opportunity with agriculture and forestry involved and engaged 
on the opportunity side.
    And if we structure this properly, it is my belief that we 
actually--at the end of the day, if we structure this properly, 
we can bring some economic activity and viability back to rural 
America that we desperately want, and that I think we share in, 
our desire to see happen.
    Mr. Fortenberry. I agree that there is tremendous 
opportunities here for agriculture, and we are engaging in a 
number of those now. But, clearly, there may be impacts. I am 
sorry, Mr. Chairman, we can't get to the second part of the 
question about how we might inadvertently give incentive for 
production overseas due to increased input costs.
    Secretary Vilsack. I am not willing to concede that we are 
going to cede the competitiveness of our agriculture as a 
result of this. I think what you are going to continue to see 
is extraordinary innovation in this country. I am a strong 
believer in the capacity of this country to always be at the 
cutting edge of innovation.
    And certainly in agriculture, no one can match us in terms 
of innovation. The seed technology that has been developed and 
will continue to be developed is nothing short of remarkable 
and extraordinary. And I would imagine that, if I polled this 
entire Committee, we would all agree on this: that we are a 
leader in innovation, ag innovation, and will continue to be. I 
think we have to be. And I am just confident we will be.
    Mr. Fortenberry. We will work with you on that goal. Thank 
you, Mr. Secretary.
    The Chairman. I thank the gentleman.
    Let's see, the gentlelady from Illinois, Mrs. Halvorson?
    Mrs. Halvorson. Thank you, Mr. Chairman.
    Mr. Secretary, great to have you here. Thank you so much. I 
just have a couple of questions.
    I would like to know if you can comment on any discussions 
you have had with the Administration with regards to, possibly, 
the change in policy that the offset program could be under the 
purview of the USDA versus the EPA?
    Secretary Vilsack. I think what I have been able to do in 
meetings with my fellow Cabinet members is to continue to 
stress the unique characteristics and tools that USDA has.
    And I think that there is an understanding within the 
Administration of those unique characteristics and tools: 
everything from the fact that we have boots on the ground, a 
tremendous network, a connection with our farm and ranch 
families in this country, and the technical expertise both in 
our office here in Washington, D.C., and throughout the United 
States to assist farmers in taking full advantage of this 
opportunity.
    So, there is a recognition of that.
    Mrs. Halvorson. And also the amount of offices and----
    Secretary Vilsack. That is what I refer to when I say boots 
on the ground, the 2,250 rural offices in our Farm Service 
programs and over 850 offices in our Rural Development----
    Mrs. Halvorson. And do you know how many EPA has?
    Secretary Vilsack. You know, I don't know that. I do know 
that--I am fairly certain that we have more direct, on-the-
ground communications and contacts. I am fairly certain.
    Mrs. Halvorson. Well, and the only reason I bring that up 
is because, if you say we have more, obviously they should be 
able to counter that by saying, ``Oh, no, we have X.''
    Secretary Vilsack. You know, to be candid and honest, we 
are not in a competition on this. I mean, I am looking--and I 
believe it is appropriate, and the President has been very 
clear about this. He wants to change the way in which we do 
business in Washington. This is not about stovepiping. This is 
not about protecting turf. This is about figuring out how you 
can cooperate to move the country, all parts of the country, 
forward.
    And so, my view of this is, I want to work with EPA, I want 
to work with the Interior Department, I want to work with 
Commerce, I want to work with anybody that is involved in this, 
and I want to work at the state and local level as best we can 
to make this work for farmers and ranchers. Because if it does, 
we can bring prosperity back to rural communities, we can 
repopulate the rural communities. And there are many, many 
benefits, the greatest of which is the important values system 
that that part of the country represents that can be preserved.
    So we are committed to working with folks. And with all due 
respect to this Committee, this is not--I understand that there 
is a concern about EPA. But from my vantage point, let's figure 
out how we work together. Whoever has the expertise, whoever 
has the knowledge, whoever is in the best position to carry the 
policy forward, we would have confidence in all of you to make 
that best judgment.
    Mrs. Halvorson. Okay. Well, then, I think that I can speak 
for many of the people on this Committee that we have 
confidence in the fact that the USDA should be the ones that do 
it, not the EPA, because of the infrastructure, because of what 
we believe in. And that is just where we stand and how we feel 
about it.
    So, I appreciate that you say that you are willing to work 
with everybody. I think that we are also. But we still believe, 
from our standpoint, that the USDA is in a better position to 
deal with the offsets.
    Secretary Vilsack. I agree we have unique opportunities and 
unique tools which are important to this.
    Mrs. Halvorson. Great. Thank you.
    I yield back.
    The Chairman. I thank the gentlelady for her comments.
    The gentleman from Nebraska, Mr. Smith?
    Mr. Smith. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for your service.
    You spoke of planting trees on tens of millions of acres of 
marginal farmland. Could you elaborate and either point to 
geographically where that might be, or describe what that might 
look like?
    Secretary Vilsack. Well, this is an example of what may 
potentially occur if there is an opportunity for farmers and 
ranchers just as there is with the conservation programs that 
we have today. If we can offer a greater return on marginal 
land for farmers and ranchers, then they are going to make the 
right set of decisions for their operation, for their families, 
for their bottom line. If the incentives are there, if the 
opportunities are there, they are going to seize those 
opportunities.
    And so the question is, as we establish and set this 
process up and recognize the role that agriculture and forestry 
play, there may very well be places--and I am not going to be 
able to tell you with precision as to precisely what acreage 
and what state--but there may be places where there may be 
highly erodible land or land that is not particularly 
productive. As farmers take a look at the options as this 
evolves, they may say, ``If we plant trees, we actually might 
be better off financially using this as an offset, rather than 
simply using some other program or planting a crop, and not 
getting a particularly significant yield from that land.''
    So, I mean, it is a set of decisions that farmers are 
making today with reference to conservation programs, and this 
is just an extension of that decision-making process.
    Mr. Smith. So would that be a one-time offset for planting 
trees?
    Secretary Vilsack. Well, what you are going to see is a 
process by which those who are required to have offsets will be 
in the process of purchasing those offsets. And I can't imagine 
that what we have is a process or a situation where you don't 
have some degree of predictability when you are talking about 
making a decision that is a longstanding position, as opposed 
to a different cover crop on a particular piece of ground or a 
different conservation practice that might be changed from year 
to year.
    So, it is a matter of how this is all set up and how we 
best incent the greatest opportunity for offsets.
    Mr. Smith. Would you see an offset, a one-time offset for 
planting trees being more lucrative than other crops in 
perpetuity being harvested every year or every other year?
    Secretary Vilsack. I think it depends on the circumstances, 
it depends on the farming operation, it depends on a lot of 
variables. I don't know that you can specify one or the other.
    I think what you want is a wide range of options so that 
farmers can make choices, just in the same way that you all 
gave farmers a multitude of options with the farm bill. This is 
just a continuation of that philosophy. Give them as many 
options, as many choices, so that they can make the best 
decision for their individual operation and, in turn, make the 
best decision for the overall benefit of the country. That is 
what we ought to be about.
    Mr. Smith. Okay. Switching gears just a bit here, what 
about the ag producers who are unable to take part in the 
credit program, for example, those who have been engaged in 
conservation practices for quite some time who probably would 
not receive that increased margin of green practices?
    Secretary Vilsack. Well, this is a policy decision that, 
obviously, has to be discussed and you all are going to have to 
decide. And it is a tough one, it is not an easy one. Because 
when you are talking about folks who have committed to 
conservation in the past, you have to balance the need for 
competition and equity, which is very, very important, the 
competitiveness of farming operations and equity, against 
making sure that if the purpose of this overall is to reduce 
greenhouse gases--because there is, at least, in my view, a 
recognizable concern in this area--that you make that balance.
    And I certainly don't want to penalize people for decisions 
that they have made. I think we ought to be encouraging folks 
to continually look for how to use their land in the best 
possible way, not just for themselves and their families, which 
is important, but also, if they can, if there is a societal 
benefit, as there is when you grow crops, as there is with 
conservation programs today, there ought to be an 
acknowledgement of that.
    Mr. Smith. Okay. I appreciate that. We should all be good 
stewards of the resources we have been given. Are you certain--
I mean, I hear you saying that there is a lot of potential, and 
maybe this, and maybe that. Are we ready to vote on this?
    Secretary Vilsack. Well, I don't want to speak for you, 
Congressman, because I am not a Congressman and I am not in the 
position that you are in.
    But I would say this: I don't think, as a country or as an 
international community, that we should delay decisions on this 
particular set of issues relative to climate change. I think 
the longer you delay, the longer you put it off, if you don't 
make a decision today, you don't make a decision tomorrow, you 
eventually will have to make a decision someday. And the longer 
we wait, the more severe that decision may very well be and the 
more costly it may be and the more difficult it may be.
    So my view is, let's try to take some significant steps 
now. That is number one.
    Number two, the international community, with the decision 
that was made by the previous Administration at Bali to 
establish and to commit to the roadmap in Bali, there is an 
expectation from the international community that America is 
going to lead on this issue. It may be difficult to lead if 
there is nothing to offer.
    Mr. Smith. Thank you.
    The Chairman. I thank the gentleman.
    The gentlelady from Colorado, Ms. Markey?
    Ms. Markey. Thank you, Mr. Chairman.
    And thank you, Secretary Vilsack, for being here today. And 
I also want to thank you for coming to Colorado just a couple 
of weeks ago to see firsthand the devastating impact that the 
bark beetles are having on our forest due to climate change.
    I also want to take a moment to reiterate what many of my 
colleagues have said, that the offsets, we do believe and as I 
believe as well, that the offsets should be run by USDA and not 
EPA.
    But let me switch gears just a little bit and ask you 
another question. The USDA has several existing conservation 
programs. How will compensation from offsets fit with the 
existing programs? Should, or will, farmers and ranchers 
receive financial incentives for implementing conservation 
programs and carbon offsets generated from the conservation 
programs?
    Secretary Vilsack. I think we should continue to look for 
ways to complement and enhance all these programs. Again, I 
keep coming back to this, to this notion, and let me take a 
minute of your time to explain why this is important.
    It is absolutely essential to provide options, as many 
possible options as possible, for farmers and ranchers to 
profit. The reason is, it is important for rural communities to 
have strong agriculture. It is important for us to focus on the 
fact that we lost 80,000 mid-sized operators in the last 5 
years. Now, some of them may have migrated to larger 
operations, but the bottom line is we have lost people in rural 
communities, rural operations, and we need to continue to look 
for ways to provide options.
    We also need to look for ways in which the smaller 
operators, where we saw a significant increase in numbers, will 
be able to utilize additional opportunities, additional 
programs, the farm bill that you all passed, all of those 
options, to be able to increase their operations and expand so 
that we can repopulate rural communities. We don't want to end 
up with just either really small farmers or really, really 
large farmers. It is nice to have a mix.
    I think part of what I see, recognizing the skepticism that 
is out there, I understand that. But what I see is more 
options, more opportunities creates chances for us to hang on 
to those farming operations that I think are important to the 
health and vitality of rural communities.
    Ms. Markey. Thank you, Mr. Secretary.
    I yield back.
    The Chairman. I thank the gentlelady.
    The gentleman from Ohio, Mr. Latta?
    Mr. Latta. Thank you, Mr. Chairman.
    Thank you very much, Mr. Secretary, for being us with 
today.
    Just kind of a little background of my district, I 
represent--it is kind of a unique district. I represent the 
largest agriculture district in Ohio, and I also represent the 
largest manufacturing district in Ohio. It is kind of unique in 
that I have so many of my farmers, according to the Department 
of Agriculture in Ohio, that probably we only have about one 
percent of folks actively engaged in agriculture across our 
state. But so many of these folks that are engaged in 
agriculture full-time are also working full-time in 
manufacturing. And, as we also know in Ohio, that we get 87 
percent of our energy from coal.
    And I know that in your statement, on page two, you said 
that the President has offered a clear vision for the future. 
And the one thing that worries me is this: The President also 
said, last year when he spoke in San Francisco, that under his 
program that we are going to see electric prices skyrocket.
    So I guess the question is, the first question I would like 
to ask is do we want to get a lot more younger people engaged 
in agriculture. Land prices are going up. You know, we all see 
the cost of everything going up. Every year when I go to all of 
my 16 counties, I check and see what the prices are on 
equipment every year, and those are pretty high.
    But how do we get these young farmers engaged and how do we 
keep other people on the farm when we are going to be seeing 
such dramatic increases in utility costs across the board, and 
fuel, you name it, from fertilizer, et cetera, if we are going 
to have these dramatic increases right now? Because some people 
might say we are going to look down the road and have some 
other alternatives out there. But how do we save these people 
today.
    Secretary Vilsack. Well, there are obviously a number of 
these programs that we are currently doing in USDA. And you are 
correct to make the connection between farm families and those 
who are working off the farm. Ninety percent of our farm 
families actually have to have some form of off-farm income 
either because of health insurance issues or income issues.
    Of the 2.2 million operators in the country today, 900,000 
of them are themselves required to work at least 200 days off 
the farm. So it is important. There is a marriage, there is a 
synergy between rural development and economic development in 
rural communities and the capacity to save family farms.
    So part of what we are going to try to do is develop wealth 
creation strategies within the utilization of rural development 
tools.
    For example, linking local producers with local consumers 
so that those dollars that are currently flowing out of a 
district stay in a district, developing a continued effort at a 
more robust export effort, obviously bringing--crops leaving 
the district--but bringing cash into the district. The 
opportunity for renewable energy and renewable fuel to be 
expanded and to grow, creating manufacturing jobs, creating 
construction jobs, creating maintenance jobs.
    I know in my home state, when we aggressively pursued a 
wind energy strategy, that we saw an increase in manufacturing 
jobs as a result of those windmills. We saw an emergence of new 
maintenance jobs that didn't exist before, and we saw community 
colleges respond and react with training programs.
    So there are a whole series of things that I think that we 
have to do, and it is not one, there is no silver bullet. I 
wish there were. It is a multitude of things that need to be 
done.
    Mr. Latta. Let me follow up with another question. On page 
one and in the last page of your testimony, you say that the 
United States needs to be the leader out there, really, we are 
talking about this commitment to show the rest of the world 
where we stand. China has already said that they are not going 
to follow this program of a cap-and-trade or cap-and-tax, and 
today another statement was made by the Chinese that they are 
not going to abide by it. If they say they are going to keep 
doing what they are doing, how do we tell our constituents back 
home that they are supposed to be out there producing in a lot 
of cases against folks that are going to be doing it a lot 
cheaper, and we are supposed to be out there competing against 
the rest of the world in a lot of sectors.
    So, I guess my question is when China is out there with 1.3 
billion people and they are saying they are not going to do 
this, how do we lead from that angle, and we are putting 
ourselves at a competitive disadvantage?
    Secretary Vilsack. Well, our capacity to make China, India, 
and other developing nations respond to the global challenge we 
face is by providing that leadership. I mean, we provide them a 
relatively easy out for inaction if we take no action.
    Second, I genuinely believe that our capacity to innovate 
is unmatched in the globe today and has been unmatched for as 
long as I have been on this Earth, and will continue to be. And 
I think that we will be developing technologies and innovation 
that the rest of the world will need and want. I believe it 
will allow us to create the kinds of jobs, not only here in 
America that will stay in America, but creating products that 
the rest of the world will need as opposed to what we see and 
have seen with some of the consumer goods.
    Mr. Latta. Let me just stop you briefly. I am sorry, let me 
interrupt.
    How long do you think it is going take India and China to 
decide to play ball with us?
    Secretary Vilsack. Well, I have had some conversations with 
Chinese officials. I am not going to be able to tell you today, 
Representative, that it is going to be a month or 6 months. I 
just recognize and appreciate China wants to be recognized also 
as a leader. They want to be recognized in the international 
community.
    They will have a very difficult time doing that if they do 
not engage actively and aggressively in conversations about 
climate change, and there is a recognition on the part of the 
Chinese Government of that. And, there is also a recognition on 
the part of the Indian Government as well in my travels and 
discussions with Indian officials.
    So if we are not prepared, and if we have not led, it 
becomes increasingly difficult for us or the rest of the world 
to compel the Chinese and Indians to participate. If we do 
lead, it becomes much more difficult for them to say no.
    Mr. Latta. Thank you, Mr. Secretary. Thank you, Mr. 
Chairman.
    The Chairman. I thank the gentlemen. The gentleman from 
North Carolina, Mr. Kissell.
    Mr. Kissell. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary. Thank you for being with us today.
    Let me just start out that I too have said that the offset 
program should be administered by USDA, that their record and 
their abilities and their expertise are there, and that is 
where we should go. As you talked about, we need to work 
together but go with what works best. I think that record 
belongs to USDA.
    That said, yesterday in a hearing Under Secretary Tonsager, 
and I am hoping I am not too far off on his name, mentioned 
that he was in Brazil at a biofuels conference recently and 
that he very much supports biofuels and the role they can play 
in the future, especially with helping our farmers and creating 
green jobs.
    He said that in Brazil they don't seem to be too concerned 
about land use in terms of feedstock, that only like one 
percent of their lands are dedicated to feedstock. This leads 
me to wonder why are we so concerned about what we should be 
limiting up here in the United States for our farmers to do 
because of fears of what they may or may not do in Brazil, when 
they don't seem to be concerned about it. And I was just 
wondering what your thoughts might be on that.
    Secretary Vilsack. Well, Congressman, our view is that that 
is one of the reasons, among a number, why we advocated for a 
peer review of that portion of the RFS2 rule, number one.
    Number two, I appreciate Under Secretary Tonsager's 
comments. I will tell you that we are focused as much on today 
as we are on tomorrow as it relates to the biofuels industry, 
which is why we are very concerned, as I am very sure that 
anybody who has biofuels facilities in their districts is 
concerned, about the creditworthiness of these enterprises 
today, and our challenges to figure out ways in which we can 
help provide appropriate credit assistance so that the 
infrastructure we have in place remains in place.
    I am a strong believer in the biofuels industry in this 
country. I think if we are to end our addiction to foreign oil, 
if we are to become more secure in terms of our energy 
supplies, it is fairly clear to me that it has to be home 
grown. And it is fairly clear to me that we are seeing some 
stress in that industry today, and that we need to take 
significant steps now to address the credit issues, and we need 
to make sure that the peer review process, which has been 
agreed upon, is rigorous and evaluates it appropriately. And if 
it does, I think we will probably see a concentration on what 
happens within the borders of our country as opposed to what is 
taking place outside of the United States.
    Mr. Kissell. Thank you, Mr. Secretary. Mr. Chairman, I 
yield back my time.
    The Chairman. I thank the gentlemen.
    The gentleman from Missouri, Mr. Luetkemeyer.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for being here today.
    I am just kind of curious, you seem to be--you seem to talk 
in general terms about the bill, and we need to be able to do 
specifics with it. We have had a member of both Energy and EPA 
here as well as a member of USDA. They have never given us a 
good number on exactly how much it is going to cost, how much 
these things are going to impact the different groups, 
especially farm groups.
    The other day you made a statement with regard to some of 
the CO2 credits with regards to $25 or $100 billion 
worth. And now EPA has come out with a new estimate that shows 
it is going to be from $0 to $660 million. There seems to be 
numbers all over the place, and it is difficult for us to get 
our hands around it.
    Where are you with regard to the actual cost of the bill? 
How much is it going to impact agriculture as a whole?
    Secretary Vilsack. Well, I appreciate that question, and we 
are in the process. As I may have indicated earlier, EPA is 
currently doing an analysis of what they believe the energy 
costs are going to be. They are retooling that analysis based 
on changes. In order for us to do an evaluation, as you have 
requested, we need to have those numbers.
    I think we are confident enough to know that looking at the 
size of the problem and the size of the opportunity, relative 
to how much agriculture contributes to greenhouse gases and how 
much we believe and many believe it can help in solving the 
problem, that there is an opportunity side to this. We stand 
ready to work with you to develop a policy that maximizes the 
opportunity side, and we stand ready to continue doing research 
and to facilitate research to try to figure out how to reduce 
overall costs and expenses to our farm families.
    So if you are asking me for a precise number, I don't have 
a precise number, but I believe, and I believe based upon what 
I have read, based upon what I know, and based upon my belief 
in the capacity of this country, I believe we can provide an 
opportunity side to this that is often not discussed when 
people are saying well, how much is it going to cost? Well, I 
would say how much can we benefit from it? At the end of the 
day, if we do this right, the benefits will outweigh the costs. 
I know there is skepticism about that, but that is what I 
believe.
    Mr. Luetkemeyer. Well, that begs the question, though, that 
if we are not sure whether we are going to get any benefit out 
of this and there is some cost to it, well, my fear is that we 
are going to cost some farmers their jobs. Because the 
President has said, and Mr. Smith a while ago intimated, what 
happens to it is farmers who can't participate in the program 
and you have skyrocketing costs for input costs for the 
farmers.
    Where are we going to go with this? I mean how will those 
guys continue to exist if their costs continue to skyrocket?
    Let me give you a little background. I come from a district 
that has a lot of small farms on it, which it is very difficult 
for a lot of these guys to absorb some of these costs. I don't 
think they can participate in this program.
    Secretary Vilsack. Well, I am not convinced of that. If we 
establish it, as I indicated earlier, if we establish this 
properly, I think there will be an opportunity side. I do know 
this, and I feel faithful--confident enough to suggest to you, 
that the amount of greenhouse gases that agriculture and 
forestry create and the amount that it can reduce, that there 
is a net benefit there. And if there is a net benefit, you 
create a market process. I think the market will respond by 
providing a net benefit.
    Now, is that net benefit going to be, broadly, over 
agriculture and forestry? I believe it will be. Will we respond 
and react? You are asking for us to sort of project into the 
future. Will we respond and react to those farmers who may not 
benefit from this program? Then I would suggest that we take a 
look at all the other options that we are creating.
    I mean, this is ultimately about how many options you can 
create for farmers to stay on the farm. The more options we 
have, the more opportunities there are to profit. The more 
distinct and different they are, the greater the choices are. 
And it is our job to promote those choices, it is our job to 
advocate for those choices, and it is our job to try and figure 
out a way in which input costs are going to be reduced.
    I will say to you, when I met with the CEO of the seed 
company the other day, and he said to me, we can increase corn 
yields significantly and we can reduce input costs by a third, 
how does that factor into the equation of costs relative to 
what we are talking about here? And what other innovations are 
going to take place?
    I mean, I am not willing to limit. I think our capacity to 
innovate is limitless, and I appreciate that there are skeptics 
about that. But I look at our past. I look at what we have done 
in the past.
    What have we done in the past? Every time we have been 
confronted with a challenge we have been the innovator. We have 
been on the leading edge of innovation, and it has built the 
strongest, most powerful economy and country in the world.
    I am not willing to concede we can't do that and continue 
to do that.
    Mr. Luetkemeyer. I appreciate your patience and your 
optimism. I just hope you are correct, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. I thank the gentlemen. The gentlelady from 
Pennsylvania, Mrs. Dahlkemper.
    Mrs. Dahlkemper. Mr. Chairman, since I was not here, 
because I had some other meetings, I will----
    The Chairman. We are going by when people came. The way we 
do things here is who gets here first gets rewarded by being 
high on this list. And you are fairly high, so you are next.
    Mrs. Dahlkemper. Well, not knowing what questions have been 
asked, I am going to yield back at this time. Thank you.
    The Chairman. All right, very good. I thank the gentlelady. 
Let's see, is it all right to go on our side one more, and 
figure out who is next here. The gentleman from Oregon, Mr. 
Schrader.
    Mr. Schrader. Thank you, Mr. Chairman.
    I appreciate your being here, Mr. Secretary. I know you are 
in a difficult position in a difficult spot, but I appreciate 
your coming here. I think a lot of what goes forward in the 
climate change bill is all about confidence, and people have to 
be confident that whatever we put forward has a chance of 
working and have confidence in the people that are promulgating 
that program, and I would suggest to you that, like you have 
heard again and again, the USDA has a lot better confidence 
level with the farmers than the EPA.
    We have experienced that in my own state with some of our 
open water policy. We have been able to share some of the 
jurisdiction with our EPA and our Department of Agriculture, 
and that has worked very, very well. So I just hope you will be 
strong in working with EPA.
    A question would be do you believe that using the farm bill 
definition of biomass would enable us to sequester more carbon 
than the definition currently in the climate change bill?
    Secretary Vilsack. I think it would certainly help. The 
difficulty that we sometimes face out in the countryside is a 
difference of rules, definitions, and regulations, which makes 
it sometimes more difficult for these farmers to understand all 
the choices that they have. So the degree to which there can be 
consistency, I think it helps, and in this particular case it 
would help a good deal. I think there are multiple 
opportunities in the way in which you all have fashioned the 
definition of biomass in the farm bill, and consistency would 
be helpful.
    Mr. Schrader. A follow-up question--well, a different 
question. I mean, there are a lot of conservation practices 
already in play. A lot of farmers have been doing them for 
years. Is it your opinion that they should be getting credit in 
any bill, going forward, for some of the sequestration, if you 
will, that has already been accomplished?
    Secretary Vilsack. This is obviously a difficult balancing 
act that you all will be engaged in, in terms of making sure 
that as you set this up so that you don't disincent activities, 
that you don't create a lack of competition or competitiveness 
on the part of these operations, and that you provide a degree 
of equity and fairness as these programs complement and 
reinforce each other.
    I think it is important, in terms of the integrity of the 
program, that we are able to quantify the results and the 
benefits. And if we are able to do that, then these programs 
ought to be able to complement each other, and that is what we 
would be looking forward to trying to do.
    Mr. Schrader. So you are saying they should get credit?
    Secretary Vilsack. I am saying that that is obviously a 
policy decision that you all will make. I would hope that you 
would structure it in such a way that you don't disincent 
activities and that you complement activities and that you 
support those activities.
    The Chairman. Would the gentleman yield?
    Mr. Schrader. Yes, certainly.
    The Chairman. Apparently in the bill, I thought they were 
talking about having some kind of a date, that if you did 
things before 2005 you weren't going to get paid for it and if 
you did it after 2005 you were. I think that is the situation, 
which is a very bad idea, you know.
    Would you specifically comment on that?
    Secretary Vilsack. Well, Mr. Chairman, I don't think the 
date is as important as the practice. I think the practice----
    The Chairman. Well, how do you explain to one farmer, the 
guy has been doing this right for 20 years, that he is not 
going to get anything and then somebody that just starts now is 
going to get it. I mean, you talk about causing a problem out 
there, even with--I wouldn't be in favor of you guys running it 
if that is what the program is.
    Secretary Vilsack. I was unartfully trying to agree with 
you, Mr. Chairman.
    The Chairman. I yield.
    Mr. Schrader. Thank you, Mr. Chairman. You made my point 
much better.
    Secretary Vilsack. Doesn't the Chairman always do that?
    Mr. Schrader. Yes. A question, you talked about clear 
science, and I actually agree with you, that we do have a 
serious problem facing the world as we speak about climate 
change. But there is some not such clear science that is being 
inferred by rulemaking in EPA regarding indirect land use 
costs, and has not been well received by members of the ag 
community.
    I guess my simple question to you is do you believe in that 
indirect land use cost modeling that is being propagated by the 
bureaucrat?
    Secretary Vilsack. We articulated and advocated strongly 
for peer review of that concept.
    Mr. Schrader. Okay. I will take that as some degree of 
skepticism, and I appreciate that, Mr. Secretary.
    Secretary Vilsack. Well, and let me amplify. I think it is 
a lot easier to determine what is happening inside the borders 
of your country than it is to determine what is happening 
outside the borders of your country.
    Mr. Schrader. I think most of us would rather our taxpayer 
dollars stay in this country and not flow overseas, also.
    I thank the gentleman. I yield back.
    The Chairman. I thank the gentleman for his questions. We 
have a chart here, as long as we are talking about this 
international land use. I guess it is on the computer, no? If 
you could put that up, wherever my staff is.
    This is the ethanol production. The blue line is the 
deforestation, and the green line is ethanol production. And so 
I don't know how much money you have to spend on a peer review 
to figure out what that is about.
    Let us see, the gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman.
    Mr. Secretary, good to talk with you again. I want to just 
start out by just saying I can't tell you how much I agree that 
innovation is important. Now, where I disagree is that what I 
see as a subsidy bubble, these allowances, as a way to promote 
innovation.
    And, in fact, in terms of all the issues we have in 
agriculture, a lot of subsidies over the years which have been 
layered on have created significant issues, and to create a new 
subsidy bubble as this does would not be good.
    In Pennsylvania, the Waxman bill has been projected, pretty 
accurately, to increase electricity costs by 30 percent, gas 
prices by 76 percent. The cost of fertilizer using natural gas 
as a primary feedstock will be out the roof for our farmers.
    And I know that it is tough for you. You have been asked 
this a number of times in terms of actual dollars and actual 
costs. I will be a little more general with my question. Do you 
have any concern that the Waxman bill will increase costs for 
farms and ranches?
    Secretary Vilsack. Well, you always have concerns, with all 
due respect, with everything you do here.
    Mr. Thompson. I agree.
    Secretary Vilsack. But having said that, I think there is--
I don't know how we can--I am trying to figure out how to 
phrase this properly. I think that we have seen remarkable 
changes in agriculture. I think we are going to continue to see 
remarkable changes in agriculture. I think we have not yet 
limited ourselves in terms of seed technology. I think you are 
going to see a continuation and an evolution of seed technology 
that requires less inputs and less reliance on natural 
resources, which is potentially a good thing, particularly as 
it relates to chemicals, pesticides, water quality, and the 
amount of water used. I am confident that we are going to see 
that.
    Mr. Thompson. And let me just say, I would agree with that, 
and I truly see that as a responsibility of USDA and in your 
role as Secretary to lead on that innovation, but I see where 
that has nothing to do with this climate change legislation.
    Secretary Vilsack. Well, it does in this respect, that you 
may very well see a reduction in the amount of inputs of a 
particular kind, or you may see an application differential, or 
you may see a reduction in the amount that has to be applied, 
or you may find ways in which other inputs may be substituted 
for, or you may find seed technology that reduces the reliance 
on the current inputs. I think it is a changing landscape.
    What we want to see are ways in which we can encourage, 
promote that changing landscape to the benefit of the bottom 
line of farmers, both in terms of helping to reduce input costs 
to the extent that we can and also again to creating that 
opportunity side. Frankly, going beyond that and trying to 
figure out ways in which we can enhance rural development so 
there are farm incomes, creating new markets, creating local 
markets. It is a combination of steps that have to be taken.
    And that is why I keep returning to this notion of options 
and choices and giving folks in the countryside as many chances 
as possible to succeed.
    Mr. Thompson. And I come back to the fact that much of what 
you are talking about is ``may find,'' it is speculative. I 
would argue that certainly promoting innovation is--I would 
think that is a key role of USDA.
    Let me just take it a step further. My district has a 
number of ag-related--and a number of districts across the 
country--we have a number of what I see as agricultural-related 
crises right now.
    For example, in terms of timber, which is under the 
jurisdiction of your Department, in the Allegheny National 
Forest our timber industry is struggling. I mean, my national 
forests that I have there, the Forest Plan says that they can 
harvest up to, what, 90 million board feet a year and it is 
sustainable. You know, you have no loss in terms of timber. You 
can harvest that much, it is good for everybody. It is 
certainly good for the local community. And I have heard from 
some of the folks working for the Forest Service acknowledging 
the role of the economies with the forest.
    Our dairy industry is just in terrible straits right now in 
terms of dairy prices and losing farms. And so I have concerns, 
obviously, with the costs. Because those are not speculative, 
they are not maybe. It is definite. You start raising energy 
costs 30 percent, these folks are not getting their bills paid 
right now. They are in dire straits.
    And to take it a step further, really of a concern with the 
USDA, which needs to be there for that and all aspects of our 
agriculture industry, whether USDA is going to have adequate 
resources to meet today's real crises that we are experiencing, 
timber, dairy, and maybe others.
    So my question is can you guarantee that the Waxman bill 
will not drain or distract the USDA resources, the current real 
crises in agriculture that people are living with and 
struggling with?
    Secretary Vilsack. I believe that we can do the job that 
Congress directs us to do. I also believe that we are, today, 
trying to respond to many of the challenges that you have 
indicated, especially in the dairy industry. We have taken a 
number of significant steps in the recent past to try to help 
that industry.
    I will say that as you work through the process, this is 
far afield from your question, but as you work through the 
process and you look at the Commodity Credit Corporation and 
some of the restrictions that sometimes Congress places on the 
Commodity Credit Corporation, and the ability of the USDA to 
use that tool to respond to crises, you may give us a bit more 
flexibility than we have today. That might help us provide more 
immediate response.
    Again, we are looking for ways in which we can help, and we 
are up to the task. If you give us a job, we will do our level 
best to do it as you intended us to do it.
    Mr. Thompson. Thank you, Mr. Secretary. Mr. Chairman, I 
yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Georgia, Mr. Scott.
    Mr. Scott. Thank, Mr. Chairman. Mr. Secretary, good to have 
you, and I just want to comment on the excellent job you have 
been doing since you have been our Secretary of Agriculture. 
Good job.
    Two points, if I may, I would like to get your response on.
    The first one is that I am not prepared to move ahead with 
this bill for two important reasons. One is that I would like 
to get your response to is the treatment of derivatives 
markets.
    Now, there is language in this bill that has been added by 
one of my colleagues, who is a very good guy, good friend, and 
that is Mr. Stupak, who is not a Member of this Committee, and 
I say it is probably well intentioned, but it is over broad, it 
is completely onerous, and it would do a great deal of harm to 
the marketplace.
    Our Committee has jurisdiction, the Agriculture Committee, 
I am also on the Financial Services Committee. And, with the 
Agriculture Committee and the Financial Services Committee, 
along with the Obama Administration, if we could take a look at 
this language, try to get it removed so that we can put forward 
a bill that I think would deal more responsively in the 
derivatives trading in a more careful and calculated way than 
this language that is in there--and I would like to--hopefully, 
you will agree with us on the derivatives.
    But my other point, and I represent the Atlanta 
metropolitan area, around seven or eight counties around 
Atlanta, which is suburbs and rural. There is contained in this 
climate change bill a terminology, as far as housing is 
concerned, as ENERGY STAR', which presumably is to 
signify that they meet some energy efficiency standard.
    Now, Mr. Secretary, with the housing market still mixed and 
mired in a slump and housing prices continuing to fall, 
creating such an inherent bias towards older homes is not in 
our best interests.
    So I would like to see if you could give us comments on the 
derivatives and this sort of bias which is in the energy bill 
towards older homes, which needs to be rectified.
    Secretary Vilsack. Representative, I will admit that I am 
not as well versed about the derivatives as you are. I do 
recognize the concern. I know that the Chairman has expressed 
that to me on a number of occasions, and I respect his opinion 
and your opinion. It is something I obviously need to get more 
well versed on. But I will tell you that we stand ready to 
assist and help in whatever calculations or determinations may 
be necessary to improve that aspect of it.
    As it relates to the houses, one of the efforts we are 
trying to do--and I can only relate to rural communities on 
this--is we are trying to enable homeowners of older homes to 
utilize the Recovery and Reinvestment proceeds, the 
weatherization money that is available to aggressively utilize 
that. We have a goal of a million houses countrywide to be 
weatherized.
    I know that you all have looked at tax credits and ways in 
which you can incent the purchase of more energy efficient 
appliances and be able to provide, as you have with furnaces in 
the past, the capacity of people to actually get their money 
back with savings of energy costs. So, we should be doing 
everything we can.
    As it relates to climate change, generally, there is the 
energy efficiency side, there is the conservation side, and 
there is the new technologies and clean technologies side. All 
of that has to be advanced.
    Mr. Scott. You know, my point is that older homes are more 
predominant in rural areas. So if this bias is not corrected, 
it would have a disproportionate impact in rural communities if 
there is not some other way of addressing this issue, direct 
payments maybe.
    Secretary Vilsack. Well, there are a multitude of programs 
within USDA that could be directed to assist or help homeowners 
respond and address and make their homes more efficient to try 
to overcome whatever bias might be created in any bill. I mean, 
we are prepared to use our tools as best we can to help 
homeowners. And the reason this is important is, as we 
repopulate rural communities that old housing stock becomes 
actually in a sense an inducement, and a capacity for someone 
to have homeownership at maybe a cost that is less expensive 
for the home than otherwise in a suburban or urban area. That 
is a selling point for us. And if we can make them energy 
efficient, then the operation of that house becomes a selling 
point to try to get young families to consider living in rural 
communities. I think we can make that case.
    Mr. Scott. Absolutely. I just think, Mr. Chairman, that 
making direct aid to the homeowners in the rural areas would be 
a much more effective way of making them energy efficient, at 
the same time not having a negative impact on the economy of 
those rural communities and depressing the housing prices.
    Thank you, Mr. Secretary.
    Mr. Holden [presiding.] The chair thanks the gentleman and 
recognizes the gentleman from California, Mr. Cardoza.
    Mr. Cardoza. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here today. You have been a real friend 
since you have been in the office, and I appreciate you very 
much. I want to thank you in front of the entire Committee, 
well, who is here, and the audience, on implementing the Dairy 
Export Incentive Program and the work that you did to make that 
happen. You kept your commitment, you kept your word, and I 
want to publicly say thank you.
    Secretary Vilsack. Thank you.
    Mr. Cardoza. I know it wasn't always easy.
    Mr. Secretary, I want to discuss with you some of the 
issues about the last environmental bill. The big omnibus bill 
that we did in this Congress was the Endangered Species Act, 
and like this one, incredibly well-intentioned, but it has 
potential ramifications that are unanticipated in its 
implementation.
    I want to start and preface my comments today by telling 
you that I think global warming is real, your statement with 
regard to the scientists and the conclusions amongst those 
knowledgeable on the topic are accurate. I want to tell you 
that I have been to places like Antarctica--not Antarctica but 
South America, the tip of South America--gone all the way up to 
the glaciers. There is a place called Glacier Hotel that is now 
surrounded by dirt, and the glacier is way up the hill, because 
of global warming and the climate change. So, it is a real 
problem, and it is imperative that we need to try and work on 
it.
    But I am very concerned about the impacts of the specific 
legislation, both possibly foreseen now and those that might be 
unforeseen. And I am going to reference the ESA and the drought 
that is happening in my district right now. We just had another 
biological opinion on salmon that coincides with a biological 
opinion on smelt. And where I come from, the most endangered 
species might be the farmers that are trying to till the land 
because without water you can't farm, as you well know. We do a 
lot of irrigation. We used to be a desert at one time. And I 
think that the legislation has actually caused us, in its 
implementation, to have the courts interpret those rules in 
such a way that we have a manmade drought and a manmade crisis 
for agriculture.
    And so I want to raise that, and I am just going to raise 
my other issue and let you comment on both of them at the 
conclusion.
    The second part of this is that as we look at the way this 
bill is written, and the work that I have had to do with EPA, I 
have found that farmers tend to be environmentalists, and they 
understand rural America. But the folks that work at EPA tend 
to be urban, and it doesn't work the other way. They don't get 
agriculture, they don't get rural America. They form their 
views of the world in large cities, and then expect us to 
implement their views of the world, and it is an actual 
agricultural bias that I think is very important to take into 
consideration as we decide who administers the program.
    I think that the USDA can be incredibly positive and 
effective stewards of our God-given planet, but I am not so 
sure that EPA can understand the dynamics of rural America. And 
so I am going to take a very jaundiced view of this legislation 
if, sir, you are not in charge.
    And with that, sir, I will give you the opportunity to 
respond.
    Secretary Vilsack. Thank you, Representative. First of all, 
let me express my understanding of your concern about your 
farmers and specifically your dairy farmers. It is a difficult, 
stressful situation, and we continue to look for opportunities 
to provide some assistance.
    You mentioned drought. As you probably know, the Secretary 
of the Interior and myself established a joint task force. The 
Secretary of the Interior is sort of the lead, as he needs to 
be, given the issues that you have addressed. And I know that 
there is a good deal of sensitivity to the challenges, and we 
are searching for ways in which we can provide assistance and 
help.
    Let me just say that in a broader perspective, USDA has a 
role and responsibility relative to the maintenance of its 
forests that can have an impact, a positive or negative impact, 
on water, on both the quantity and quality of water. And what I 
hope to be able to do with staff and with the Forest Service is 
to integrate proper management and maintenance processes, with 
the assistance of Congress in providing us the proper budgeting 
proposals in terms of maintaining the forests, linking that to 
our working lands and the private working lands programs of 
NRCS. So we are establishing a better link with our urban 
friends so that they understand and appreciate, as the farmers 
do, the importance of forests and water. And I hope that 
through that effort we can do a better job of being conservers 
of that.
    Let me also join in your comments about farmers being 
stewards of the land. No one cares more deeply about the health 
and welfare of soil and water than the people who rely on the 
soil and water for their very livelihood. Every agency of 
government has their area of expertise, their area where they 
specialize, their area where they know more than a lot of 
folks. And I would suggest, with respect and with pride, that 
the USDA and the people who work at the USDA care deeply about 
the farmers they serve and the land and the water that we are 
talking about. As a result, over a period of years and decades, 
we have developed a level of expertise both in their 
relationship with farmers and in their understanding of what 
farmers need and do. I think that puts them in a unique 
position to contribute significantly as we embark on climate 
change legislation.
    And we stand ready to partner with all of the agencies and, 
hopefully, in a framework that you all establish that allows 
each agency to utilize its strengths to complement the 
strengths of other departments. And we have, as I said earlier, 
a unique set of tools, and we are prepared to use them if given 
the opportunity.
    Mr. Cardoza. Thank you.
    The Chairman. The chair thanks the gentleman and recognizes 
is the gentleman from Texas.
    Mr. Neugebauer. Thank you, Mr. Chairman. Mr. Secretary, it 
is good to see you again.
    Mr. Secretary, there is an old saying in Texas about a 
cowboy that thinks he is bigger than he is, and he says, we 
refer to those folks as all hat, no cattle. And when I look at 
this energy bill, that phrase comes to my mind that this bill, 
when it goes to energy title, it is all hat and no cattle. As a 
tax bill, it is all tax and no energy. And one of the things 
that concerns me about that is it is being sold as an energy 
bill. And when you look through the bill--and I haven't read it 
all--but it doesn't give us much hope that we are going to make 
much of a significant dent in our dependency on foreign energy.
    But, more importantly, as I look at what the impact could 
be, I hear this Administration talking about reducing the 
safety net for agriculture. I look at the consequences of this 
bill, and it increases the cost of inputs, and I think about my 
Congressional district where the soils are such that there is 
going to be very little opportunity for them to participate in 
any carbon offsets.
    And then when I listen to other people, and not just 
conservative folks, but folks that maybe are a little bit more 
left leaning, an economist, Martin Feldstein, this week or last 
week, from Harvard, supposed to be a smart guy, says this plan 
is all pain and no gain. And he goes on to say that a 15 
percent reduction would reduce global CO2 by less 
than four percent. And he goes on to say unless China and India 
sign on, it puts America at a huge disadvantage.
    And I know of your passion for bringing new farmers into 
agriculture. I am worried about new farmers, but I am also 
worried about old farmers. But when I look at that scenario, 
that doesn't paint a very pretty picture for agriculture, 
particularly, for example, cotton, which we grow in my 
district. India and China are some of our competitors. India 
and China, China buys some of our cotton, as you know. But if 
our competitors are not going to sign on to this, and we are 
going to sign on to it, and we are going to put this huge 
burden on American business, and particularly American farm 
families. I am trying to figure out--and then I find out that 
maybe we might, we might, reduce CO2 by less than 
four percent globally. I think what I need from you, Mr. 
Secretary, and what this Committee needs from you, is you need 
to write us a letter and assure us that in your best analysis, 
your best understanding of this bill, that you do not think it 
will have a significant impact on American agriculture. If you 
are not able to write that letter, then I am very concerned 
about that.
    So I would give you the floor.
    Secretary Vilsack. Well, I appreciate the opportunity to 
respond. You have obviously said a lot in a couple of minutes.
    Let me specifically respond to the China and India issue, 
and this is very strongly based on my understanding of the 
circumstances and my discussions with officials. I think it is 
important for China and India to participate in this. And, in 
order to do so they are--we in this country can't give them a 
convenient excuse not to. By the failure of this country to 
respond and lead, as a lot of people, after our commitment in 
the Bali Framework, expect us to, they expect us to lead. We 
made a commitment last year to the Bali Framework, and that was 
the first indication that the United States was going to be 
serious about this. They are looking forward to leadership, and 
we will need to provide that.
    I think, frankly, also, early adopters have the potential 
advantage in terms of technology and innovation which I 
honestly and truly believe we will be able to export and create 
jobs here, jobs that might very well be located in small 
communities across the country. And since there is a 
significant dependence in off-farm income, it is a strategy, 
but by no means the only strategy, for helping preserve the 
farmers that you want preserved and that I want preserved.
    There are other strategies that USDA are implementing right 
now and will continue to implement. Again, it gets back to 
providing a menu, a set of choices, a set of options as 
extensive as you probably can provide.
    We are cognizant of the importance of the safety net. We 
are cognizant of rural development, we are cognizant of 
exports, we are cognizant of breaking down barriers that exist 
in trade. All of that and other steps that we are taking are 
important strategies.
    I think this is an opportunity--the opportunity side of 
this has to be understood, and we are committed to making it 
work. If you all decide that this is what you want us to do, we 
are committed to making it work.
    Mr. Neugebauer. Yes or no, this will not have an impact on 
American agriculture?
    Secretary Vilsack. Well, I am going to answer your 
question.
    Mr. Neugebauer. Okay.
    Secretary Vilsack. And the answer is, yes, it will have an 
impact, okay. It will have an impact in terms of opening up 
opportunities that don't exist today, expanding opportunities 
and a list of choices that farmers have, encouraging them to 
use land in multiple ways that could potentially be profitable. 
Will there be increased costs on one side? Yes, but I believe 
at the end of the day the costs, if we structure this right, if 
we manage it right, the opportunity side is beneficial to the 
farmer. And I am committed to making it work, from the USDA 
perspective to make it as beneficial as possible for the 
farmer.
    Mr. Neugebauer. Do you think it is structured correctly?
    Secretary Vilsack. I think that it is important to 
specifically support the notion, as I think everyone in this 
Committee, as I listen to what you all have to say--all of 
you--whether you agree on the bill or not, I think you all 
agree that agriculture and forestry has a role to play and that 
that role is an important role to recognize in any legislation 
that goes forward, and I certainly agree with that.
    Mr. Neugebauer. But I heard you say you haven't had a 
chance really to look at some of the data, so you are not 
really prepared today to endorse this bill, or are you 
endorsing this bill?
    Secretary Vilsack. I am endorsing the opportunity side of 
cap-and-trade. I am endorsing the opportunity side that I 
believe exists because agriculture is seven to eight to ten 
percent of the problem of greenhouse gases, and by most 
estimates it is somewhere between 20 to 25 percent of the 
solution. That leads me to conclude that there is an 
opportunity side to this that we need to maximize and we need 
to take advantage of.
    Mr. Neugebauer. And is it worth trillions of dollars for a 
four percent or maybe less return in CO2?
    Secretary Vilsack. I have not had an opportunity to look at 
the study that you reference on that specific number, but I 
will tell you the challenge we face--and if I can just spend a 
minute to respond--the challenge we face is probably, in my 
view, best articulated by a recent report from the McKenzie 
Group where they suggested that the challenge that we face 
today is improving and increasing the productivity of a ton of 
carbon that we emit into the air, or an equivalent of a ton, 
similar to what we did with the Industrial Revolution.
    We increased productivity tenfold during the Industrial 
Revolution. We need to do something similar to that today. 
Today we produce about $730 worth of goods and services from a 
ton of carbon emitted into the atmosphere. We need to get it up 
to $7,300 in order to reach the thresholds that are being 
discussed, $7,300. You know, it is a tenfold increase.
    Well, we did it with the Industrial Revolution. The 
challenge, though, is the timeframe. The Industrial Revolution 
was 125 years. We have roughly 40 years or so to get it done. 
We have to get working. It can be done, it has been done 
before. We have seen tenfold increases in productivity. It has 
been done before. It can be done again, but we have to get 
going.
    The Chairman [presiding.] I thank the gentleman. I think we 
are done on our side. So the gentlewoman from Wyoming, Mrs. 
Lummis.
    Mrs. Lummis. Thank you, Mr. Chairman.
    Mr. Secretary, I am so pleased to hear you talking about 
innovation and American ingenuity and what a role it can play 
in climate change. And so if that is the case, why don't we do 
this? There are two elements to this bill, there is cap and 
then there is trade, and the cap part is to place a limit on 
carbon emissions, a goal that we will meet by the year 2050.
    Why don't we just go with that? Why don't we just say let's 
place a cap on carbon emissions so the President can go to 
Copenhagen and say we have placed a cap on our emissions. We 
have set a goal. And through American ingenuity and through 
American productivity and innovation, our industries will meet 
that goal.
    Instead, we have this enormous, complicated, 
incomprehensible trade component, which will cost farmers and 
ranchers all over this country hundreds of millions of dollars 
in aggregate, and that has nothing to do with the cap.
    So if this bill were really about climate change, I do not, 
for the life of me, understand why it is not just a cap relying 
on American business ingenuity and our strength of character to 
figure out constructive business ways to meet the cap.
    Instead, there is this massive tax component that has 
nothing to do with the environment. What is your response to 
that?
    Secretary Vilsack. Well, I think that the desire is to 
establish a market-based system, and in order to do that you 
have to basically put a price, if you will, on carbon. And as 
you do that, you have to create a market in which that 
commodity, if you will, can be traded. And depending on how you 
do it, whether you auction off allowances or whether you 
allocate them, you can accelerate innovation.
    Second, I think it is important and necessary for us to 
figure out ways in which we can mesh what has already taken 
place internationally so that we don't put our companies at a 
competitive disadvantage. If you just establish a cap, it is 
conceivable that you create a competitive disadvantage. If you 
allow us to mesh our systems, you put us in a better position 
to compete.
    So, there are many reasons why it is structured the way it 
is. Obviously, there is a lot of debate on how to do this, and 
you are having it today, and I apparently am in the middle of 
it.
    Mrs. Lummis. Indeed you are.
    So let's move on to a topic that is near and dear to your 
heart as an Iowan. Do you support the use of ethanol as part of 
the renewable energy solution?
    Secretary Vilsack. Yes.
    Mrs. Lummis. Okay. Well, then, you are no doubt familiar 
with the ethanol industry's reliance on natural gas to operate 
their distilleries. Do you know how much natural gas is 
necessary to produce ethanol in support of our renewable energy 
efforts?
    Secretary Vilsack. You know, I don't know the specific 
numbers, but I also know that there are some innovations and 
advancements in the production of ethanol which might 
potentially get us away from an over-reliance on natural gas.
    Mrs. Lummis. Let me tell you, because I just do happen to 
know how much.
    Secretary Vilsack. Okay, I will learn.
    Mrs. Lummis. It takes about 28 billion cubic feet of 
natural gas to produce 1 billion gallons of ethanol. In fact, 
some of the industry sources that I talked to have said last 
year alone the ethanol industry used a trillion cubic feet of 
natural gas to produce the ethanol in the U.S. for last year.
    Obviously the Waxman-Markey bill is going to drive up the 
cost of natural gas, putting ethanol even further away from 
being economically viable, which creates a further spiral: in 
order to make a viable ethanol industry we are going to have to 
subsidize it even more.
    So it seems to me that we are moving the target away from 
where we need to be going instead of closer.
    Secretary Vilsack. Well, that doesn't take into 
consideration what is done with the allocations or the 
allowances and the resources from those allotments, or if you 
auction off the allowances. It also doesn't take into 
consideration the efforts under way currently within the 
ethanol industry to become far more efficient in terms of 
energy use, and it doesn't take into consideration new 
technologies that may potentially take us away from utilizing 
energy--or new energy or being able to recycle it from the 
production process, using the energy from the production 
process to continue in a sort of continuous cycle.
    So this is not static. That is the issue here. I mean, we 
are talking about discussion points where it is not a static 
world. It is a changing world. It is an innovative world.
    And, I hope that as you consider this, as you look at this, 
as you fashion this, as you frame it, that there is at least a 
recognition of the innovation side of the equation, that we are 
just not going to stay where we are. We are going to improve, 
we are going to get better, we are going to get efficient, we 
are going to be smarter about what we do.
    Mrs. Lummis. Mr. Secretary, I couldn't agree with you more. 
I am a big believer of innovation, but I really err on the side 
of private market innovation to meet goals that are set by 
government rather than government telling private business how 
they are going to get there.
    But I do appreciate your remarks. Thank you so much.
    Secretary Vilsack. Thank you.
    The Chairman. I thank the gentlelady. The gentlelady from 
Pennsylvania, Mrs. Dahlkemper.
    Mrs. Dahlkemper. Thank you, Mr. Chairman. And thank you, 
Mr. Secretary, for spending so much of your afternoon with us.
    This question should be a little bit easier than some you 
have received so far, but I want to ask you a question about 
the fact that various climate change proposals that include the 
carbon offset programs have indicated that such a program would 
need to be fully implemented and functioning shortly after the 
enactment of the legislation.
    And I want to ask you, would such a system be able to be 
operational within 1 year after enactment if Congress were to 
pass a carbon reduction program this summer? And where is USDA 
in terms of being able to make that happen?
    Secretary Vilsack. Well, obviously, that depends to a 
certain extent on the way in which it ultimately is done, and 
ultimately the nature and structure of what you do.
    Having said that, when the President challenged us about 32 
days ago for us to implement the energy title of the farm bill 
in 30 days, I wasn't sure we would be able to do that. But we 
worked hard to get it done.
    Again, if we are instructed to do something, we will move 
mountains to get it done, because this is important for the 
country and it is important for rural America to get it done 
and get it done right. If we are given a role, we will try to 
do it as expeditiously and as appropriately as possible.
    Mrs. Dahlkemper. On the outreach and education side of 
that, and we can stay on that same USDA role, you are going to 
have a role in educating those in the agriculture community who 
really, obviously, don't have a lot of familiarity with things 
such as climate change mitigation concepts and actions and 
terminology. And I guess what role do you see USDA playing in 
providing the agriculture community with that education?
    Secretary Vilsack. Well, I recognize that there are 
concerns and uncertainty about this. And so your question is a 
good one, which is that we will have a responsibility and role 
to educate. And the benefit, or the tool of asset that USDA has 
is it has a network. It didn't have to create a network to do 
that education. It has, working with extension, working with 
its research in economics and education aspect, working with 
the Farm Service folks, working with Rural Development folks, 
we have a network of people on the ground in virtually every 
county of this country that can provide assistance.
    And, with technology, if we wisely use technology, we can 
also provide information that will be easily accessible and 
convenient for farmers and ranchers to access.
    And so I think that there are tools, both human tools and 
technology tools, that we have available to us that we will be 
ready to use, and are looking forward to using, if you direct 
us to do so.
    Mrs. Dahlkemper. So you currently have the technical staff 
with the capabilities to help relay the strategies to the 
public?
    Secretary Vilsack. We have dealt with 750,000 conservation 
programs and applications and contracts, and we have technical 
experts, hundreds of technical experts available. I have a lot 
of faith and confidence in the people that work for USDA, and 
the reason I do is because as I travel around the country and I 
stop at Farm Service offices, or I stop at the Rural 
Development offices and I talk to these folks, the one thing 
that impresses me, no matter what part of the country I am in, 
is how deeply committed they are to the people they serve. If 
they can help, if they can provide information, they are 
prepared to do it, and they are interested in doing it.
    Mrs. Dahlkemper. Last, I guess within this--if this 
legislation would pass and there would be this opportunity, do 
you see opportunities to collaborate with other agencies? And 
how would you see that progressing?
    Secretary Vilsack. I think it is vital that there be 
collaboration and I think that the idea is that as this is 
being constructed, that the Congress understand the various 
strengths that each department has, the expertise, the 
technical information, the unique experiences that each 
department has, and utilize those experiences and compel 
cooperation, compel a cooperative effort not just at the 
Federal level but also at the state and local level.
    Mrs. Dahlkemper. Are there specific agencies that you would 
see USDA working closest with?
    Secretary Vilsack. Well, I can think of three or four. The 
Department of Energy, the EPA, the Department of Commerce, the 
Department of the Interior, just to name a few.
    Mrs. Dahlkemper. Okay. Thank you. I yield back.
    The Chairman. I thank the gentlelady. The gentleman from 
Tennessee, Mr. Roe.
    Mr. Roe. Thank you, Mr. Chairman. Thank you, Mr. Secretary, 
for being here. I come with a background as a scientist and a 
mayor, and our city where I am from, Johnson City, was voted 
the green city of the year in the state and it won the EPA 
award for methane use in the country and also some other--we 
had the first recycling program in the state and the only one 
that is complete now. But I haven't seen this great growth in 
green jobs. And I just met in our district with our farmers and 
our dairymen and they are really in desperate times there. Any 
added costs, I can't think of any business in the world, having 
to run one for over 30 years, where you can increase the cost 
and your commodity prices don't go up, how that doesn't put you 
out of business. When your costs rise and your income doesn't, 
how do you explain that? And also you made a comment about--and 
we just look at the experiences of Europe right now, what 
happened in Europe, within the EU, is that they gave out so 
many allowances that the carbon per ton went down from 30= per 
ton to \1/10\= per ton and essentially didn't do anything to 
lower CO2 emissions. What lowered the CO2 
emissions in Europe and in the United States, which dropped 
almost exactly the same percentage, was our GDP went down, our 
output went down. So when you lower your GDP, CO2 
necessarily will go down, and that is what I have seen.
    We have another company there, a lot of our farmers work at 
Eastman Chemical Company. And Brian Ferguson is a CEO there. 
They use 60 carloads of coal a day. And this particular bill, 
they have looked at and evaluated, it will essentially 
eliminate their profit. And their options, they cannot raise 
prices because they compete on a world market just like our 
farmers do. And what will happen at that point, they have two 
options: That is either to go out of business or to move 
overseas where they are not complying, where China and India 
are not. And I don't know why you think India and China, when 
they have a huge competitive advantage on us, are going to 
suddenly give us an advantage back. They won't do it. I can't 
believe that will happen. Could you comment on that?
    Secretary Vilsack. Well, first of all, let me respond to 
your comments about dairy again. I want to make sure that you 
know that I know how difficult the industry is and the 
difficulties they are currently having, which is why we have 
taken steps at USDA to provide assistance and help. And your 
comments suggest that there is no opportunity side to this. And 
I guess that is an assumption that you and I have a 
disagreement about. I think there is an opportunity side and if 
there is an opportunity side, then that is a profit opportunity 
side. And, if we structure this right and operate it right that 
we will provide more options, more choices, and more profitable 
opportunities for farm families. I am not willing to concede 
that it is just a total negative. I think I see the opportunity 
side of this.
    As it relates to China and India, again I think that we 
will never be able to move them where they have to be if we 
don't ourselves provide some leadership. And if our leadership 
is to essentially say we are just not interested in doing 
anything, we are just going to continue to put this off, I 
think that plays into their hands.
    Mr. Roe. Here is the other things that the EU has noted, 
that their energy costs for--they didn't reduce CO2 
using this, but the cost of business and the cost to 
individuals went up. The same thing has happened in Spain. And 
right now, the absolute worst time is when our farmers--they 
are hanging on in my district by a thread--is to increase their 
costs. If you do that, you are going to put them out of 
business. And we can talk about--the innovation everyone is 
talking about is a good thing. But today is today, and the 
first thing, we tried this carbon tax a year ago when oil went 
to $147 a barrel and it about broke our farmers. We tried that 
last year. Fertilizer, I have asked around, nobody knows what a 
ton of fertilizer costs. Well, it cost $1,000 for Triple 19 
last year. It is down to about $650, but I can assure you that 
with oil and natural gas prices rising and with this carbon 
tax, it is going to go up through the roof.
    And I will ask one last question. Do you know how many 
windmills it takes to replace one power plant, one coal-fired 
power plant if the wind blows a steady 13 miles an hour? That 
is what--the TVA passed this on to me. Do you know how many?
    Secretary Vilsack. It depends on the size of the windmills.
    Mr. Roe. How many? Pick your size.
    Secretary Vilsack. It depends on whether you have 1 
megawatt, 2 megawatt. I don't know----
    Mr. Roe. About, 3,700.
    Secretary Vilsack. Let me tell you my experience with 
windmills. And that is that it has--in my state there has been 
a real opportunity created from wind. We are now the number one 
state in the country in terms of wind generated electricity on 
the grid. We have actually seen manufacturing jobs created as a 
result of it. We have seen community colleges develop new 
training programs for maintenance jobs. And, we are seeing a 
real interest in our farm families of having that option of 
being able to rent their land for a windmill and also be able 
to produce a crop on that land.
    Mr. Roe. But a plant, a gas powered plant we are going to 
build and TVA is going to also create jobs and also going to 
create those opportunities, too.
    Secretary Vilsack. I think you look for ways--as we look at 
carbon sequestration, I am intrigued by what ADM is currently 
looking at in terms of their carbon sequestration project, in 
which they are going to try to figure out ways in which they 
can use opportunities underground to sequester carbon. As we 
look at that, that is another potential opportunity side. I 
think there are opportunities here. And I am not willing to 
concede that there is absolutely no opportunity side, no upside 
to this.
    I realize the concerns that you raise, and what we have to 
look for is an opportunity to balance off whatever those 
concerns might be.
    Mr. Roe. I am looking at losing 10,000 jobs and that is not 
good. Thank you, Mr. Chairman.
    Mr. Holden [presiding.] The chair thanks the gentleman. I 
recognize the gentleman from North Dakota, Mr. Pomeroy.
    Mr. Pomeroy. Hello, Mr. Secretary. You are the sixth 
Secretary of Agriculture I have had the chance to meet in the 
course of my service on this Committee, and knowing you--
knowing your reputation I should say as a North Dakotan 
watching Iowa, I am very excited about the tenure in front of 
you at the U.S. Department of Agriculture. In fact, you have 
indicated just the same kind of common sense notions about 
rural America that base my high opinion of you. You have said 
that you think early actors in terms of favorable conservation 
practices, certainly, ought to have some recognition, should 
there be an offset plan emerging under climate change 
legislation. The bill does not provide for that. I couldn't 
agree with you more. The consequence, of course, we know the 
consequence. They tear up CRP. They do all--they tear out the 
conservation practices so they can put them in again and get 
paid for them. It makes no sense. It actually would have an 
adverse environmental impact, and your leadership on helping us 
understand that one is going to be very helpful. Not help us 
understand it, help process, understand, and include early 
actors as we move the legislation forward will be very 
important.
    Another thing, I enjoyed learning of your skepticism on 
indirect land use as calculated by EPA. I don't think there was 
a state that had a better record of pursuing renewable fuel 
production than yours under your leadership as Governor. So it 
had to be a terrible concern to you as a member of the Cabinet 
to see here EPA comes out with this indirect land use proposal 
which is going to essentially grandfather and freeze ethanol 
and knock out biodiesel altogether, notwithstanding the 2 
billion gallons of production capacity we now have established.
    You mentioned earlier in your testimony that you didn't 
think where the offsets got placed was so important because you 
could work with EPA. I am curious about how it is coming, 
trying to talk to EPA about this indirect land use business on 
renewable fuels. We have not gotten very far as an Agriculture 
Committee. We had the agency in and to me it was pure nonsense 
that they testified, and I would be curious whether you are 
fairing any better.
    Secretary Vilsack. Well, I appreciated the fact that 
Administrator Jackson was open to the suggestion of a peer 
review of indirect land use. We are indeed plowing new ground 
and this is a fairly complicated topic, and I am encouraged by 
the fact that there is going to be a rigorous peer review as 
there needed to be. She was open to that.
    We have advocated the need for us to take a look at the 
blend rate of ethanol as a strategy for continuing to see this 
industry that is important for us in terms of reducing our 
addiction to foreign oil and creating homegrown energy 
opportunities.
    I am hopeful. I can't say today that the blend rate is 
going to be increased, but I am hopeful. There is a willingness 
to take a look at that. The willingness of the Administrator to 
jointly appear with me in a number of different ag fora was an 
important step now. I recognize that there is very deep 
skepticism, and that is why I think it is important for 
whatever structure is created that there is an understanding 
and appreciation for the unique tools and characteristics of 
each department, and the expertise that each department can 
bring and you take full advantage of that expertise.
    Mr. Pomeroy. That is precisely what we think. You have 
talked about agriculture, you have talked about new 
opportunities. Well, we have never found agriculture 
opportunity and the EPA fitting naturally in the same sentence. 
And so we feel pretty strongly about this needing to be 
realigned. And certainly they picked a mighty inopportune time 
to reinforce negative notions long held in this Committee, at 
least by me, about the fair and discerning approach they take 
to production of agriculture.
    The rural electric co-ops financed under the Rural 
Utilities Service within the U.S. Department of Agriculture are 
very anxious about this bill, and they oppose it in its present 
form. We are looking in our area at co-ops playing such an 
important role in providing power to our farmers. It is coal-
based power, and horrific rate increases have been projected. 
They indicate that the target is--you have to bring it down 
more quickly than technology is developed and can be 
implemented. They also believe giving free allowances to people 
that don't have carbon emission issues in their present 
baseload generation provides a windfall to them even while we 
are struggling with very substantial new costs under the 
legislation in our parts of the country.
    Have you had a chance to visit with the co-ops as part of 
your administration in the United States Department of 
Agriculture or do you have an impression of what they are 
saying?
    Secretary Vilsack. Well, I appreciate that they are 
concerned about the way in which the allowance allocation has 
been determined at this point in time. Essentially it is 
equally based on emissions and sales, which for those who use 
coal creates an issue and a problem. So we are aware of their 
concern about that balance and the belief that perhaps it needs 
to be tipped in a different direction.
    And I also appreciate the role that the rural electric 
cooperatives play in economic development in communities. In my 
state, in particular, they are very much involved not just in 
providing power, but also providing resources and assistance in 
creating industrial parks, in creating new manufacturing 
opportunities, and trying to encourage business opportunities. 
So we obviously need to be sensitive to those concerns.
    I am anxious to work with you and with the Members of this 
Committee and the Members of Congress in any way we can to help 
educate folks about the challenges that RECs face, so that as 
you make decisions about policy that you make them in the most 
informed and best way possible. We are obviously--they 
obviously need to survive. They are important to rural America.
    Mr. Pomeroy. Thank you, Mr. Chairman.
    Mr. Holden. The chair thanks the gentleman and recognizes 
the gentleman from Louisiana, Mr. Cassidy.
    Mr. Cassidy. Thank you, Mr. Secretary. And obviously you 
have a position, and obviously we are expressing our concern. I 
am among those. First, I would like to say I have a statement 
to submit for the record. I think what has kind of boggled my 
mind is that there is a lot of dots but it seems the dots seem 
to be connected by conjecture, if you will. We can hope that 
things will work, but we are not quite sure they will.
    I will give some examples. Wow, the impact of this is going 
to be soon. My state is an energy state. They predict there 
will be a 35 to 40 percent decrease in employment in 
petrochemical and crude oil refinement in 15 years. So the 
timeframe of this is very short. Now, it is kind of an 
immutable thing about this issue, it is going to take a while 
for technology to be developed and deployed. So when you speak 
of innovation as perhaps being the solution, I am wondering 
will it be out there within 5 to 15 years because the dramatic 
loss of employment tells us that these changes will occur 
rapidly. So I am looking at the amount of emissions, not by 
forestry, but just by agriculture and, according to the CRS 
report I am reading, in the last something years it has gone 
from 460 million metric tons of CO2 to 582. So we 
are actually on an upward slope of emissions from the ag sector 
with only about a 30 million sequestration by ag, and yet we 
are going to deploy, develop and deploy the technology to 
reverse not just the upward rise but actually bring it down 
within 5 to 15 years. It just doesn't seem like it is going to 
happen.
    Your thoughts?
    Secretary Vilsack. I wish we could travel back 15 years ago 
and see what technology existed then and compare it to the 
technology today in all aspects of our economy.
    Mr. Cassidy. If I could, I would say that 16 years ago we 
would have know that it was about to be born. It isn't as if it 
had not yet been--in terms of it was going to be deployed 14 
years ago or 10 years ago, that means 15 years ago it was about 
to be birthed.
    Secretary Vilsack. With respect, I am not so sure that is 
necessarily the case of all the technologies. And you and I 
must be looking at different numbers and different figures 
because I am of the view that agriculture's capacity to 
sequester and agriculture's sequestering capacity today 
outstrips its emissions.
    Mr. Cassidy. That is if you combine ag plus forestry. If 
you split those up--I am looking at a CRS report from June 8, 
2009. It is on the table on page three. If you split ag from 
forestry----
    Secretary Vilsack. That is tough to do because so many 
forests are privately owned and basically part of our--of what 
we grow and what we raise in this country.
    Mr. Cassidy. I didn't know--it wasn't my impression that 
the farmer would simultaneously have a large forest interest.
    Secretary Vilsack. The farm I own, about 90 acres of it is 
timber.
    Mr. Cassidy. I think of my Louisiana sugarcane farmers and 
my rice growers, and it seems unlikely that they have a large--
--
    Secretary Vilsack. It is obviously clear there are 
differences around the country. But the bottom line, it is hard 
to separate the two maybe because within USDA we think the 
Forest Service is part of our responsibility and we see that it 
is part of agriculture.
    Mr. Cassidy. CRS splits it out. And when I look at that and 
I look at the rate of growth of emissions in just the ag 
sector, it seems, again, are we in 5 to 10 years going to be 
able to development and deploy that which not only reverses----
    Secretary Vilsack. I can just--again--this is actually two 
conversations I have had with CEOs of seed companies, major 
seed companies. And they are genuinely convinced within 10 
years you are going to see significant increases in 
productivity and significant decreases in inputs by virtue of 
just seed technology alone.
    Mr. Cassidy. I wonder if they are going to use more 
fertilizer which the cost will increase.
    Secretary Vilsack. I don't think so. No.
    Mr. Cassidy. Let me ask something else because I am almost 
out of time.
    I have to admit it also seems a dot that is not connected 
in the sense that we are imagining there is going to be 
increased rural activity, and yet as I look at the graph, 
inevitably we are going to let more land go fallow in order for 
it to be afforested--if I am pronouncing that correctly. I just 
learned that term--and so the land is going fallow. So we are 
going to produce less and yet at the same time our coal-fired 
co-ops are going to increase the utility rates for the farmers. 
And the farmers who are driving longer distances to get 
anywhere, because they live in a rural area, are paying more 
for gasoline. It seems like we are truly increasing the cost of 
living in the rural area fairly substantially.
    Secretary Vilsack. That assumes that we don't have 
productivity increase, which I am not willing to concede. It 
also assumes that there isn't a network of local markets that 
are created through our efforts to try to link local 
consumption with local production. It assumes there isn't going 
to be a biofuels industry that allows us to have regional 
distribution of biorefineries that are closer, so farmers have 
markets where they don't necessarily have to transport product 
as far. It assumes that there isn't going to be markets for 
agricultural products today that are considered waste material 
and have little or no value. It makes a lot of assumptions 
that, frankly, I am not willing to concede.
    I believe that all of what I have just outlined can and 
ought to happen. And I believe with the right set of policies 
it will happen.
    Mr. Cassidy. It is hard for me to imagine that someone 
growing rice in south Louisiana will be able to sell the 
entirety of their product within south Louisiana. So inevitably 
there is going to be some transportation that is involved 
there. And I will say again, going back to what Brookings 
suggested for the loss of employment in petrochemical, we have 
a timeframe which is tight, 5, 15 years. Again, what I may say 
you are conjecturing has to be developed and deployed within 5 
to 15, that seems unlikely.
    Secretary Vilsack. I could be wrong about this. I could be 
completely wrong about it because I don't have the numbers. But 
I would be willing to bet that we have more employed people in 
America today than we did 15 years ago. And I am willing--maybe 
we can come back 10 years from now and you and I can settle 
this up. But I am willing to bet we have more employed 
Americans 10 years from now than we do today.
    Mr. Cassidy. Not in petrochemical. Look at the Brookings 
report.
    Secretary Vilsack. It may be industries we don't even know 
exist. There may be opportunities.
    Mr. Cassidy. Brookings actually says we are going to be 
down .5 percent in the overall economy. The energy sector gets 
really better. And that is Brookings, which is obviously a 
little left of center. I would love to keep talking, but I have 
way gone over my time.
    Mr. Holden. The chair thanks the gentleman and recognizes 
the gentlewoman from Ohio.
    Mrs. Schmidt. Thank you very much. Before I begin, I have 
two letters, one from two different food groups that I would 
like to offer for testimony, if I could, sir.
    Mr. Holden. Without objection.
    [The documents referred to are located on p. 226.]
    Mrs. Schmidt. And thank you for that. I will leave them 
here to collect.
    Mr. Secretary, I don't even know where to begin. I am a 
pretty practical, skeptical, direct to the point person. I am a 
farmer. And you have said something that really has irked me. 
You have said assume, assumption. And my mother said break it 
apart, you won't like what you hear. We are getting ready to 
embark on something, untraveled water in this country, and I 
don't know where we are going to be in 30 years when we do 
this. But my main concern are the farmers that I represent in 
my district. And you go on and you say that we are going to 
have these great opportunities, but I look at where my farmers 
are and where they live, the roads and the infrastructure, and 
I am not so sure they can really dramatically change their way 
of life.
    I also know that when we implement this bill, and if this 
Congress chooses to do this, that they are going to have a 
direct production cost without reaping the benefits. And I am 
really concerned with that because the bottom line is I 
represent those people first, not the rest of the world.
    But having said that and in telling you my practical nature 
and skepticism and my directness, I have a bunch of questions I 
want to ask and I am going to ask them all so I can get my time 
claimed.
    I have heard a lot of generalities about the new jobs to be 
created in small rural towns. You need to visit some of mine so 
you can show me where they are going to be. Specifically, what 
new jobs are you going to bring to Adams County, what new jobs 
are you going to bring to Pike County, Scioto County, Clermont 
County, and Brown County? You said that the USDA would work 
together with the EPA on the application of this legislation to 
our farmers, but what guarantees do we have that the EPA won't 
trump you? Exactly how are you going to work together and how 
are you going to guarantee that the USDA will be the 
representative for our farmers? Do you have any specific 
details and data to give us before we vote on this bill and not 
generalities and not assumptions? Or are you just asking us to 
have faith and hope?
    Because you see, sir, I am a farmer and I do believe in 
that handshake, but before I make that handshake I get all my 
ducks in a row and all my questions answered. So before I do 
this handshake, I have to have these questions answered and a 
bunch of others.
    Thank you.
    Secretary Vilsack. I will try to respond as best I can in 
the time I have. There are a number of strategies that we need 
to take a look at in terms of job growth in rural America, in 
addition to and apart from this particular bill. You asked what 
new jobs can be created. I see an opportunity in many parts of 
the country where we, as I said earlier, link local production 
with local consumption. To do that, you have to build 
infrastructure that doesn't necessarily exist in the rural 
communities today.
    Mrs. Schmidt. I have to interrupt you because you really 
need to see my roads so you can understand the kind of 
infrastructure demands you are going to place.
    Secretary Vilsack. And part of what I am talking about is 
the infrastructure that would allow opportunities for local 
producers to be able to network together, to have the cooling 
and refrigeration systems, to have the processing systems that 
would allow them to basically provide opportunities to 
institutional purchasers in communities like schools, jails, 
other groups, colleges, and so forth, to link that local 
production with local consumption. I think there is opportunity 
there. I think there are opportunities for construction jobs, 
there are opportunities for full-time employment, and there are 
opportunities for additional local markets that reduce the 
costs of transport and create competition for that farmer's 
product.
    Mrs. Schmidt. So then you are saying, sir, that they are 
not going to be farmers anymore, they are going to be doing 
something else?
    Secretary Vilsack. No. No, they are going to farm. They are 
actually going to farm.
    Mrs. Schmidt. But if the production costs go up and you say 
we are going to offset this by new opportunities and you are 
saying these new opportunities aren't farm related, then I 
guess they are not going to farm?
    Secretary Vilsack. You asked--I am sorry. I must have 
misunderstood your question. I thought you were asking for----
    Mrs. Schmidt. You said there are new opportunities and I 
want new opportunities for people, but I also want my folks to 
be able to farm.
    Secretary Vilsack. Well--and I agree with you. Ninety 
percent of farms today--farm families today have off-farm 
income opportunities. The vast majority of farmers require that 
for either health care purposes or for income purposes. And if 
you create jobs in rural areas, then you create opportunities 
for farmers to supplement, opportunities for farmers to 
maintain the farm. I think that is a strategy. There are 
multiple ways in which you can create new jobs. I think there 
are--there is an opportunity side to this discussion we are 
having today. I think there are rural development components to 
this that we haven't had a chance to talk about today, which I 
would love to be able to talk about, which is in part local 
consumption, local production. It is in part wealth creation 
strategies that have been used successfully in parts of the 
country to create economic opportunity. And so, there are 
multiple strategies.
    Mrs. Schmidt. Sir, you keep saying multiple strategies. I 
just want to go back to my farmers and say, hey, guys, in West 
Union, here is what we are going to do for you because they are 
practical like me. They want answers. They don't want, ``We are 
going to build something.'' They want to know what you are 
going to build.
    Secretary Vilsack. Well, we are going to build refineries 
that will process agricultural products and waste products into 
fuel. We are going to create local production and processing 
facilities that will allow local consumption. We are going to 
create manufacturing jobs based on renewable energy, depending 
on the nature of renewable energy that makes sense for your 
area. In my state it is wind, so therefore we have wind 
manufacturing jobs. We have turbines being made. We have blades 
being made. We have parts of the 8,000----
    Mrs. Schmidt. But, sir, when?
    Secretary Vilsack. Well, it is happening right now.
    Mrs. Schmidt. And so that is good for your area, and how 
are you going to build it in my area, what are you going to 
build in my area, and where are you going to get the refinery? 
We have already got refineries trying to be built now that are 
not so profitable. So I am really kind of concerned with all of 
these generalities.
    Secretary Vilsack. That is the reason why the President 
instructed us to get the energy title of the farm bill 
implemented as quickly as we could, so that resources could be 
made available to work with your economic development folks in 
your counties, which I am happy to do, to try to get that done 
immediately. You all passed a farm bill in which you created 
multiple options here, and these options are now in the process 
of being worked through and monies are being made available. It 
is the reason why we have a Recovery and Reinvestment Act, and 
we are using our Rural Development resources to try to create 
opportunities in communities. That money is going to work to 
create jobs. So it is happening now. It can happen. And I am 
happy to work with you and I would be happy----
    Mrs. Schmidt. We really do need your help, sir. And I know 
I sound a little skeptical and a little nervous and maybe a 
little edgy about this. But again, I represent the folks in the 
Second Congressional District in Ohio and those are my 
frontline people. And my farmers are hanging on by a thread. 
With what happened with the energy costs last year, they are 
already dipping into their savings. They can't afford another 
tidal wave of an economic catastrophe against them. And they 
are nervous about this bill and I am nervous with them. And I 
just want to make sure that whatever we do doesn't dramatically 
affect us, because whenever you change the paradigm, you create 
winners and losers. And I don't want the folks in my district 
to be losers. That might be selfish, but I know I am over time.
    Mr. Holden. The chair thanks the gentlewoman.
    Mr. Secretary, you have been very generous with your time, 
and the whole Committee thanks you for that. But, you have a 
pretty good flavor of the great concerns that have been 
expressed here on both sides of the aisle. We are very nervous 
about this bill and we need your help. So, sir, thank you very 
much for your time today.
    Secretary Vilsack. Thank you all.
    Mr. Holden. Now I would like to welcome our second panel: 
Mr. Bob Stallman, President of the American Farm Bureau 
Federation; Mr. Steve Ruddell, Senior Associate of First 
Environment; Mr. Earl Garber, Second Vice President of National 
Association of Conservation Districts from Louisiana; Mr. Fred 
Yoder, past President and Climate Change Task Force member of 
the National Association of Corn Growers from Ohio; Mr. Roger 
Johnson, President of the National Farmers Union; Mr. Ken 
Nobis, Treasurer of the National Milk Producers Federation from 
Michigan.
    Mr. Stallman, when you are ready, you may begin. I thank 
all of you for your patience as well.

  STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU 
       FEDERATION; RICE AND CATTLE PRODUCER, COLUMBUS, TX

    Mr. Stallman. Thank you, Mr. Chairman and Members of the 
Committee. My name is Bob Stallman. I am a rice and cattle 
producer from Columbus, Texas and testifying today as President 
of the American Farm Bureau Federation. We appreciate the 
invitation to testify.
    How Congress addresses climate change will have a 
tremendous impact on agriculture. We welcome and support the 
Committee's attention to the needs and concerns of farmers and 
ranchers. Those concerns are extensive. They include not only 
mitigating the impact of higher energy costs, but also assuring 
that wherever and however possible we maximize the role of 
agriculture producers in any climate policy, including 
maximizing the opportunities to reduce and sequester carbon.
    From an agriculture perspective, there are several changes 
we believe must be made to the legislation reported from the 
Energy and Commerce Committee.
    First, the legislation must include a strong, robust, 
statutorily authorized program of agricultural offsets that are 
explicitly included in the legislative language. Early adopters 
must be eligible to participate in the program.
    Two, the United States Department of Agriculture must be 
given the primary role in developing, administering, and 
overseeing this offset program.
    And, three, all of the provisions of H.R. 2409, 
particularly those correcting the controversy over measuring 
indirect land use and the definition of biomass, must be 
incorporated in any climate change bill.
    From a more general policy perspective, H.R. 2454 has two 
critical flaws that must be remedied.
    One, there must be some mechanism included in the bill to 
assure that other countries, particularly China and India, are 
part of the global climate solution. If that is not done, our 
country will be engaging in the economic equivalent of 
unilateral disarmament.
    Two, Congress must not create a hole in America's energy 
supply. If carbon-based energy is taken out, something else, 
nuclear for example, must be substituted. We must plug the hole 
created by the bill or run the risk of Congressionally mandated 
shortages that will create spikes in energy prices.
    The agricultural sector, in particular, is poorly equipped 
to absorb or pass on such costs. Determining the exact economic 
impact to agriculture of H.R. 2454 is extraordinarily difficult 
because the range of variables is enormous, and assumptions 
play a large role in determining the outcome.
    For instance, how much and how quickly will nuclear energy 
grow? When and how will China and India control their own 
emissions? Will carbon capture and sequestration come online in 
5 years or 15? Will international offsets crowd out domestic 
offsets? What if nuclear facilities are not approved and 
constructed as needed or that wind and solar generation does 
not come online as quickly as projected?
    These are just a few of the questions no one today can 
answer. We would strongly urge Congress not only to ask those 
questions before the bill is brought to the floor, but to have 
some reliable analysis of alternate scenarios beyond just the 
best case, to provide answers before they pass a bill that is 
to affect every American.
    But it appears debate on this bill will occur as early as 
this month. So I will share with the Committee our best 
estimates.
    In the near term, by about 2020, we project input costs to 
rise for agriculture by $5 billion versus a continuation of 
current policy, translating into a nearly $5 billion reduction 
in farm income. Corn production would face some of the highest 
increases in cost, with a rise of nine percent. Reduction in 
corn plantage would lead to slightly higher corn prices just as 
movement into soybeans would drive those prices lower.
    Overall cash receipts of the crop sector are expected to 
rise by $500 to $600 million, but these revenue increases for 
crops translate almost directly to increased feed costs for the 
livestock industry.
    These early period costs in industry effects may not seem 
to be all that large, but the 2020 costs are only the tip of 
the iceberg. Do not lose sight of the fact this bill will 
dictate emission caps from now through 2050.
    While there are many cost mitigation provisions in this 
bill for the early years, they eventually run out at about the 
same time some of the emission caps really begin to bite. In 
2050, with the full effects of the cap and the end of the 
provision of free allowances, we would expect at least a 20 
percent reduction in net farm income relative to what would 
otherwise be the case. And this is probably a best case 
scenario since we used the figures from EPA's analysis of the 
Waxman-Markey proposal. Earlier analysis by EPA on the 
Lieberman-Warner proposal suggests carbon prices would be at 
least twice as high if these assumptions do not come true. And 
we can certainly devise a set of assumptions as valid as those 
used by the EPA that could cut farm income nearly in half.
    Remember, too, that some agricultural producers will never 
benefit from the legislation under any scenario. For example, 
most fruit and vegetable producers will not qualify for 
offsets, western ranchers whose operations are heavily 
dependent on the use of Federal lands for livestock forage also 
have very limited offset opportunities. Yet these other 
producers will incur the same increased fuel, fertilizer, and 
energy costs as their counterparts.
    In closing, Mr. Chairman, we remain very concerned about 
the broad, potential, adverse impacts of cap-and-trade on 
agriculture. Even though some say agriculture will benefit, 
that will depend to a great degree on where the producer is 
located, what he or she grows, and how his or her business 
model can take advantage of any provisions yet to be 
incorporated in the legislation. Not every day can a farmer 
afford to capture methane. It is a capital intensive endeavor. 
Not every farmer lives in a region where wind turbines are an 
option. Not every farmer can take advantage of no-till, and not 
every farmer has the land to set aside to plant trees.
    It is absolutely critical that this Committee exercise its 
prerogatives under the rules of the House and make this 
legislation as strong as possible for agriculture.
    Thank you for the invitation to testify. I look forward to 
answering your questions.
    [The prepared statement of Mr. Stallman follows:]

  Prepared Statement of Bob Stallman, President, American Farm Bureau 
           Federation; Rice and Cattle Producer, Columbus, TX
     My name is Bob Stallman. I am President of the American Farm 
Bureau Federation and a rice and cattle producer from Columbus, Texas. 
I appreciate the invitation to speak to the Committee this afternoon. 
Farm Bureau is the nation's largest general farm organization, 
representing producers in every commodity, in every state of the nation 
as well as Puerto Rico, with over six million member families. The 
predictions of catastrophic changes in the Earth's climate and what we 
need to do to forestall that change have generated tremendous debate 
within Farm Bureau. I am pleased to be able to share our thoughts with 
the Committee today and to recommend some specific actions the 
Committee should take.
    At the outset, I would like to commend Chairman Collin Peterson (D-
Minn.) for holding this hearing. Agriculture will incur higher fuel, 
fertilizer and energy costs as a result of this legislation. In 
addition, agriculture and forestry have a very important and unique 
role with regard to the development and implementation of any climate 
change and energy policy. Neither of these factors has been considered 
in the current bill, and we believe that the only way these issues will 
be addressed is through action by this Committee.
    According to the latest Environmental Protection Agency (EPA) 
``Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2005'' 
updated in 2008, agriculture and forestry emit between six and seven 
percent of the total greenhouse gases (GHG) emitted in the United 
States. The same EPA document also indicates that agriculture and 
forestry have the potential to sequester between 15 and 20 percent of 
total U.S. emissions. The U.S. Department of Agriculture (USDA) says 
that currently these two sectors sequester about 11 percent of total 
emissions, so that these sectors are responsible for reducing more GHG 
emissions than they emit. It stands to reason that any climate change 
policy should seek to maximize these contributions from agriculture. 
The Waxman-Markey bill does not.
    Any climate change legislation will impose additional costs on all 
sectors of the economy and will result in higher fuel, fertilizer and 
energy costs to farmers and ranchers. Cost increases incurred by 
utilities and other providers resulting from climate change/energy 
legislation will ultimately be borne by consumers, including farmers 
and ranchers. Electricity costs are expected to be \1/3\ higher than 
would otherwise be the case by 2040. EPA's own estimates suggest coal 
costs could rise by more than 100 percent by 2020. Unlike other 
manufacturers in the economy, agricultural producers have a limited 
ability to pass along increased costs of production to consumers. It is 
extremely important that those costs be minimized to the greatest 
extent possible. Farmers are heavily dependent on the price and 
availability of inputs such as fertilizer and crop protection products. 
A viable agriculture sector includes viable fertilizer and chemical 
industries. The fertilizer industry has already gone through major 
restructuring due to higher natural gas prices and the closure of many 
U.S. production facilities. Over half of the nitrogen fertilizer used 
in the United States is imported. Another rise in natural gas prices as 
EPA projects would likely result from this legislation could threaten 
the remaining fertilizer manufacturing facilities in the United States. 
This would make us even more dependent on foreign fertilizer imports.
    Unfortunately, H.R. 2454 fails to recognize the role that 
agriculture and forestry can play in climate change policy and also 
fails to mitigate the economic impacts to agriculture resulting from 
the bill. We identify below areas where the bill is deficient, and how 
this Committee might address those deficiencies.
1. Legislation should ensure that farmers and ranchers are not put at a 
        competitive disadvantage in international trade.
    Agriculture producers rely on foreign markets as sources for their 
products. Similarly, the international marketplace relies to a large 
extent on us to produce the food and fiber necessary to feed and clothe 
the world. The United States exported more than $100 billion of 
agricultural products in 2007 and only the global recession pulled us 
off that number in 2008.
    The increased fuel, fertilizer and energy costs that will result 
from H.R. 2454 will greatly impact the relationship of American 
producers with the rest of the world. U.S. agriculture is an energy 
intensive industry that relies to a large extent on international 
markets.
    These increased input costs will put our farmers and ranchers at a 
competitive disadvantage with producers in other countries, such as 
China and India, that do not have similar GHG restrictions. Any loss of 
international markets or resulting loss of production in the United 
States will encourage production overseas in countries where production 
methods maybe less efficient than in the United States.
    The production of food and fiber in the United States is important 
both to the U.S. and to the world and any legislation should ensure 
that our producers are not put at a competitive disadvantage.
    The bill provides assurances against adverse impacts from 
international markets for other sectors of the economy. For example, 
Title IV of the bill provides assistance for energy intensive 
manufacturing sectors (such as steel, cement and others) that rely on 
international trade. Similarly, agriculture is an energy intensive 
industry that relies on international markets as well. Food is a basic, 
universal commodity whose availability and price have significant 
impacts on the world. Measures to level the playing field for 
international markets should take into consideration agriculture's 
concerns.
    In addition, any such assurances must be in accordance with World 
Trade Organization (WTO) principles with respect to trade remedies. 
Both the transition assistance measures and border adjustment remedies 
set forth in H.R. 2454 raise concerns about whether they would be in 
compliance with the WTO.
2. Any cap-and-trade legislation must contain a robust offset title 
        that fully recognizes the important role that agriculture can 
        play in carbon reduction schemes.
    Title III of the bill would establish a ``cap-and-trade'' program 
as the method for implementing carbon reductions. Under this program, 
certain sectors of the economy would be subject to GHG emission 
``caps'' that would decline annually. Capped entities having difficulty 
meeting their ``cap'' obligations would be able to ``trade'' with other 
capped entities that have met their cap obligations and have excess 
emission allowances to ``trade.''
    Another method for meeting ``cap'' obligations is for capped 
entities to contract with uncapped sectors to engage in GHG reduction 
or sequestration projects to ``offset'' the GHG emissions that cannot 
be reduced to their capped obligations. These ``offset credits'' are 
valuable to capped entities so long as they are cheaper than purchasing 
additional emission allowances or retro-fitting facilities to meet cap 
obligations.
    Offsets are an important part of any cap-and-trade program. Because 
they are only useful to the extent they are cheaper than installing new 
technology, they serve as a cost containment mechanism for entities 
trying to meet cap obligations. That means that fewer costs will be 
passed on to consumers, thus lowering the cost of compliance of a cap-
and-trade program.
    Agriculture and forestry are particularly well-suited to provide 
offsets to capped entities. Agriculture and forestry are not capped 
sectors under the bill, and would therefore be eligible to provide such 
offsets. There are a number of identified agricultural and livestock 
practices that have been proven to reduce or sequester GHG. These range 
from shifts out of conventional to conservation tillage, forest 
management, nutrition management, even afforestation. In order to 
achieve the full potential for GHG reductions and sequestration, 
climate policy should allow farmers and ranchers to adopt these 
practices to provide offset credits to capped entities. Adoption of 
these practices also provides other environmental benefits besides 
carbon reduction or sequestration. These other benefits may include 
reduced soil erosion, improved wildlife habitat, or increased water 
quality, to name a few.
    H.R. 2454 is totally deficient in this regard.

    (a) The bill should specifically include the full range of 
        agricultural GHG reduction or sequestration projects as 
        eligible offsets. While the bill currently authorizes the use 
        of offsets, it does not provide that agricultural or forestry 
        offsets will be eligible. Rather, it leaves the selection of 
        eligible offset types to the discretion of EPA. There are no 
        assurances that farmers and ranchers will be allowed to provide 
        offsets or play any role in mitigating GHG emissions under the 
        bill. Agriculture and forestry have the potential to sequester 
        about three times the amount of GHG that they emit, but without 
        a defined role in this bill that potential will be unrealized. 
        EPA analysis of H.R. 2454 shows no role for agricultural soil 
        sequestration practices, casting serious doubt as to whether 
        that type of offset would ever be permitted by EPA.

    Failure to set forth an initial list of eligible offset types also 
        has other detrimental implications as well. Without a list of 
        eligible offset types, investors will be reluctant to finance 
        carbon reduction or sequestration projects.

    We suggest that a good starting point for such an initial list of 
        eligible offset types is the list in the Committee on Energy 
        and Commerce Report accompanying section 733 of the bill. That 
        language is attached.

    (b) Any legislation must give the USDA the primary role in 
        administering agricultural offsets and other carbon reduction 
        or sequestration projects. USDA has both the institutional 
        resources and technical expertise necessary to effectively 
        administer any carbon offset allowance program. USDA has 
        developed methods for measuring carbon in different types of 
        soils, and has done significant work in developing 
        methodologies and protocols for different agricultural, 
        forestry and livestock practices relating to carbon reduction 
        and sequestration. USDA also understands the needs of producers 
        and can work effectively with them to develop projects that 
        meet the needs of the cap-and-trade market as well as the needs 
        of producers. USDA also has the resources and the network to 
        work effectively with farmers and ranchers to administer an 
        agricultural offsets program.

    The bill currently makes no provision at all for USDA. Instead, the 
        bill leaves administration of the offsets title entirely to 
        EPA, including total discretion as to what types of offsets 
        will be eligible. A recent article in the Des Moines Register 
        underscores why this is a concern. In 2005, EPA estimated that 
        farm practices and forestry programs could reduce carbon 
        emissions by about 700 million metric tons annually. Retaining 
        crop residue in the soil would account for about 25 percent of 
        that reduction. Under that scenario, credits were estimated to 
        be worth about $15 a ton. EPA, after looking closer at the 
        House Bill now believes that the carbon credits from 
        agriculture and forestry likely won't exceed 300 million tons 
        until after 2040. And then, most, if not all, of the offsets 
        would come from planting and preserving forests, not through 
        agriculture. Again, due largely to U.S. agriculture's success 
        in this area, the EPA sees very little need for the scope of 
        credits to farmers that would be needed to offset higher 
        operating expenses. We need policy to quantify and reward the 
        vast amount of action and investment our farmers have already 
        made to retain carbon in our fields and USDA should have that 
        responsibility.

    The role for USDA must be spelled out in legislation. Recent 
        statements from Secretary of Agriculture Tom Vilsack indicate 
        that USDA will not assert its jurisdiction or authority over 
        agricultural offsets but will instead leave offset 
        administration to EPA. Unless this Committee inserts a 
        provision giving USDA a role over agricultural offsets, 
        jurisdiction will stay with EPA.

    The Energy and Commerce Committee Report language recognizes the 
        need for USDA involvement in the offset process, stating: ``The 
        Committee strongly encourages the Administrator to consult 
        closely with the Secretary of Agriculture on all elements of 
        the offsets program related to agricultural and forestry 
        practices.'' That recognition is important, but it is not 
        sufficient. The USDA role must be spelled out in the bill.

    (c) Any legislation must allow early adoptors to participate in an 
        offsets program. One of the fundamental flaws of the current 
        offsets title is that it does not allow ``early adoptors'' to 
        be eligible to participate in the offset program. Many 
        producers have already adopted management practices that reduce 
        or sequester carbon. These producers are generally leaders in 
        the industry who have adopted these practices to improve 
        environmental conditions. Instead of being recognized for their 
        early actions, the bill penalizes them by making them 
        ineligible to provide any offset credits. Innovators should not 
        be penalized simply because they saw the merits of taking these 
        actions before legislation was enacted. By limiting 
        participation only to those who undertake reduction or 
        sequestration after legislation is enacted, the bill creates a 
        perverse incentive to encourage farmers and ranchers to wait 
        until legislation is enacted before adopting carbon reduction 
        or sequestration practices. For those who have adopted such 
        practices and therefore might be ineligible to provide offset 
        credits, the bill creates the perverse incentive of encouraging 
        such producers to cease these practices for a certain period of 
        time and resume them only when they become eligible to provide 
        offsets.

    An amendment by Rep. Zack Space (D-Ohio) during the markup in the 
        Energy and Commerce Committee partially addresses the issue by 
        allowing participation by producers who began practices after 
        2001. Their participation, however, is contingent on approval 
        by EPA for such prior practices. We suggest removal of the 
        language granting EPA the discretion to set a participation 
        date.

    We should make it clear that allowing participation by early 
        adoptors does not provide payment for past reductions or 
        sequestrations, but only for future reductions or 
        sequestrations. For example, some scientific studies indicate 
        that soils generally become saturated with carbon after 20 to 
        30 years. Farmers that have been no-tilling for 20 years, 
        therefore, likely have little or no additional opportunities to 
        sequester carbon from that practice. Farmers who have engaged 
        in the practice for 5 or 10 years likely have opportunities to 
        sequester additional carbon. Allowing their participation to 
        sell offsets would be based on their future sequestration only.

    Without allowing these producers to participate in selling future 
        reductions or sequestrations, there is nothing to prevent these 
        producers from releasing the carbon they have stored or 
        stopping the reduction practices they have adopted. Allowing 
        them to participate retains the benefits they have already 
        attained and provides that they will continue such practices.
3. Offsets do not shield producers from adverse impacts of this 
        legislation.
    Even with a robust agricultural offsets title as indicated above, 
the bill will not make economic sense for farmers and ranchers. There 
are several reasons for this.

    (a) A number of agricultural sectors will not benefit from offsets. 
        The attractiveness of offsets as a possible revenue stream for 
        producers and a cost containment measure for consumers should 
        not cloud the fact that there are a number of agricultural 
        producers who will not be able to benefit from offsets. As a 
        general farm organization, AFBF represents all commodities. 
        Most fruit and vegetable producers will not qualify for 
        offsets. Western ranchers whose operations are heavily 
        dependent on the use of Federal lands for livestock forage also 
        have very limited offset opportunities. Many areas of the West 
        in general that are coal-dependent are also the areas that have 
        limited offset opportunities. Not all areas of the country are 
        able to productively adopt conservation tillage practices, thus 
        restricting their offset possibilities. Yet, these producers 
        will incur the same increased fuel, fertilizer and energy costs 
        as their counterparts.

    (b) Revenue from offsets will only defray a portion of the 
        increased input costs resulting from this bill. The bill was 
        amended to defer auction of emission allowances for a 
        significant portion of the total allocation, a factor that will 
        reduce overall program costs. More free emission allowances 
        also means a lower price of carbon and a lower demand for 
        offsets. As the price of carbon and offsets rise, producer 
        input costs will rise as well. This does not even account for 
        the adverse effects on competition or offset transaction costs 
        that will result from this bill.

    Additionally, H.R. 2454 should be modified to incorporate the 
provisions of H.R. 2409.
    We commend Chairman Peterson, Ranking Member Frank Lucas (R-Okla.), 
and all Members of the Committee who have introduced H.R. 2409. AFBF 
strongly supports this bill and believes it must be incorporated in any 
climate change legislation that is considered by Congress.
    AFBF has long been a proponent of renewable fuels and the Renewable 
Fuel Standard (RFS). We believe biofuels are key components to increase 
our nation's energy security.
    The RFS is an important step in recognizing that biofuels like 
ethanol and biodiesel are clean burning transportation fuels that 
lesson our dependence on foreign oil and revitalize rural America.
    AFBF has strong concerns with the notice of proposed rulemaking 
offered by EPA. The RFS passed in the Energy Independence and Security 
Act of 2007 (EISA) requires new biofuels to emit from 20 to 60 percent 
fewer GHG emissions than gasoline to be eligible for the RFS program.
    The controversy stems from EPA's inclusion of modeled, projected 
indirect land use impacts in its scoring of the GHG emissions from 
biofuel production and use. This action could penalize the ethanol and 
soy biodiesel industry if, in using those fuels, blenders cannot get 
credit toward meeting the RFS. Essentially, the EPA has determined that 
the production of ethanol in the United States is forcing land use 
changes in foreign countries to destroy their valuable rain forests to 
produce farm commodities to make up for reduced exports of these 
commodities from the United States. This is simply silly economics and 
not supported by fact.
    Our members have serious concerns about the terms ``indirect land 
use change'' and ``lifecycle carbon emissions'' and how these concepts 
would be measured and implemented. We do not believe there is a 
reliable way to measure or accurately predict how the production of 
biofuels will affect land use change in other countries. For our 
farmers, the market dictates which crops will be planted and where 
those crops will be grown. If there is sufficient demand for a crop, 
farmers will produce it. If the market persists, greater efficiency 
will follow.
    Improved plant varieties, new technologies, and more efficient 
agricultural practices have produced greater crop yields of higher 
quality. It is unrealistic to think that anyone can predict how 
agriculture will evolve in the future based on the single variable of 
biofuels utilization. New and uncertain science to predict 
international land use change has no place in Federal regulations.
    We are also concerned that biofuels are the only transportation 
fuel being measured for GHG reduction. If we are going to accurately 
measure GHG reductions we need to measure the land use change for 
petroleum. This will allow us to compare GHG emissions from all 
transportation fuels.
    H.R. 2409, The Renewable Fuel Standard Improvement Act, provides a 
clear way to fix this problem and clarify the way GHG's emissions are 
measured.
    The RFS included in the Energy Independence and Security Act of 
2007 also did not include all forms of forest biomass, and we believe 
that is unfortunate. Under the standard, the only forest biomass 
considered renewable is that from ``actively managed tree 
plantations.''
    The reason for such a narrow definition is unclear, but the result 
is many family farm forest owners will be precluded from active 
participation. If the purpose of the standard is to increase the use of 
forest biomass, the definition should be as broad as possible to 
encourage its use.
    Farm Bureau supports changing the definition of renewable biomass 
to include all forms of forest biomass. It is important the legislation 
be as inclusive as possible regarding energy feedstocks and methods. We 
support the definition of renewable biomass included in the farm bill 
and in H.R. 2409, The Renewable Fuel Standard Improvement Act.
    From a broader perspective, Farm Bureau's goal has been to 
contribute positively to the debate over climate change. We certainly 
hope this Committee will do the same, and I would now like to touch on 
more general aspects of the debate, and the pending bill, with the 
hopes that some of these problems can be addressed before the measure 
reaches the House floor.
    Farm Bureau has set out a number of pillars that we have shared 
with the Committee. I would like to emphasize a few of those here today 
because they are central to how a climate change program will affect 
agriculture.

    1. All the clamor and excitement over this issue has focused on 
        claims of upcoming catastrophic events--rising sea levels, 
        horrific weather disasters, furious hurricanes, melting polar 
        ice, demise of certain species and migration of people from 
        some territories to others. The list goes on.

    But no one can tell if the bill reported from the Energy & Commerce 
        Committee will actually fix those problems. So before we rush 
        to impose constraints on our economy that may or may not work, 
        there ought to be some way of measuring whether the benefits in 
        the bill at least roughly equal the costs. In our estimation, 
        the legislation as it stands today falls far short of that 
        standard.

    2. Everyone acknowledges that this is a global issue. The United 
        States cannot solve it on its own. We all support leadership by 
        the United States, but we should not engage in the economic 
        equivalent of unilateral disarmament. There must be some 
        mechanism in the legislation to assure that other countries, 
        such as China and India, also are part of the solution.

    3. If in fact there is the political will finally to wean our 
        economy off the use of fossil fuels, then let's go about the 
        real business of coming up with an energy plan for America. 
        That means we must ``plug the hole'' that will be created when 
        we take carbon-based fuels out of our economy. The legislation 
        must be an honest and straightforward approach. It means a real 
        commitment to nuclear power. It means a realistic assessment of 
        how much solar, geothermal and wind energy can contribute and 
        under a realistic timeline. We cannot have overly optimistic 
        assumptions of when carbon capture and sequestration (CCS) 
        technology will come on line. The bill must be real. In the 
        absence of ``plugging the hole,'' we will see price spikes 
        caused by induced energy supply shortages that will be harmful 
        to our economy.

    This last point leads me to a general discussion of how we view the 
economics of cap-and-trade. I must caution the Committee, however, that 
it is very difficult to give a precise and accurate economic assessment 
of H.R. 2454. That is so for several reasons:

    1. Nearly all the economic figures surrounding this bill are based 
        on EPA's analysis provided to the Committee back in April;

    2. These economic projections are keyed to a specific set of 
        assumptions ranging from unfettered access to nuclear power to 
        unveiling of carbon capture and sequestration technology; and

    3. Given that EPA favors the legislation and was directed by 
        Chairman Henry Waxman's (D-Calif.) staff to use certain 
        assumptions, we believe it is safe to say any cost estimates I 
        provide you today are not only minimal but are probably 
        unrealistically optimistic.

    Let me give the Committee a flavor for the kind of assumptions that 
underpin the legislation:

    1. EPA in its analysis used assumptions ``provided by Committee 
        staff on the use of allowances'' \1\ that:
---------------------------------------------------------------------------
    \1\ EPA Preliminary Analysis of Waxman-Markey Discussion Draft, 4/
20/09 available at
http://www.epa.gov/climatechange/economics/economicanalyses.html#wax, 
page 10.

     Increased carbon capture and sequestration bonus 
---------------------------------------------------------------------------
            allowances;

     Provided that necessary allowances would be deficit 
            neutral; and

     All remaining allowances would be returned to 
            households in a lump sum fashion.

    2. EPA in its analysis used Committee staff directions on the 
        commercialization of CCS technology. EPA assumed this 
        technology would be affordable and commercially available 
        starting in 2014, whereas most other estimates are for 2020 or 
        2025. None is in place today.

    3. EPA in its analysis used previous assumptions by MIT \2\ on the 
        degree to which developing nations, such as China, would engage 
        in similar emissions-reduction policies. For China and India, 
        for example this assumes that these countries (and others in 
        the developing world) ``would adopt a policy beginning in 2025 
        that returns and holds them at year 2015 emissions levels 
        through 2034, and then returns and maintains them at 2000 
        emissions levels from 2035 to 2050.''
---------------------------------------------------------------------------
    \2\ Assessment of U.S. Cap-and-Trade Proposals, Report No. 146, 
April 2007.

    4. Yet EPA notes \3\ that ``While this analysis contains a set of 
        scenarios that cover some of the important uncertainties when 
        modeling the economic impacts of a comprehensive climate 
        policy, there are still remaining uncertainties that could 
        significantly affect the results.''
---------------------------------------------------------------------------
    \3\ Op. cit., page 4.

    5. A large share of emissions reductions stem not from the policies 
        in the bill but from reduced GDP as a result of the economic 
        recession, as well as earlier policy changes enacted in the 
        Energy Independence and Security Act. The source for these 
        emissions reductions is the latest (2009) Annual Energy 
---------------------------------------------------------------------------
        Outlook.

    Earlier analysis by EPA of the Liberman-Warner proposal looked at 
the effects on carbon prices and other economic variables if the 
fundamental assumptions regarding nuclear power and other portfolio mix 
shifts did not occur. Without that addition of nuclear power 
generation, carbon prices and associated energy costs almost doubled 
compared to the earlier base case. It is critical that we understand 
how sensitive EPA's analysis of this bill is to these underlying 
assumptions. Certainly one should know those answers before taking the 
bill to the floor. In fact, we strongly recommend the Committee require 
EPA to provide analysis using assumptions similar to those contained in 
Scenario 7 of their Liberman-Warner proposal study. Because while the 
caps that will be written into law, the market and power generation 
structures implied by EPA's current analysis are just a set of 
assumptions.
    Let me cite just two examples.
    In the MIT study mentioned earlier, the authors point out that they 
``limited nuclear electricity generation to that possible with current 
capacity on the basis that safety and siting concerns would prevent 
additional construction. With strong greenhouse gas policy such 
concerns may be overcome, especially if other major technologies such 
as carbon capture and storage can not be successfully developed, run 
into their own set of regulatory concerns, or turn out to be very 
expensive.'' \4\ In other words, a carbon-less world might be so 
expensive that nuclear energy becomes a viable source of electricity 
generation. The authors go on to say that the ``fate of CCS is the 
mirror image. With nuclear limited, CCS expands beginning in 2020 to 
about 18 EJ in 2050. When nuclear is allowed to compete on economic 
terms, some CCS is viable but it begins losing out to nuclear after 
2040, when the CO2-e price has risen substantially. Coal 
generation without CCS disappears in either case. These relatively 
detailed results help illustrate the scale of effort required to meet 
these policy constraints. There are just over 100 nuclear reactors in 
the U.S. today, and so a six-fold increase in nuclear generation would 
require the construction of on the order of 500 additional reactors. If 
nuclear cannot penetrate the market the scale issue is not avoided but 
instead is transferred to CCS, requiring siting and construction of 
about the same number of new CCS plants.''
---------------------------------------------------------------------------
    \4\ MIT study, op. cit., page 32.
---------------------------------------------------------------------------
    Those are enormous variables.
    The second example I would cite was articulated just a couple of 
days ago, in a story discussing the Waxman-Markey bill's allocation of 
about $200 billion for CCS technology. Pointing out the almost 
unprecedented level of money (six times greater than the amount 
contemplated in legislation considered in the Senate a year ago, 
according to the author), an article \5\ in the trade press 
nevertheless quoted an energy researcher as saying CCS may never even 
materialize.
---------------------------------------------------------------------------
    \5\ ``Carbon Capture and Storage Moves to Center Stage of cap-and-
trade Debate'', Climate Wire, June 9, 2009
---------------------------------------------------------------------------
    ``At the most optimistic, this bill is the beginning of a 
revolution. Or it could just be a flash in the pan,' said Kevin Book, 
managing director at energy research firm ClearView Energy Partners.'' 
said the article. Another expert, Sarah Forbes at World Resources 
Institute, was quoted as saying she was not sure the funding was 
enough. Still others pointed out technological and legal issues that 
have not been answered.
    These are just two examples of the kinds of assumptions that 
underlie this bill. It is nearly impossible to evaluate exactly how 
such scenarios will play out, nor does it seem reasonable, given the 
magnitude of the unknown, that everything will come out just right.
    Given these caveats, however, there is no question that the 
national effort to cap and then further reduce GHG emissions represents 
a significant restructuring of the nation's economy. While most policy 
options on the subject to date have not included production agriculture 
as a capped sector, agriculture would certainly feel the effects of 
limiting GHG output through the changes in the energy production 
industry. At the very least there will be increases in energy costs in 
general, but more specifically the higher costs faced by sectors that 
provide inputs to production agriculture. As these costs are passed to 
agriculture, producers certainly will react but are constrained as to 
the extent to which they may respond.
    Taking EPA's estimates of 2020 costs, AFBF projects input costs 
would rise by $5 billion versus a continuation of current 
CO2 policy. This $5 billion essentially carries forward to a 
nearly full $5 billion reduction in farm income. Corn production, with 
a heavier emphasis on energy-based crop nutrient requirements, would 
face some of the highest increases in costs with a rise of nine 
percent. Conversely, soybean producers due to a much smaller reliance 
on energy-based inputs will only see costs move by five percent. Not 
surprisingly, this shift in costs is expected to lead to a shift out of 
corn and into soybean production. Overall, producers are expected to 
reduce slightly--by half a million acres or so--overall plantings in 
response to these higher costs.
    The reduction in corn plantings discussed above does lead to 
slightly higher corn prices, just as the movement into soybeans drives 
those prices lower. Overall cash receipts to the crops sector are 
expected to rise by $500 to $600 million. But these revenue increases 
for crops translate almost directly to increased feed costs for the 
livestock industry. As is the case for crops, the livestock sector will 
require some time to adjust to the new reality, but after a few years, 
the higher inputs represented by 2020 cost changes suggested by EPA 
will generate a similar $500 to $600 million increase in livestock cash 
receipts. But feed cost increases are expected to chew through $400 
million of that rise in cash receipts.
    But it is critical not to stop in 2020, even though much of the 
analysis conducted to date tends to focus on these early year effects. 
As mentioned earlier, the full impact of the bill will not be realized 
until 2050. Conducting analysis of an industry as dynamic as 
agriculture for effects more than 40 years in the future is difficult 
at best, and certainly subject to a great deal of debate. But the fact 
remains that this legislation is intended to set in law specific 
targets the economy must meet by the time we get to 2050. It will set 
rules on how our children and our children's children must be prepared 
to farm to be in compliance with this bill.
    EPA's estimates of how things will look in 2050 under this 
legislation suggest a substantially different world. For example, the 
2020 CO2 prices estimated by EPA come in at $22.20 per ton--
expressed in 2005 dollars. For 2050, CO2 prices--again in 
2005 dollars--by EPA's estimates are $95.90 per ton. Consequently, the 
relatively minor adjustments discussed before for 2020 policy 
implementation pale in comparison to how the sector will be impacted by 
2050.
    Extending the same analytical approach used before, we have imposed 
those higher energy costs on the industry as if they occurred in 2012. 
Then we looked at the industry behavior under those new conditions.
    Production costs under that scenario rise by $13 to $14 billion 
after the initial year's impacts. Here again, acreage shifts occur 
between commodities, with corn and other energy intensive input crops 
giving land to less intensive crops, primarily soybeans. Overall, 
producers shift out of roughly 1.5 million acres. Input costs averaged 
over the third to fifth year subsequent to the shock rise by $13 
billion, with nearly $11 billion of that rise deriving from higher 
fertilizer costs. Feed costs also rise, but in this case by only in the 
$725-$775 million range. Another large adjustment observed under the 
scenario is a nearly $4 billion decline in rent paid to non-operator 
landlords. Overall, farm income is estimated to run $13 billion lower 
than would be the case without CO2 costs in the $90+ per ton 
range. Further, consumer spending on food rises by just over $13 
billion.
    Moreover, these are not the only shifts in acreage. Another area of 
concern is the potential for land to shift from farm to forest 
production and the consequences of such shifts. Some of this acreage 
will not doubt come from land currently devoted to pasture and forage 
production and would therefore place even greater limits on the cattle 
industry. It is also possible we may get some shifts out of crop 
production into trees if CO2 prices were to rise 
sufficiently. Much more work is needed to understand the full effects 
of these potential land use adjustments.
    Also remaining to be done is further work on potential income 
streams from offsets. But critical to this work are the rules Congress 
will write that will affect those income streams. Recent analysis by 
EPA suggests that there are no revenues to return to the sector from 
agricultural land use. Much of the view being that land management 
practices have already adjusted sufficiently to the point that there is 
little additional carbon sequestration left to be gained by shifts to 
no-till or other conservation tillage practices in the future. In other 
words, past good actions by the industry are to be acknowledged with a 
thank you, and the sector is just being asked to accept higher input 
costs with aplomb.
    There is also a potential revenue stream available by sales of crop 
residue as an input into the renewable electricity standard. Studies 
around this issue suggest the greatest contributor to this energy 
source will be corn stover, with wood chips and other forest management 
residue also providing a major source.
    Removing stover from the field will, however, also remove some crop 
nutrients from the same field. Consequently, taking that residue off 
the field will require producers to increase their fertilization rates 
to keep up the same level of productivity. As has been pointed out more 
than once, fertilizer--especially energy intensive fertilizers--are not 
cheap and are expected to rise even more due to this legislation.
    Some studies suggest corn stover at current fertilizer and fuel 
costs will need to receive at least $60 per ton in order to justify 
bringing the product to the field edge.
    In conclusion, Mr. Chairman, we remain very concerned about the 
broad potential adverse impacts of cap-and-trade on agriculture. Even 
though some say agriculture will benefit, that will depend to a great 
degree on where the producer is located, what he or she grows, and how 
his or her business model can take advantage of any provisions in the 
legislation. Not every dairy farmer can afford to capture methane--it 
is a capital intensive endeavor. Not every farmer lives in a region 
where wind turbines are an option. Not every farmer can take advantage 
of no-till. Not every farmer has the land to set aside to plant trees.
    Yet, every farmer has production costs to meet. Nearly all of us 
rely on fertilizer. We all drive tractors. We know our costs will rise. 
And frankly, we are very concerned about the impact of this legislation 
on our livelihood.
    I appreciate this opportunity to offer these comments to the 
Committee and will be pleased to respond to any questions.
                               Attachment
Energy and Commerce Committee Report Language
    Section 733, Eligible Project Types: Requires the Administrator to 
establish a list of offset project types that are eligible under the 
program, taking into account the recommendations of the Offsets 
Integrity Advisory Board. Provides guidelines for establishing and 
updating the list.
    In implementing this provision, the Committee expects the 
Administrator to fully evaluate each of the following categories of 
activities for potential inclusion as eligible offset project types:

      (1) agricultural, grassland, and rangeland sequestration and 
        management practices, including--

        (A) altered tillage practices;
        (B) winter cover cropping, diversified rotations and other 
            means to increase biomass returned to soil in lieu of 
            planting followed by fallowing;
        (C) conversion of cropland to rangeland or grassland, on the 
            condition that the land has been in non-forest use for at 
            least 10 years before the date of initiation of the 
            project;
        (D) reduction of nitrogen use or increase in nitrogen use 
            efficiency;
        (E) reduction in the frequency and duration of flooding of rice 
            paddies;
        (F) reduction in carbon emissions from organic soils;
        (G) reduction in greenhouse gas emissions from manure and 
            effluent; and
        (H) reduction in greenhouse gas emissions due to changes in 
            animal management practices, including dietary 
            modifications;

      (2) changes in carbon stocks attributed to land use change and 
        forestry activities, including--

        (A) afforestation or reforestation of acreage not forested as 
            of January 1, 2007;
        (B) forest management resulting in an increase in forest carbon 
            stores including but not limited to harvested wood 
            products;
        (C) management of peatland or wetland;
        (D) conservation of grassland and forested land;
        (E) improved forest management, including accounting for carbon 
            stored in wood products;
        (F) reduced deforestation or avoided forest conversion;
        (G) urban tree-planting and maintenance;
        (H) agroforestry; and
        (I) adaptation of plant traits or new technologies that 
            increase sequestration by forests;

      (3) manure management and disposal, including--

        (A) waste aeration; and
        (B) biogas capture and combustion; and

      (4) non-agriculture and forestry project types, including--

        (A) recycling, reuse, and waste minimization;
        (B) methane collection and combustion projects at mines;
        (C) methane collection and combustion projects at landfills;
        (D) methane collection and combustion projects at natural gas 
            systems;
        (E) projects to reduce emissions from municipal or industrial 
            wastewater treatment systems;
        (F) projects that capture and geologically sequester uncapped 
            greenhouse gas emissions with or without enhanced oil or 
            methane recovery in active or depleted oil, carbon dioxide, 
            or natural gas reservoirs; and
        (G) projects to capture and destroy or avoid emissions of 
            greenhouse gases from industrial sources for which entities 
            do not have compliance obligations under section 722 or 
            other provisions of Title III.

    In considering these potential project types, the Administrator 
        must take into account recommendations of the Offsets Integrity 
        Advisory Board.

    The Committee expects the Administrator to issue an initial list of 
offset project types and their associated methodologies under section 
734 as expeditiously as practicable, but in no case later than 1 year 
from the date of enactment. The Administrator should add additional 
project types, along with their associated methodologies, to the list 
as expeditiously as practicable, but in no case later than 2 years from 
the date of enactment. In developing baselines, measurement, and 
monitoring methodologies for a broad range of offset project types as 
quickly as possible, EPA should build on its experience in programs 
such as Natural Gas STAR, Climate Leaders, and the Landfill Methane 
Outreach Program. The Committee understands that EPA is already working 
with USDA and DOE on the AgSTAR program to encourage the use of methane 
recovery from manure digesters and is working on afforestation, 
reforestation, and forest management protocols under the Climate 
Leaders program.
    The Committee strongly encourages the Administrator to consult 
closely with the Secretary of Agriculture on all elements of the 
offsets program related to agricultural and forestry practices.

    Mr. Boswell [presiding]. Thank you, Mr. Stallman. The chair 
recognizes Mr. Ruddell.

     STATEMENT OF STEVEN RUDDELL, SENIOR ASSOCIATE, FIRST 
                 ENVIRONMENT, WASHINGTON, D.C.

    Mr. Ruddell. Chairman Peterson, Ranking Member Lucas, 
Members of the Committee, thank you for the opportunity to 
appear before you today to discuss pending climate legislation, 
particularly the role of our nation's forests in this 
legislation. I am a professional forester and currently lead 
First Environment's environmental markets consulting and 
verification services, including biocarbon. First Environment 
is an American National Standards Institute accredited company 
that conducts greenhouse gas and offset project validations and 
verifications for voluntary market programs like the Climate 
Registry, the Voluntary Carbon Standard, the Climate Action 
Reserve and the Chicago Climate Exchange.
    Regarding the role of forests in mitigating climate change, 
a primary goal in a U.S. climate bill should be to keep our 
forests as forests. U.S. climate legislation must support 
policies and programs that provide incentives for private 
landowners to manage their lands for increasing carbon 
sequestration and storage, to avoid conversion to other land 
uses, to encourage sustainable forestry practices, and to 
support the complementary relationships between forest carbon 
markets and other forest ecosystem service markets that will 
evolve.
    I would like to spend most of my time today discussing the 
opportunities for forests to play a role in carbon offset 
markets. Recent EPA estimates of the Waxman-Markey climate bill 
point out that forests mostly improved forest management 
activities, are likely to produce 81 percent of offsets, 
equating to roughly 290 million tons of carbon annually.
    However, while forests have this tremendous potential, this 
can only be tapped if the rules for their participation in 
these markets are workable. Unfortunately, my read of the 
current legislation is that there is a lack of clarity in how 
the EPA might interpret the legislation, and there is no clear 
recognition that EPA will develop the opportunity for forests 
to participate in offset markets. I believe this must be 
improved to give the needed market signals and reassurance that 
forests will be part of any emissions reduction scheme.
    With this in mind, I offer six suggestions for your 
consideration as you work to improve this legislation.
    First, ensure that all forests, private forests, can 
participate. U.S. legislation must provide incentives equitably 
so that both small and large forests can participate in a 
future forest carbon offsets market.
    Second, ensure a strong USDA role. This Committee made it 
clear in the 2008 Farm Bill that USDA would take a leading role 
in establishing carbon offset rules with the establishment of 
the Office of Ecosystem Services and Markets, but more urgent 
is that the process of developing forest carbon standards 
begins moving forward today. This process will take at least 24 
months, and markets are waiting now for clear signals.
    Third, clearly recognize forest project types. Provide 
clear direction to EPA to develop offset project rules for 
forest projects, including afforestation, reforestation, 
avoided deforestation, and improved forest management with 
appropriate crediting for wood products.
    Fourth, recognize and reward early action. Early action 
taken to develop and trade offset projects in the current 
voluntary markets must not be ignored. Forest landowners and 
forest carbon investors need to know that their past efforts to 
mitigate climate change will be recognized.
    Fifth, environmental integrity standards must be workable. 
Standards such as baselines, additionality leakage, and 
permanence must all be workable. Unfortunately, my reading of 
the current legislation is that there is a lack of clarity as 
to whether these standards will work for landowners.
    And sixth, third-party verification will ensure program 
integrity. Third-party verification conducted by verifiers 
accredited by the American National Standards Institute will 
provide Congress with assurances that offset project emission 
reductions have integrity and credibility.
    In closing, achieving a balance of environmental integrity 
and economic viability within forest offset project rules is 
critical. I address some of these in my written testimony. 
These are issues that make offset projects workable but are 
probably not detailed--the details don't need to be worked out 
in this legislation.
    Thank you again for the opportunity to come before you 
today, and I am happy to answer questions that you may have.
    [The prepared statement of Mr. Ruddell follows:]

     Prepared Statement of Steven Ruddell, Senior Associate, First 
                     Environment, Washington, D.C.
    Chairman Peterson, Ranking Member Lucas, Members of the Committee 
thank you for the opportunity to appear before you today to discuss 
pending climate legislation and particularly the role of the nation's 
forests in this legislation.
    I currently lead First Environment's environmental markets 
consulting and verification services, including bio-carbon, water, and 
biodiversity markets. First Environment is an American National 
Standards Institute (ANSI) accredited verification company that 
conducts greenhouse gas and offset project verifications for voluntary 
market programs like The Climate Registry, the Voluntary Carbon 
Standard, and the Chicago Climate Exchange.
    I am a professional forester with 30 years of forest resource 
management, forest policy, forest economic and marketing research, and 
consulting experience. The past 10 have included consulting with 
clients and assessing opportunities on investments in forest 
conservation and sustainability initiatives using market-based 
mechanisms, including carbon asset management strategies for trading 
carbon offset projects, and sustainable forest management standards.
    Within North and South America I have conducted forest carbon 
consulting and verification for integrated forest management companies, 
non-industrial forest forestland owners, tribal timberlands, NGO's, 
aggregators, conservation organizations, and institutional investors. 
My international experience includes Brazil, Peru, Uruguay, Indonesia, 
and the Central African Republic.
    Since 2003 I have been involved with the development and/or review 
of several forest carbon offset project rules including the Chicago 
Climate Exchange, the Community, Climate, and Biodiversity Alliance, 
the California Forestry Protocols, and the Voluntary Carbon Standard. 
Currently I serve as vice-chair of the U.S./Canadian binational forest 
carbon standards committee to develop compliance quality forest offset 
standards under the ANSI and SCC national standards bodies. As a member 
of the Society of American Foresters, I recently served on its Climate 
Change Task Force that produced a publication on the roles of managed 
forests in climate mitigation. I understand that this publication has 
already been submitted to the Members of this Committee, this document 
was printed in Serial No. 111-16, Hearing To Review the Future of Our 
Nation's Forests, p. 82.
    Forests play a significant role in mitigating the impacts of 
climate change, through active sequestration of atmospheric 
CO2. Forests are one of the largest natural carbon sinks for 
controlling our climate.
    Today, according the U.S. Environmental Protection Agency, forests 
and agriculture sequester and store roughly 12.5 percent of our annual 
emissions, serving as a net sink of carbon. What's more important is 
that EPA also estimates, with the proper incentives in place, forests 
and agriculture in the U.S. alone sequester and store as much as 25% of 
our annual carbon emissions. This is important--the nation's forests 
and agriculture lands can offer 25% of the solution to the challenge of 
climate change.
    Regarding the role of forests in mitigating climate change, a 
primary goal in a U.S. climate bill should be to keep our forests as 
forests. If we look long-term, as what the nation will need to help 
deal with changing climate, forests are a key element because of their 
carbon sequestration and storage potential. Because of this, U.S. 
climate legislation must support polices and programs that provide 
incentives for private landowners to:

    (1) manage their lands for increasing carbon sequestration and 
        storage,

    (2) avoid conversion to other land uses,

    (3) encourage sustainable forestry practices that have transformed 
        public and private forestry in the U.S., and

    (4) support the complementary relationships between forest carbon 
        offset markets and the provision of forest ecosystem services.

    Climate legislation, and particularly a cap-and-trade system, which 
I'll focus on given the current trend in the debate, can provide these 
incentives through two key opportunities. First, the legislation can 
allow for the creation and proliferation of carbon offset markets, 
where forest owners can sell their forest carbon sequestration and 
storage value to direct emitters to help offset their emissions. 
Second, the legislation can provide other incentives, such as payments 
for certain forestry practices that can reward these types of 
activities and also result in emissions reductions. The latter is 
typically talked about as emissions reductions outside the cap, meaning 
this would provide additional reductions in addition to those required 
by the cap.
    I should note that First Environment is part of a national 
coalition called the Forest Climate Working Group, which represents a 
diverse set of interests including environmental organizations, forest 
owners, and offset project developers. This Working Group, developed 
under the leadership of the American Forest Foundation and The Trust 
for Public Lands, has come together around these main themes as well, 
and all agree about the tremendous role that forests play in mitigating 
climate change. Attached to my testimony is the platform of this 
coalition, including recommendations for climate legislation.
    I'd like to spend most of my time today discussing the 
opportunities for forests to play a role in carbon offset markets. 
Recent EPA estimates of the Waxman-Markey Climate bill, H.R. 2454, 
point out that forests, mostly improved forest management activities, 
are likely to produce roughly 81 percent of offsets, equating to 
roughly 290 million tons of carbon annually. Please note that the EPA 
analysis does not indicate that the full 1 billion in domestic offsets 
allowed under the legislation will even be filled.
    However, while forests have this tremendous potential, this can 
only be tapped if the rules for their participation in these markets 
are workable. Unfortunately, my read of the current legislation is that 
there is a tremendous lack of clarity in how the EPA might interpret 
the legislation, and there is no clear recognition that EPA will even 
develop the opportunity for forests to play in offset markets. In my 
opinion, this must be improved, to give the needed market signals and 
reassurance that forests will be part of any emission reduction scheme 
and that the rules will be workable.
    With this in mind, I offer the following suggestions for your 
consideration as you work to improve this legislation:

   All private forests should be able to participate. Any U.S. 
        legislation must provide these incentives equitably so that 
        both small and large forests can participate in a future forest 
        carbon offsets market.

   Strong USDA role. This Committee made it clear in the 2008 
        Farm Bill, that USDA would take a leading role in establishing 
        carbon offset project emission reduction rules with the 
        establishment of the Office of Ecosystem Services and Markets. 
        A U.S. climate bill must recognize the co-equal role of the 
        USDA with the EPA for administering an emissions trading 
        system. But more urgent is that the process of developing 
        forest carbon standards begins moving forward today. This 
        process will take at least 24 months, and markets are waiting 
        now for clear signals.

   Clear Recognition of forest project types. The current 
        legislation gives EPA tremendous discretion on the development 
        of project types. To provide assurance to the market and to 
        those who want to participate, and to ensure timely development 
        and implementation of offset project rules, its critical the 
        legislation provide clear direction to EPA to develop offset 
        project rules for forests projects including afforestation, 
        reforestation, improved forest management with appropriate 
        crediting for wood products, and avoided deforestation. With a 
        strong USDA role in offset rule development, this issue would 
        not be as big of a concern, given their expertise in forestry.

   Recognize and reward early action. Early action taken to 
        develop and trade offset projects in the current voluntary 
        markets must not be ignored. Forest landowners and forest 
        carbon investors need to know that their efforts to mitigate 
        climate change will be recognized, when their actions over the 
        past few years were taken in a very risky financial environment 
        and in the absence of clear Federal guidance and leadership.

   Environmental integrity standards must be workable for 
        forest. Again, if we focus on the primary goal of keeping 
        forests as forests, providing an economic reason for landowners 
        to keep their land in trees, we must ensure that market 
        opportunities create this economic reason and ensure broad 
        forest participation. Standards such as baselines, 
        additionally, leakage, and permanence, must all be workable. 
        Unfortunately, my read of the current legislation is that there 
        is a complete lack of clarity as to whether these standards 
        will work for landowners.

   Third party verification will ensure program integrity. 
        Third party verification conducted by verifiers accredited by 
        national standards setting bodies, such as ANSI, to 
        internationally approved standards, (ISO 14065 standard), will 
        provide Congress with assurances that offset project emission 
        reductions traded within an emissions trading system have 
        integrity.

    In addition to carbon offset market opportunities for forests, 
climate legislation can also set up a system for providing incentive 
payments for forest owners to sequester and store carbon. This is 
typically discussed as emissions reductions that are achieved in 
addition to reduction required under the cap, and are thus required to 
meet ``less stringent'' tests of environmental integrity as compared 
with offsets. This can be done through tools that this Committee is 
very familiar with, such as conservation-style programs in the farm 
bill, that reward landowners, on a per-acre basis for undertaking 
activities. Previous legislation has set aside emissions allowances to 
pay for this type of program. Unfortunately, the current legislation 
sets aside five percent of allowances, roughly $5 billion, for 
international forestry activities but does not provide any resources 
for projects here in the U.S. This should be corrected.
    What's really exciting is we have the technologies and expertise to 
undertake these activities today. Professional foresters know how to 
measure, monitor, and report carbon sequestration and storage. We know 
how to apply silvicultural practices to accomplish land management 
objectives that provide for forest products, biodiversity, clean water, 
AND carbon benefits. We know how to use growth and yield models to make 
better decisions for managing forest assets.
    I've been involved in a number of forest offset projects and know 
that we can make these projects work both economically for landowner 
and environmentally to ensure the integrity of the emissions 
reductions.
    Achieving this balance of environmental integrity and economic 
viability within forest offset project rules is critical. I would like 
to highlight some ways that projects can deal with these issues, in my 
experience. These are issues that make offset projects workable but are 
probably not details that need to be worked out in legislation.

    1. Contracts can deal with risks of reversals. Forest offset 
        projects are of course at risk of ``reversal'' when a disaster 
        strikes like a wildfire or hurricane or if a landowner 
        intentionally modifies their land use. Most contracts can deal 
        with this issue, by establishing credit periods and monitoring 
        periods within project contracts that allow landowners to 
        participate while assigning the risk of reversals in ways that 
        can ensure a permanent climate mitigation benefit.

    2. Forest offset project length and offset credit lengths do not 
        need to be the same. A forest owner may only be willing to 
        commit to his or her carbon activities for a set period of 
        time, say 20 years, however to ensure true emissions 
        reductions, carbon reductions should be ``permanent.'' So how 
        do we make this work, so forest owners can and want to 
        participate in markets? Offset credits can be required to meet 
        a test of permanence, but can meet this test with multiple 
        offset projects.

    3. Insuring the risk of reversals is essential. Legislation must 
        consider the need of promoting the development of third party 
        institutions, such as aggregators, that will insure the risk of 
        reversals and can help reduce the transaction costs of projects 
        with economies of scale.

    4. Baselines must be workable for varying project types. Baselines, 
        meaning the starting point at which increasing or decreases in 
        carbon are measured against, are critically important and can 
        make or break opportunities for forests to participate. 
        Achieving the primary goal of keeping forests as forests 
        requires that methods for setting baselines need to be matched 
        to the project type. Active forest management and afforestation 
        project types should not necessarily require the same method 
        for setting baselines. In the end, these baselines must be 
        verifiable.

    5. Environmental co-benefits should be rewarded. Most forest 
        projects will produce environmental co-benefits like clean 
        water and air and biodiversity. Carbon registries can make 
        project documents available so that sellers can demonstrate to 
        buyers the biodiversity and clean water co-benefits provided by 
        a project. Currently, in voluntary markets, buyers are willing 
        to payer more for forest projects that provide a rich set of 
        co-benefits; this premium should be continued under a 
        compliance market.

    The climate legislation before you has the potential to ensure that 
forested ecosystems are maintained and enhanced in the U.S. If the 
right incentives are not put in place, forests may be left out of the 
system and we run the risk of losing the tremendous climate mitigation 
tool we now have. As the legislation is developed, I urge this 
Committee and Congress to continue to emphasize a primary goal of 
keeping forests as forests, and ensuring carbon markets and other 
incentives in the legislation work towards this primary goal, 
structuring rules to best provide revenue streams to forest owners to 
continue providing these climate mitigation benefits.
    Again, thank you for the opportunity to come before you today. I'm 
happy to answer any questions you may have.
                               Attachment

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Mr. Boswell. Thank you. Mr. Garber.

 STATEMENT OF EARL GARBER, SECOND VICE PRESIDENT AND CHAIRMAN, 
                LEGISLATIVE COMMITTEE, NATIONAL
    ASSOCIATION OF CONSERVATION DISTRICTS; PRODUCT SUPPORT 
        SPECIALIST, G&H SEED CO., INC., WASHINGTON, D.C.

    Mr. Garber. Thank you, Mr. Chairman, and good afternoon. My 
name is Earl Garber, I am the Second Vice President and the 
Chairman of the Legislative Committee of the National 
Association of Conservation Districts, better known as NACD. I 
own a rice, soybean, and hay farming operation in Basile, 
Louisiana and work as a crop consultant with G&H Seed Company. 
I have served as a Supervisor with the Acadia Salt and Water 
Conservation District in southwest Louisiana since 1981. I am 
pleased to be here today to discuss climate change legislation 
and the work of several conservation districts across the 
country that serve as verifiers of carbon-credit contracts.
    NACD has always supported locally led conservation and 
maintaining our member districts' ability to work directly with 
communities to protect natural resources. We recommend that 
climate change legislation recognize the contributions of 
agriculture, forestry, and community conservation efforts to 
reduce greenhouse gas emissions by a market-based payment for 
emissions offsets. Building upon our foundation of natural 
resource protection, we believe that additional gains can be 
made to sequester carbon and reduce greenhouse gas emissions. 
However, we must also recognize and reimburse those landowners 
that have already taken appropriate conservation activities on 
their land in order to protect the existing valuable carbon 
stocks that have already been built up. We should not risk 
losing the conservation efforts, the sequestration of carbon, 
and the natural resource protections we have put in place 
today, or penalize the earlier adopters.
    Today, several of our members are working with partners 
participating in carbon sequestration efforts to mitigate 
greenhouse gas emissions. Conservation districts are a known 
and trusted resource, assisting landowners to ensure that they 
understand their climate mitigation contracts and are 
fulfilling their contractual obligations. Conservation 
districts in Illinois, Michigan, North Dakota are working as 
verifiers of the carbon contracts through the Chicago Climate 
Exchange. Conservation districts in Oklahoma are also verifying 
under the Oklahoma Carbon Initiative.
    The work being done in Illinois is a good example of the 
work conservation districts are doing to verify carbon 
sequestration contracts. Landowners sign contracts with 
aggregators to perform activities that sequester carbon through 
agriculture and forestry conservation practices. Under current 
markets such as CCX, producers that enroll land are paid 
annually at a standardized rate for carbon per acre. The 
Illinois Association of Conservation Districts serves as a 
verifier of carbon sequestration contracts for no-till under 
the CCX. Their work is predominantly in the State of Illinois. 
Districts undertake contract verification of ten percent of the 
total acres under contract filed under a specific timeframe, 
they refer to them as pools, or when these contracts are 
entered into.
    Verification reviews the adherence to the contract 
requirements and the assurance that conservation practices meet 
or exceed NRCS technical standards. Verification costs are 
shared among producers based on the percentage of acreage in 
the pool. Costs associated with the conservation district's 
activity for verification will vary depending on the location 
of the producer and such factors as the size and proximity of 
tracks of land that are enrolled. Small or more dispersed 
tracts of land typically incur greater costs than larger 
contiguous tracts. Average verification costs in states in 
which conservation districts are involved in carbon trading 
average $120 per contract, or they generally charge $30 per 
hour plus transportation costs.
    NACD believes that a carbon offset program can successfully 
work if USDA is providing a leadership role and producers 
undertake carbon sequestration efforts that result in real 
verifiable carbon offsets. Today verifiers of contracts under 
the CCX system utilize NRCS practice standards in performing 
verification. We encourage the continuation of this model under 
any climate legislation.
    Many current farm bill conservation programs such as EQIP, 
WHIP, CRP promote conservation practices that also provide 
carbon sequestration benefits. As climate change legislation is 
developed, it is important to consider the current benefits of 
these programs and that carbon credits they generate qualify 
under any cap-and-trade system.
    Conservation districts are currently undertaking the role 
of verifiers under the voluntary markets that exist today. NACD 
would like to ensure that conservation districts can continue 
to provide this service under any climate legislation.
    I thank you for the opportunity to testify today on behalf 
of conservation districts across the country.
    [The prepared statement of Mr. Garber follows:]

Prepared Statement of Earl Garber, Second Vice President and Chairman, 
Legislative Committee, National Association of Conservation Districts; 
    Product Support Specialist, G&H Seed Co., Inc., Washington, D.C.
    Good Afternoon. I am Earl Garber, Second Vice President and 
Legislative Committee Chair for the National Association of 
Conservation Districts (NACD). I own a rice, soybean and hay farming 
operation in Basile, Louisiana and work as a crop consultant for G&H 
Seed Co. I have served as a supervisor of the Acadia Soil and Water 
Conservation District in southwest Louisiana since 1981. I am pleased 
to be here today to discuss climate change legislation and the work of 
several conservation districts across the country that serve as 
verifiers of carbon credit contracts.
    Across the United States, nearly 3,000 conservation districts are 
helping local people to conserve land, water, forests, wildlife and 
related natural resources. We share a single mission: to coordinate 
assistance from all available sources--public and private, local, state 
and Federal--in an effort to develop locally driven solutions to 
natural resource concerns. More than 17,000 officials serve in elected 
or appointed positions on conservation districts' governing boards. 
Working directly with more than 2.3 million cooperating land managers 
and local communities nationwide, their efforts touch more than 778 
million acres of private land. We support voluntary, incentive based 
programs that provide a range of options, providing both financial and 
technical assistance to guide landowners in the adoption of 
conservation practices, improving soil, air and water quality providing 
habitat and enhanced land. Practices we know as the cornerstones of 
good conservation and land stewardship are also practices that increase 
soil organic content and sequester carbon.
    NACD has always supported locally led conservation, and maintaining 
our member district's ability to work directly with communities to 
protect natural resources. We recommend that climate change legislation 
recognize the contributions of agriculture, forestry and community 
conservation efforts to reduce greenhouse gas emissions via market-
based payments for emissions offsets.
    Agriculture producers that utilize conservation tillage farming 
practices for row crops sequester atmospheric carbon. Such practices as 
no-till and strip-till significantly reduce soil disturbance, leaving 
carbon sequestered by plant material residue that is left in the soil 
to decay into organic matter. This process leaves carbon in the ground 
for many years. Grazing and rangeland management can also promote 
carbon sequestration utilizing the same ecological process. Rangeland 
grasses, shrubs and forbs place carbon in the soil through natural 
growth and decay cycles.
    Livestock operators can also qualify for carbon credits for the 
capture of methane. By utilizing manure management practices and 
methane capture technology such as methane digesters, livestock 
operations can prevent methane emissions that would have otherwise been 
emitted to the atmosphere. Captured methane is combusted, and the 
avoided atmospheric release could be eligible for offset credits. 
Offset credits for avoided methane emissions are determined by such 
factors as the baseline manure management system, average livestock 
population, and methane content of recovered gas.
    Forestland owners and managers can utilize forestry BMPs that 
sequester carbon in plant material. By actively managing forests 
through sustainable silviculture, thinning and harvesting, continued 
forest growth is promoted and capacity for carbon storage is increased. 
Forest carbon credits can also be generated by afforestation projects 
that create newly forested land.
    Building upon our foundation of natural resource protection, we 
believe that additional gains can be made to sequester carbon and 
reduce greenhouse gas emissions. However, we must also recognize and 
reimburse those landowners that have already taken appropriate 
conservation activities on their land, in order to protect existing 
valuable carbon stocks. We should not risk losing the conservation 
efforts, sequestered carbon, and natural resource protections we have 
in place today or penalize early adopters.
    One of the impacts of climate change is shifting crop patterns and 
growing seasons. These changes can impact growing seasons, water 
distribution, nutrient distribution and forest and wildfire frequency 
and intensity, and there is a significant need to assist landowners in 
adapting their land use and agricultural practices to the changing 
climate. One of the best mechanisms for assisting landowners is through 
a Farm Conservation Plan developed by the USDA Natural Resources 
Conservation Service in cooperation with a locally led conservation 
district.
    Today several of our members are working with partners, 
participating in carbon sequestration efforts to mitigate greenhouse 
gas emissions. Conservation Districts are a known and trusted resource 
to work with landowners to ensure that they understand their climate 
mitigation contracts and are fulfilling their contractual obligations.
    The work being done in Illinois is a good example of the work 
conservation districts are doing to verify carbon sequestration 
contracts. Landowners can participate in carbon markets in several 
ways. Large-scale landowners can participate directly in carbon markets 
by registering with an offset provider such as the Chicago Climate 
Exchange (CCX). By CCX's standards, units constituting less than 10,000 
metric tons of carbon must be aggregated before becoming eligible for 
trading. Aggregators establish pools, or an arbitrary time frame over 
which contracts are accepted. Landowners sign contracts with 
aggregators to perform carbon sequestering activities through 
agriculture and forestry conservation practices.
    Under current markets such as CCX, producers that enroll lands are 
paid annually at a standardized rate for carbon per acre and must 
contract for a minimum of 5 years for conservation tillage, 15 years 
for sustainable forestry practices and 100 years for harvested wood 
products. This standardized rate is important so as to not create an 
adverse incentive to a desirable crop rotations. For example, soybeans 
would sequester less carbon than corn and the carbon sequestration 
contract should not influence producers' planting decisions during that 
typical corn/soy rotation. Payment is made to producers for carbon 
contracts by the aggregator as credits are sold on the carbon market.
    The Illinois Association of Conservation Districts serves as a 
verifier of carbon sequestration contracts. Verification ensures that 
eligible conservation practices are in place so that carbon credits are 
authentic. In properly implemented conservation practices, crop 
residues from previous years are left on the soil surface, and root 
systems from previous crops are left to decay in the soil. This process 
maintains or increases the organic carbon content of the soil. 
Equipment used to achieve the acceptable results include no-till and 
strip-till planters; certain drills and air seeders; strip-type 
fertilizer and manure injectors; and in-row chisels.
    Districts undertake contract verification of 10% of the total acres 
under contract filed during a given pool. Land is inspected to verify 
that proper management practices are being performed by the landowner 
that holds the credit. Verification reviews adherence to contract 
requirements and assurance that conservation practices meet or exceed 
NRCS technical standards. Rates of carbon sequestration in the U.S. 
generally range from 0.2 to 0.6 metric tons per acre per year for 
conservation tillage, grasslands are at a rate around 1.0 metric ton 
per acre per year, and forestry is generally higher than 1.0 metric ton 
per acre per year.
    Verification costs are shared among producers based on percent of 
acreage in a pool. The costs associated with a conservation district's 
activities for verification will vary depending on the location of the 
producer and such factors as the size and proximity of tracts of land 
that are enrolled. Smaller, more dispersed tracts of land typically 
incur greater costs than larger, contiguous tracts. Average 
verification costs in states in which conservation districts are 
involved in carbon trading average $120 per contract or $30 per hour 
plus transportation costs. Aggregators and verifiers are also required 
to manage risk by maintaining liability insurance, a standard practice 
in financial markets.
    Under the CCX, 20% of carbon offsets are placed in a reserve pool 
to mitigate against factors that might result in accidental release of 
sequestered carbon such as flooding or other disasters. Upon completion 
of the contract period, producers can receive credit for offsets placed 
in reserve.
    Conservation districts are well situated to perform verification 
functions. Landowners often have working relationships from previous 
conservation work with their local conservation district staff. This 
trusted relationship, combined with the conservation district's 
technical expertise and familiarity with NRCS practice standards makes 
conservation districts a logical local resource for carbon credit 
verification.
    NACD believes that soil carbon sequestration offers one of the 
better near-term, readily-available, emissions reductions technologies 
available to society now and can offer income generation to farmers and 
land managers while providing cost-containment to cap-and-trade 
policies. We recognize that a carbon offset program must be correctly 
structured and managed to allow for agriculture producer and forest 
landowner participation.
    USDA should have a primary, leadership role in establishing 
agriculture and forestry offsets technology and policy. USDA has the 
field expertise and research capabilities to determine proper 
sequestration methods and establish appropriate standards for carbon 
offsets. NRCS worked with CCX in setting up the pilot agricultural 
carbon offset program and provided the standards for BMP's that also 
sequester carbon. Today, verifiers under that system utilize NRCS 
practice standards in performing verification. We encourage 
continuation of this model under any climate legislation.
    Many current farm bill conservation programs such as the 
Environmental Quality Incentives Program, the Wildlife Habitat 
Incentives Program and the Conservation Reserve Program promote 
conservation practices that also provide carbon sequestration benefits. 
As climate change legislation is developed, it is important to consider 
the current benefits of these programs and that carbon credits they 
generate qualify under any cap-and-trade system.
    Conservation districts have been working with landowners for the 
last 70 years to encourage the adoption of conservation practices. 
While we know that not all conservation practices would be considered 
an eligible project type for carbon offsets, it is very important that 
Congress not overlook the important for work that has already been 
undertaken and does not take actions to adversely impact ongoing 
conservation activities. Early actors that have undertaken soil carbon 
sequestration, methane capture, etc., must be recognized in any climate 
legislation. Those participating under voluntary carbon trading 
programs such as the CCX, must be included in any offset program 
developed under climate legislation.
    Producers and forest landowners that might not be able to 
participate due to economies of scale should also have an opportunity 
for participate in a supplemental carbon sequestration program. A 
supplemental incentives program, funded through allowance awards and 
run by USDA, will reach beyond what can be accomplished through offset 
markets.
    Climate legislation should include dedicated allowances to support 
supplemental incentives for U.S. agriculture and forest producers 
unable to participate in offset markets. This type of program would 
allow USDA to provide incentives, with payment according to the acreage 
upon which a given practice is employed and the estimated carbon value 
of each practice. These incentives should also be used to help fund 
agreements to avoid conversion of agricultural land and forests.
    Continuing research into adaptation techniques and practices must 
be included in climate legislation. As climate patterns shift, new 
pests, diseases, cropping patterns, etc., will be altered in local 
areas. This impact is significant for agricultural producers but also 
other local landowners and community members. USDA should continue 
research in this area to inform local offices about expected changes 
which impact production. USDA should also engage in adaptation planning 
with states and local districts with the assistance of local 
conservation districts.
    NACD believes that a carbon offset program can work successfully if 
USDA is provided a leadership role and producers undertake carbon 
sequestration efforts that result in real, verifiable carbon 
reductions. Conservation Districts are currently undertaking the role 
of verifiers under the voluntary markets that exist today. NACD wants 
to ensure that conservation districts can continue to provide this 
service under any climate legislation.
    Thank you for the opportunity to testify today on behalf of 
conservation districts across the country.

    Mr. Boswell. Thank you. Mr. Yoder, please.

STATEMENT OF FRED YODER, PAST PRESIDENT, NATIONAL CORN GROWERS 
  ASSOCIATION; CORN, SOYBEAN, AND WHEAT GROWER, PLAIN CITY, OH

    Mr. Yoder. Thank you, Mr. Chairman and distinguished 
Members of the Committee. I want to thank you for the 
opportunity to testify today on behalf of the National Corn 
Growers Association on H.R. 2454.
    I applaud the Committee's efforts to focus attention on the 
important role the agriculture industry has in the area of 
climate change.
    My name is Fred Yoder, and I grow corn, soybeans, and wheat 
near Plain City, Ohio, and I have been an active participant in 
climate change discussions for a long time. Last December, I 
had the opportunity to attend and participate in the United 
Nations World Climate Conference in Poland, where I was able to 
discuss and talk to other others about the role of agriculture 
in reducing greenhouse gas emissions.
    I feel strongly that, as Congress moves forward on climate 
legislation, that agriculture should be considered as a 
significant part of the broader solution as we evaluate ways to 
reduce greenhouse gas emissions. Our nation's corn growers can 
play a major role in a cap-and-trade system through 
sequestering carbon on agriculture lands. In fact, numerous 
economic analyses have indicated that a robust offset program 
will significantly reduce the cost of a cap-and-trade program 
for consumers.
    In the near term, greenhouse gas reductions from livestock 
and agriculture conservation practices are the easiest and most 
readily available means of achieving reductions on a meaningful 
scale. EPA estimates that ag and forestry lands can sequester 
at least 20 percent of all annual greenhouse gas emissions in 
the United States.
    Given those opportunities, it is critical that any climate 
change legislation seeks to maximize agriculture's 
participation and ensure greenhouse gas reductions while 
sustaining a strong farm economy.
    For years, corn growers have adopted conservation practices 
such as no-till or reduced tillage, which resulted in a net 
benefit of carbon stored in the soil. In fact, on my own farm, 
I engage in both no-till and reduced tillage.
    For the past 5 years, I have worked with my state 
association, the Ohio Corn Growers, on a research project with 
Dr. Rattan Lal of the Ohio State University on soil carbon 
sequestration research. As part of our research, we have on-
farm plots in six locations with various soil types and their 
carbon capture capabilities, which there are definitely 
differences in soil types. This is just one example of the 
proactive steps our industry has taken.
    NCGA has identified several critical elements that are 
currently lacking with H.R. 2454, and we hope we can address 
this in this Committee. As many of you are aware, NCGA has 
expressed our opposition in its current form.
    A top priority for the agriculture sector is ensuring that 
USDA plays a prominent role in developing the standards and 
administering the program for agricultural offsets. The 
Department has the institutional resources and technical 
expertise that is necessary to oversee a program that has the 
potential to be massive in scope. USDA has a proven record of 
program implementation and collaboration with their farmers.
    The treatment of early actors and the definition of 
additionality are also of the utmost important. Under the Kyoto 
Protocol, member nations agree to targeted greenhouse gas 
emission reductions relative to the 1990 levels. Therefore, all 
the greenhouse gas reductions subsequent to that date would 
contribute to meeting the goals set out in the international 
agreement. NCGA feels strongly that agricultural practices that 
originated after January 1, 1991, should be considered 
``additional'' and contributing to the goals of the treaty.
    Now, we are not recommending credits for carbon 
sequestration that occurred between 1991 and 2009. However, 
producers who have adopted sequestration practices during that 
timeframe should not be placed at a disadvantage in competition 
by being excluded from the compensation for further offsets 
that occur as a result of their ongoing efforts.
    The House Energy and Commerce Committee acknowledged this 
issue by including language that gives the EPA Administrator 
discretion for moving the early actors dates back to 2001. 
However, we believe the language referring to 1991 more 
accurately reflects the goals of the Kyoto Protocol.
    Additionally, an important component of creating a 
successful cap-and-trade system is ensuring that domestic 
offsets are not artificially limited. While H.R. 2454 includes 
1 billion tons of domestic offsets, we believe the market 
should be unlimited, since offsets represent real emissions 
reductions.
    In conclusion, let me be clear: Unless this Committee can 
make the necessary changes to provide assurances that 
agriculture will have access to a robust offset provision, NCGA 
has no choice but to oppose this bill.
    We thank you for the time that you have given me, and I 
look forward to your questions. Thank you.
    [The prepared statement of Mr. Yoder follows:]

 Prepared Statement Fred Yoder, Past President, National Corn Growers 
      Association; Corn, Soybean, and Wheat Grower, Plain City, OH
    Chairman Peterson, Ranking Member Lucas and distinguished Members 
of the Committee, thank you for the opportunity to testify today on 
behalf of the National Corn Growers Association (NCGA), regarding H.R. 
2454, American Clean Energy and Security Act of 2009. I applaud the 
Committee's efforts to focus attention on the important role the 
agriculture industry has in the area of climate change and the issues 
facing rural America.
    The National Corn Growers Association represents more than 35,000 
corn farmers from 48 states as well as more than 300,000 farmers who 
contribute to corn check off programs and 26 affiliated state corn 
organizations across the country. The mission of NCGA is to create and 
increase opportunities for corn growers and to enhance corn's 
profitability and use.
    My name is Fred Yoder, and I am a past President of NCGA. I grow 
corn, soybeans and wheat near Plain City, Ohio and have been an active 
participant in climate change discussions for many years. In December, 
I had the opportunity to attend and participate in the United Nations 
World Climate Conference in Poland where I was able to discuss the role 
of agriculture in reducing greenhouse gas emissions. In addition to 
being part of NCGA's efforts, I serve on the boards of numerous ad hoc 
groups, including the 25x'25 Carbon Working Group and the Ag Carbon 
Market Working Group.
    We are pleased that the House Agriculture Committee is actively 
involved in the climate change negotiations in Congress. Agriculture 
should be considered a significant part of the broader solution as we 
evaluate ways to reduce greenhouse gas emissions. Our nation's corn 
growers should have the opportunity to make significant contributions 
under a market based cap-and-trade system through sequestering carbon 
on agriculture lands. In fact, numerous economic analyses have 
indicated that a robust offset program will significantly reduce the 
costs of a cap-and-trade program for consumers.
    In the near term, greenhouse gas reductions from livestock and 
agricultural conservation practices are the easiest and most readily 
available means of reducing greenhouse gas on a meaningful scale. The 
United States Environmental Protection Agency (EPA) estimates that 
agricultural and forestry lands can sequester at least 20% of all 
annual greenhouse gas emissions in the United States.
    Further, agricultural producers have the potential to benefit from 
a properly crafted cap-and-trade program. Given these opportunities, it 
is critical that any climate change legislation seeks to maximize 
agriculture's participation and ensure greenhouse gas reductions while 
also sustaining a strong farm economy.
    For years, corn growers along with the rest of the agriculture 
industry have adopted conservation practices such as no till or reduced 
tillage, which result in a net benefit of carbon stored in the soil. In 
fact, on my farm, I engage in both no till and reduced tillage. Also, 
for the past 5 years, I have worked with my state association, the Ohio 
Corn Growers, on a research project with Dr. Rattan Lal of Ohio State 
University on soil carbon sequestration. As part of our efforts, we 
have on-farm research plots at six different locations to study various 
soils and their carbon capture capabilities. I have been actively 
engaged from the beginning in defining the research protocols. This is 
only one example of the groundbreaking work our industry is 
undertaking.
    NCGA has identified several priorities which I believe are critical 
elements to the agricultural sector within cap-and-trade legislation. 
We have worked closely with others in the industry to identify key 
principles which have been embraced by a broad cross-section of the 
agriculture community. Unfortunately, very few of these priorities have 
been addressed by H.R. 2454 as reported out of the House Energy and 
Commerce Committee. We are hopeful that the House Agriculture Committee 
can help rectify some of these deficiencies in the legislation.
    First, NCGA commends the authors of the legislation for not 
subjecting the agricultural sector to an emissions cap. We urge 
Congress to maintain this exemption as the legislation makes its way 
through the House and Senate. Any efforts to regulate greenhouse gas 
emissions from America's two million farms and ranches would be costly 
and burdensome, resulting in limited reduction of greenhouse gas 
emissions. Our industry accounts for only 7% of emissions in the 
overall economy. Therefore, it would seem unreasonable to concentrate 
on regulations for such a small and diffuse industry.
    However, tremendous environmental benefit can be achieved by 
allowing producers to provide low-cost, real and verifiable carbon 
offsets. Congress should fully recognize the wide range of carbon 
mitigation or sequestration benefits that agriculture can provide. This 
could include sequestration of carbon on agricultural lands, reduction 
of emissions from livestock through dietary improvements and manure 
management, introduction of nitrogen and other fertilizer efficiency 
technologies and a variety of other practices.
    In addition, agricultural offsets have the ability to significantly 
lower the cost of a cap-and-trade system while achieving real 
greenhouse gas emissions. Corn growers and other producers can provide 
the offsets needed to allow changes in energy production technologies 
as well as investments in capital and infrastructure to occur, while 
providing market liquidity and low-cost emissions reductions to help 
the market function properly. Furthermore, agricultural offsets could 
also spur ancillary environmental benefits in the form of clean water, 
air and better wildlife habitat, while at the same time enhancing the 
fertility and productivity of the soil resource needed to provide food, 
feed, fuel and fiber. Farmers have always and will continue to respond 
enthusiastically to market incentives.
    Of course, NCGA is closely monitoring the macro-economic impacts of 
cap-and-trade legislation to ensure that new policies do not create an 
unnecessary burden for the nation's agriculture sector. We fully 
anticipate that the cost of fertilizer, fuel, machinery and other 
inputs to increase under a cap-and-trade system. Corn growers are 
subject to the volatility of the commodity markets with little ability 
to recoup costs associated with escalated input prices. Therefore, to 
ensure a vibrant U.S. agricultural economy in the long-term and an 
abundant domestic food supply, Congress should structure a cap-and-
trade system that delivers an offsets program where the value exceeds 
the cost to farmers and ranchers. NCGA's view is that H.R. 2454 
currently falls short of this goal since there is little assurance in 
the legislation that agriculture offsets will be eligible for 
participation in a trading market.
    We believe it is important to provide an initial list of project 
types that are considered eligible agricultural offsets. Although the 
House Energy and Commerce Committee provided a list of project types in 
report language, there are no statutory provisions in H.R. 2454 which 
would require the development of protocols and standards for 
agricultural offsets. Both the regulated community and agricultural 
sector need assurances that agricultural offsets will be available. The 
regulated community should have confidence that a sufficient quantity 
of offsets will be available for purchase in order to comply with a 
mandatory cap. The agricultural sector also needs to have clear 
direction on project types Congress considers to be eligible in order 
to assess the full impact of cap-and-trade legislation on our industry. 
An initial, non-exhaustive list of project types in the legislation is 
critical to addressing these concerns. Shifting the burden of decision-
making to an entity other than Congress generates uncertainty that 
should be avoided.
    Another top priority of our industry under a cap-and-trade system 
includes the role of the U.S. Department of Agriculture (USDA). NCGA 
feels that USDA should play a prominent role in developing standards 
and administering the program for agricultural offsets. The Department 
has the institutional resources and technical expertise necessary to 
oversee a program that has the potential to be massive in scope. USDA 
has a proven record of working with farmers, in addition to studying, 
modeling and measuring conservation as well as production practices 
that sequester significant amounts of carbon. USDA should be given 
adequate flexibility to implement an offset program which allows them 
to account for new technologies and practices that emerge. This will in 
turn result in emission reductions from agricultural sources. We 
understand that EPA would likely serve as the oversight agency, issuing 
the carbon credits and ensuring the validity of the overall program. 
However, we feel strongly that USDA should play a key role for the 
implementation of agricultural offsets.
    NCGA also believes that an important component of creating a 
successful cap-and-trade system is ensuring that domestic offsets are 
not artificially limited. H.R. 2454 calls for 2 billion tons of 
offsets, half of which are domestic. While the legislation establishes 
a fairly robust offset market, current estimates predict that 
agricultural and forestry lands can help to reduce at least 20% of 
greenhouse gas emissions in the U.S. on an annual basis. Therefore, we 
believe it is unwise and would distort the market if this 1 billion ton 
artificial cap on domestic offsets remains in the bill. The goal should 
be to remove as much greenhouse gas from the atmosphere as possible. 
Artificial caps could prevent legitimate carbon sequestration, 
livestock methane capture, and manure gasification projects from 
occurring.
    Furthermore, NCGA feels that carbon sequestration and greenhouse 
gas mitigation rates should be based on sound science. There is a large 
body of scientific data which demonstrates that agricultural soils have 
the ability to sequester carbon, and technologies are available to 
effectively measure soil carbon content. In fact, the 2008 Farm Bill 
included a provision that directs the USDA to develop guidelines and 
protocols for farmers to participate in a greenhouse gas offsets 
market. USDA has begun developing a properly constructed, science based 
model that includes statistically relevant random field measurements to 
help maximize agriculture's ability to participate in an offsets 
market. Any new policies should include provisions for the development 
of future offset standards and revision of existing standards to 
account for changing technology and information.
    It is also important that USDA establish measurement rates for 
various offset practices at the national or regional level. NCGA 
believes in a standards-based approach rather than a project-based 
approach for measuring offsets. Real, verifiable credits can be 
achieved without direct measurement of each individual offset project; 
however, third-party auditing can be employed to ensure the credibility 
of the system. Meanwhile, a project-based approach would be cost-
prohibitive, particularly for smaller farming operations and would 
prevent many producers from participating in the offsets market. We 
believe that an acceptable level of accuracy is achievable under a 
standards-based approach with pre-calculated values based on sound 
science. This should not preclude the development of new technologies 
or innovative practices that would require initial field testing or 
project measuring; however, even these new types of credits should 
eventually transition to standard protocols and values for ease of 
adoption.
    Concerning the question of permanence, it is important to emphasize 
the concept of contract duration rather than a literal definition of 
``permanence.'' The value of the carbon credit would likely have a 
strong correlation to the length of the contract. For instance, longer 
contract periods imply more risk for the seller and should result in a 
higher price. Policies to address reversals, both intentional and 
unintentional, will also need to be established. Intentional reversals 
should be considered a breach of contract and the seller would be held 
responsible based on the terms of the contact. Unintentional reversals, 
such as instances of natural disasters or other unforeseen 
circumstances, could be handled through a reserve pool or perhaps a 
mechanism similar to crop insurance. The bottom line is that risk must 
be managed appropriately for both the offset buyer and seller, and in 
most cases, the emphasis should be placed on contract duration rather 
than permanence.
    An issue that continues to be of utmost importance to NCGA is the 
treatment of early actors and additionality in a cap-and-trade system. 
Under the Kyoto Protocol, member nations agreed to targeted greenhouse 
gas emissions reductions relative to 1990 levels; therefore, all GHG 
reductions subsequent to that date would contribute to meeting the 
goals set out in the international agreement. NCGA feels strongly that 
agricultural practices commenced on or after January 1, 1991, should be 
considered additional and contributory to meeting the goals of the 
treaty. We are not recommending credits for carbon sequestration that 
occurred between 1991 and 2009. However, it is imperative that growers 
who initiated GHG mitigation practices during that timeframe not be 
prohibited from participating in a carbon offset market in the future. 
The House Energy and Commerce Committee acknowledged this issue by 
including language that gives the EPA Administrator discretion for 
moving the early actors dates back to 2001; however, we believe that 
language referencing 1991 more accurately reflects the goals of the 
Kyoto Protocol.
    The agriculture industry is constantly evolving. As technologies 
and practices improve, farmers are converting to alternative tillage 
practices such as no-till or ridge-till. They are reducing fertilizer 
application rates and enhancing crop uptake of fertilizer nutrients. 
Some livestock producers are able to use methane digesters and invest 
in covers for manure storage or treatment facilities while others are 
able to reduce enteric emissions with dietary modifications. Producers 
who have taken these steps should not be placed at a competitive 
disadvantage by being excluded from compensation for future offsets 
that occur as a result of these ongoing efforts.
    For example, some of our members have participated in the Chicago 
Climate Exchange (CCX) for several years. Others have been sequestering 
carbon through conservation practices outside of a trading market. 
These early actors should not be penalized for being pioneers in the 
area of no-till or low-till agriculture. Planting and tillage decisions 
are made each year, and there is no guarantee that a producer will 
decide to continue the same practice as the previous season. It is 
imprudent to eliminate these early actors from the offset market based 
on this flawed assumption. In fact, even continuous no-till farms, 
which represent a small percentage of all U.S. acreage, have the 
capacity to continue to sequester additional carbon for many years in a 
row. The bottom line is that each and every crop we grow sequesters 
additional carbon, and policies should recognize this fact. In 
addition, Congress should not establish policies that offer perverse 
incentives to producers that have heretofore been sequestering carbon 
in the soil. Of course, these early actors, including those who had 
previously participated in CCX or other trading regimes, would need to 
meet the new standards and contractual obligations under H.R. 2454 
ensuring that these ongoing mitigation activities continue into the 
future.
    Last, it is important to note that many practices undertaken to 
reduce greenhouse gas emissions will provide additional public 
benefits, such as clean water, wildlife habitat, and reduced soil 
erosion. Eligible projects in a greenhouse gas offset market should not 
be excluded from also participating in other markets for environmental 
services that currently exist or may arise in the future. Allowing 
producers to ``stack'' credits will maximize the economic viability of 
carbon sequestration and manure management projects, ensuring more 
projects are undertaken and synergies with other environmental 
priorities are developed. It is important that new climate initiatives 
will complement existing conservation programs within the farm bill.
    In conclusion, it is our hope that we can continue to work with the 
House Agriculture Committee to ensure Congress chooses the best path 
for agriculture and rural America. Finally, corn growers will continue 
to meet the growing demands of food, feed and fuel in an economical and 
environmentally responsible manner.
    I thank the Committee for its time and look forward to any 
questions you may have.

    Mr. Boswell. Thank you.
    Mr. Johnson?

STATEMENT OF ROGER JOHNSON, PRESIDENT, NATIONAL FARMERS UNION, 
                        WASHINGTON, D.C.

    Mr. Johnson. Thank you, Mr. Chairman and Members of the 
Committee, for holding this important hearing. For the record, 
my name is Roger Johnson, President of the National Farmers 
Union. We are pleased to be here to testify on this bill, the 
American Clean Energy and Security Act of 2009.
    We think the bill is a good first step for agriculture, in 
that it does not attempt to regulate agriculture or to cap the 
emissions from our industry. That is a good thing that they put 
in the bill. We, however, believe that the legislation also has 
some very serious deficiencies.
    Many of you will recall that approximately 1 month ago I 
wrote a letter to Chairman Peterson, and it was copied to all 
Members of this Committee, wherein I again described the 
position that National Farmers Union has on this climate change 
legislation.
    Some have suggested that that letter suggested that perhaps 
Farmers Union was just going to roll over and support a bill at 
the end of the day, regardless of what happened with respect to 
the ``asks'' that we had in that letter. Let me assure you that 
that is not the case.
    We in the ag community all feel the same way about the 
provisions that we think need to be changed in this bill. We 
will not support this bill if the provisions that we asked for 
in that letter, that we have repeatedly asked for in front of 
other committees of this Congress, and to other officials of 
this Administration, are not provided for.
    Specifically, they are, and our policy says this very 
clearly: We support a national mandatory carbon emission cap-
and-trade system with a number of conditions.
    The first one: USDA must play a prominent role. We are all 
saying that. These ag offsets need to be run by the agency that 
knows something about running them. That is USDA.
    Early actors must be recognized. You cannot establish a 
system whereby you penalize the very people who led us to the 
position that we are at today. And the bill, as it stands 
today, does not adequately recognize the early actors.
    Third, we don't think that there should be an artificial 
cap placed on any of the offsets. To the degree that you place 
a cap on offsets, or you refuse to allow offsets from 
agriculture to be included, you simply drive the cost of 
compliance for all of society higher. Further, by applying a 
cap to offsets, you minimize the income opportunities that 
might otherwise be available for all of us in agriculture.
    Fourth, we think carbon sequestration rates need to be 
based on science, sound science. There is probably no better 
entity in the world than USDA when it comes to the scientific 
expertise associated with how you calculate carbon 
sequestration rates from different agricultural practices.
    And, last, we want these benefits to be stacked, as many 
others have talked about before.
    So I hope that this position is very clear.
    Now, third, let me say that we do believe that the science 
is pretty compelling that greenhouse gases and man's impact on 
their releases are changing this Earth. Much of the rest of the 
world has come to this same conclusion.
    I believe that the U.S. position would be strongly served--
would be the most strongest served if, at the end of this year, 
prior to our negotiators going to Copenhagen, the Congress has 
acted on, at least in one House, a bill and passed that bill.
    I believe that that bill must contain the provisions we 
have asked for, for agriculture, or it is not just those of us 
in this country and in this industry that will be harmed, it 
will be agriculture around the world.
    That, having a bill passed, I suspect is why you see so 
much pressure to get this bill through the House of 
Representatives. It is important for us, as we re-exert our 
leadership in the rest of the world, that we do that. And, you 
heard the Secretary make that case very compellingly earlier 
today.
    So, with that, Mr. Chairman, Members of the Committee, I do 
have a couple of very quick slides. Farmers Union has been one 
of the--is, in fact, the leading aggregator in the carbon 
sequestration game with the CCX. And there are some slides in 
the testimony that show some of the different areas of the 
country by practice: no-till practices, permanent grassland 
practices, sustainable rangeland practices, et cetera.
    The process is very simple. This screen simply shows what 
the farmer can pull up on a computer and see in terms of what 
he may or may not get by signing up for this program. It is a 
simple one screen, put in a few numbers, and you end up finding 
out what it is going to pay you.
    This second screen actually shows you a screen print from a 
computer that is the tool that a farmer uses to sign up for the 
program. You simply pull up the screen, you plug in your data 
all on one page. At the end of this process, you simply hit 
print, it will print out a contract, you sign the contract, 
send it in, you got a deal.
    So the process is very streamlined. The process is 
something that we think should be emulated by adopting these 
sorts of provisions in this bill.
    With that, Mr. Chairman, I am sorry I have gone over my 
time. I thank you for your attention.
    [The prepared statement of Mr. Johnson follows:]

 Prepared Statement Roger Johnson, President, National Farmers Union, 
                            Washington, D.C.
    Chairman Peterson, Ranking Member Lucas, and Members of the 
Committee, thank you for the opportunity to testify today. My name is 
Roger Johnson, and I am President of National Farmers Union (NFU). The 
organization was founded in 1902 in Point, Texas, to help the family 
farmer address profitability issues and monopolistic practices. Today, 
with a membership of 250,000 farm and ranch families, NFU continues its 
original mission to protect and enhance the economic well-being and 
quality of life for family farmers, ranchers and their rural 
communities. We believe that farmers and ranchers have a significant 
role to play in addressing the energy and environmental challenges 
facing our nation.
    Today's hearing marks a vital opportunity as Congress deliberates 
how best to address climate change. NFU has been working proactively 
and constructively through the legislative debate to ensure our 
priorities and concerns are addressed. The cap-and-trade section of the 
American Clean Energy and Security Act of 2009 (ACES) approved by the 
Energy and Commerce Committee is a good first step for agriculture in 
that it does not attempt to cap emissions from our sector of the 
economy and includes 2 billion tons of allowable offsets. However, the 
legislation has serious deficiencies that prevent maximum participation 
from farmers and ranchers. NFU is part of a coalition that has worked 
to include additional improvements within the offset sections of the 
bill.
    The intersection of climate change mitigation and American 
agriculture is complex to navigate. It often requires access to a 
special dictionary to define words like additionality, permanence, 
early actors and leakage. NFU has emerged as a leading voice for how 
agriculture can play a significant role in combating global climate 
change. Our members were early to acknowledge the negative effects 
climate change has on domestic food and fiber production. To address 
these issues, our policy supports a national, mandatory carbon emission 
cap-and-trade system to reduce non-farm greenhouse gas (GHG) emissions.
    Failure to reduce GHG emissions poses significant economic impacts 
on agriculture and populations whose welfare is of special interest to 
the agricultural community. Models of climate change scenarios 
demonstrate increased frequency of heat stress, droughts and flooding 
events that will reduce crop yield and livestock productivity. 
According to the U.S. Department of Agriculture (USDA), risk of crop 
failure will increase due to rising temperatures and variable rainfall. 
Further, earlier spring seasons and warmer winter temperatures will 
increase pathogen and parasite survival rates leading to disease 
concerns for crops and livestock.
    Although several policy options exist to address climate change, 
NFU believes the flexibility of a cap-and-trade program holds the most 
potential for actual GHG emissions reductions while mitigating 
increased energy costs resulting from such a program. A cap and trade 
system could provide farmers and ranchers the opportunity to be a part 
of the climate change solution by utilizing soil carbon sequestration 
and methane capture from certain livestock projects. These projects 
could be valuable revenue streams for producers who will experience 
increased agricultural input costs.
    On April 17, 2009 the Environmental Protection Agency (EPA) issued 
its ``proposed endangerment finding'' which concluded GHG emissions are 
a threat to public health. The report was in response to a 2007 U.S. 
Supreme Court ruling that ordered EPA to determine whether carbon 
dioxide and other GHG emissions qualify as pollutants under the Clean 
Air Act. The proposed endangerment finding did not include any proposed 
regulations and remains open for public comment. It is understood that 
an endangerment finding under a single provision of the Clean Air Act 
cannot by itself trigger regulation under the entire Act. If Congress 
fails to pass climate change legislation, the EPA will move to regulate 
GHG emissions. It is not reasonable to expect EPA to try to regulate 
agricultural GHG emissions on the farm. A purely regulatory approach to 
addressing GHG emissions will bring all of the downsides of increased 
energy inputs without the upsides of carbon offset opportunities. For 
these reasons, NFU supports a comprehensive legislative approach to 
addressing climate change.
Agriculture's Role in a Cap-and-Trade System
    NFU strongly believes that the agriculture and forestry sectors 
should not be subject to an emissions cap as they are too small and 
diffuse to be directly regulated. According to analysis completed by 
USDA and EPA in 2005, the two million U.S. farms and ranches emit minor 
quantities of GHG emissions, approximately seven percent of all U.S. 
emissions. Establishing a regulatory scheme to capture emissions from 
each of these two million farms would be extremely costly and 
burdensome and would likely fail to yield significant GHG emission 
reductions. Currently, EPA estimates that carbon sequestration by 
forests and agricultural lands offsets approximately 12 percent of 
annual GHG emissions with the capacity to offset 20 percent of GHG 
emissions from all sectors of the economy. A flexible offset program 
with appropriate financial incentives will accelerate sequestration 
practices under a cap-and-trade system. Carbon sequestration projects 
on agricultural and forestry lands are the easiest and most readily 
available means of reducing GHG emissions on a meaningful and expedited 
scale.
    In April 2008, the Dole-Daschle 21st Century Agricultural Policy 
Project released a report, ``The Role of Agriculture in Reducing 
Greenhouse Gas Emissions: Recommendations for a National Cap-and-Trade 
Program.'' The report cited EPA analysis that estimated up to 168 
million tons of carbon dioxide could be sequestered in U.S. 
agricultural soils on an annual basis. The Dole-Daschle report went on 
to illustrate EPA's projection of total income opportunity associated 
with the estimates at a price per ton range consistent with current 
modeling estimates of carbon permit prices:

        $10/ton CO2 = $1.17 billion/year

        $15/ton CO2 = $2.5 billion/year

        $20/ton CO2 = $3.4 billion/year

    This income potential is significant to our farm and ranch members 
who will be faced with further increased energy input costs. Energy-
based GHG emissions related to the agricultural sector would be 
regulated upstream at the fuel supplier, electric utility or large 
industrial level. Our members know they will face increased energy 
costs, but do not agree with those who claim there can be no economic 
benefits from addressing climate change.
    The distribution of emission allowances will be extremely important 
to the ultimate viability of a national cap-and-trade program. We 
believe the majority of emission allowances should be auctioned by the 
Federal Government with the generated revenue used to mitigate the cost 
a cap-and-trade program would have on impacted parties and foster the 
development of renewable, low-carbon energy sources and technologies. A 
portion of the allowances should be given away to critical sectors of 
the economy to reduce overall transition costs, as well as to provide 
economic incentives to drive further carbon reductions.
    Providing a percentage of overall allowances to the agricultural 
sector as proposed in the 2008 Lieberman-Warner climate change bill 
would offer flexibility for agriculture producers to implement 
activities that provide GHG benefits but may not technically fall 
within the scope of an offset program. For example, a smaller 
agriculture operation could engage in a practice appropriate for its 
size that provides GHG emission reduction could be eligible for an 
appropriate allowance benefit as determined by USDA. Under this 
scenario, farmers and ranchers would be given the flexibility to 
participate in different aspects of a cap-and-trade program, maximizing 
both producer participation and environmental benefits for our society.
    In addition to receiving allowances, mechanisms should be 
established that allow agriculture to generate offset credits by 
implementing practices to more quickly reduce GHG emissions. 
Agricultural offsets provide the easiest and most readily available 
means of reducing GHG emissions on a meaningful scale. Farmers and 
ranchers, who demonstrate GHG sequestration and/or reduction, should be 
able to sell credits to regulated entities at a fair market price.
    All existing rules-based and independently verified and registered 
tons implemented under current programs, such as the Chicago Climate 
Exchange (CCX), should be integrated into the Federal program to serve 
several important policy objectives. Specifically, incorporating 
existing verified and registered tons will prevent potential 
backsliding and continue to encourage agriculture offset projects while 
a Federal program is being debated, enacted and implemented. The ACES 
Act is unsatisfactory in its current form related to this issue.
Legislative Priorities
USDA's Role
    With more than 20 years of targeted climate change research, USDA 
is well positioned to promulgate the rules and administer the 
agricultural offset program. USDA should be directed to promulgate 
regulations determining eligibility of agricultural and forestry offset 
projects and to administer related elements of such a program.
    Currently, USDA maintains observation and data systems to monitor 
both changes in climatic patterns as well as beneficial practices put 
in place to reduce GHG emissions and increase carbon sequestration. 
USDA has the institutional resources, administrative structure and 
established relationships with producers to launch an effective offset 
program. The 2008 Farm Bill provided the Department with the statutory 
authority necessary to create and administer any offset program. USDA 
can leverage its experience working with farmers and ranchers to 
promote appropriate land based and manure management practices to drive 
maximum participation in the agricultural community. Agencies within 
USDA that have been working on agriculture sequestration projects 
include the Natural Resource Conservation Service; Cooperative State 
Research, Education and Extension Service; Farm Service Agency, 
Economic Research Service; and Agricultural Research Service. 
Furthermore, for most farmers and ranchers in the country, USDA offices 
are located nearby.
Early Actors
    Farmers, ranchers and landowners that already have entered into a 
voluntary, legally-binding contract and adopted certain practices to 
reduce GHG emissions should be allowed to participate under a Federal 
mandatory cap-and-trade offset program. Often referred to as ``early 
actors,'' these individuals are leaders who should be recognized and 
rewarded, rather than penalized and excluded. Some offset critics 
suggest early actors should not be compensated for carbon sequestered 
under a Federal offset program. Such an argument, however, runs counter 
to the overall purpose of an offset program, to encourage widespread 
adoption of practices that reduce GHG emissions or sequester carbon. We 
do not advocate that early actors be automatically issued offset 
credits or receive retroactive payments. However, if an early actor 
meets and complies with all offset protocols for a practice, technique 
or project type under the new law, then he or she should be eligible 
for offset credits and paid for future GHG emissions reductions or 
sequestered carbon.
Unlimited Domestic Offsets
    As I stated earlier, EPA estimates agricultural soils and forestry 
lands have the potential to sequester enough carbon to offset 20 
percent of annual emissions in the United States. The goal is to remove 
as much GHG from the atmosphere as possible. Legislation should not 
artificially limit the amount of domestic agricultural project offsets. 
The ACES Act limits the total quantity of offsets to 2 billion tons, 
split between domestic and international offsets. Domestic agriculture 
and forestry projects alone have the potential to meet the limit, yet 
we do not know what other types of non-agricultural activities will 
qualify under the offset program. In order to aggressively address the 
impacts of climate change, there should be no limit on offsets, 
including those generated by agriculture and forestry, in order to 
provide the easiest and most readily available means to reduce GHG 
emissions on a meaningful scale.

    Other Concerns/Priorities

    There are three other topics I would like to briefly highlight.
    Additionality--Defining additionality has proven to be a 
challenging and highly subjective task. The basic concept behind 
additionality is that a project or activity should receive credit under 
a cap-and-trade program to the extent it generates benefits that are in 
``addition'' to what would have occurred absent the project. NFU 
supports the establishment of a static baseline of activity to measure 
against when determining additionality. The fixed baseline should 
institute what practices were being performed on a specific piece of 
land on a specific date; any activity that results in GHG reductions 
measured against that baseline should be deemed eligible and 
additional. Defining this term quickly becomes a slippery policy slope 
that threatens to limit participation under an offset program. 
Opponents argue projects would not be additional if a practice is 
common in a given geographic area, if the practice would have occurred 
due to a preexisting law or regulation, or if the rationale behind 
implementing the action includes justifications beyond a cap-and-trade 
program. Each of these arguments creates a perverse definition of 
additionality that would exclude appropriate projects that offer real 
GHG emission reductions.
    Reversals--The establishment of an offset reserve pool to address 
potential reversals of carbon sequestration projects is prudent for the 
integrity of the program. However, the differentiation must be made 
between anthropogenic (human-caused) and non-anthropogenic (natural) 
emissions. The purpose of the cap-and-trade program is to reduce man-
made/anthropogenic carbon emissions. Therefore, in establishing a 
reserve pool of offsets, participants should not be required to account 
for reversals caused by natural acts such as hurricanes, drought and 
wildfires. A key factor in the establishment of the reserve fund is who 
pays for such a system. NFU supports holding an individual responsible 
for intentionally reversing a carbon sequestration project. Under 
current CCX protocols, twenty percent of a pool's credits are set aside 
in a reserve account for reversals. These credits may not be sold until 
the associated contracts expire and all conditions are fulfilled. 
Penalties are levied against enrollees who intentionally break their 
contracts and reverse a carbon sequestration project. It is not 
equitable, however, to place the cost of unintentional reversals on 
offset providers. Resolving such reversals should be the responsibility 
of the government, not individual offset project representatives.
    Stackable Credits--The benefits accrued from a project established 
under a GHG offset market often provide additional environmental 
benefits including clean water, wildlife habitat and reduction of soil 
erosion. Sometimes these practices provide additional income to 
producers beyond the economic value of the offsets. Allowing offset 
project managers to ``stack'' credits will maximize the economic 
benefits to producers, encourage additional projects to be launched and 
amplify the environmental benefits accrued.
Farmers Union Carbon Credit Program
    Farmers Union became a CCX aggregator in early 2006 upon meeting 
the minimum eligibility requirements. The organization became involved 
in this effort with a goal of enhancing farm income through 
economically successful and environmentally sound land management 
practices that reduce or offset carbon emissions. Initially launched in 
North Dakota, the Farmers Union Carbon Credit Program was expanded in 
the fall of 2006.
    CCX is North America's only, and the world's first, GHG emission 
registry, reduction and trading system for all six greenhouse gases. 
Members of CCX make a voluntary, but legally binding commitment to 
reduce GHG emissions. Many Fortune 500 companies, multinational 
corporations, utility and power generation companies and municipalities 
are purchasing CCX carbon credits for a variety of reasons. Some buy 
credits to boost public relations, while others have subsidiaries based 
in foreign countries and are obligated to reduce emissions or buy 
offset credits per obligations under the Kyoto Treaty. Still others are 
simply concerned about the environment and want to reduce GHG 
emissions.
    Under the Commodity Exchange Act, CCX is defined as an ``exempt 
commercial market.'' Only firms that qualify as ``exempt commercial 
entities'' may have direct access to the CCX trading platform. 
Qualifications to become an aggregator include a minimum of $10 million 
in assets and net annual income of $1 million. CCX further stipulates 
that potential aggregators participate in educational sessions about 
the offset program and demonstrate a thorough understanding of the 
program requirements and protocols prior to engaging in aggregation.
    The CCX program has developed standardized trading instruments and 
workable protocols for aggregation, registration, verification and sale 
of agricultural and forestry offsets. Currently, NFU is the largest 
aggregator of agriculture carbon credits on CCX. To date more than 5 
million acres are enrolled across 31 states and nearly $9.5 million has 
been earned for the almost 4,000 producers that are voluntarily 
participating in our program. NFU has learned valuable lessons on how 
to properly construct a cap-and-trade program. Attached to my testimony 
is a state-by-state summary of the acres enrolled in each eligible 
category.
    Rules and protocols for trading carbon offsets are currently 
developed by a CCX offsets committee with information provided by 
soils, rangeland and forestry professionals via various technical 
advisory boards. Currently, not all regions of the United States are 
eligible for all classes of offsets. The following is a list of 
projects for which CCX has developed standardized rules, as well as the 
total related percentage of registered offsets: agricultural soil 
carbon (27.52%); agricultural methane (1.92%); forestry (14.21%); 
renewable energy (3.53%); coal mine methane (32.23%); landfill methane 
(7.48%); and ozone depleting substance destruction (1.49%).
    Eligible practices under the Farmers Union Carbon Credit Program 
are limited to agricultural soil carbon including no-till crop 
management, conversion of cropland to grassland and sustainable 
management of native rangelands; forestry; and agricultural methane. 
Chapter 9 of the CCX Rulebook relates to offsets and early action 
credits and outlines detailed protocols. As an aggregator, it is our 
job to translate technical requirements into easily understood project 
obligations and communicate that information to producers. We believe 
the protocols and methodologies within CCX can serve as a starting 
point for a federally mandated offset program administered by USDA.
    Since launching our program, many producers have inquired as to why 
they cannot sell their carbon credits directly to the market, rather 
than going through an aggregator. As with other agricultural commodity 
markets, carbon credits are registered and traded in large, 
standardized quantities. Similarly, a Minnesota spring wheat producer 
cannot simply haul his harvest directly to the Minneapolis Grain 
Exchange to sell. To access the CCX trading market, a producer must 
contract with an approved aggregator, who pools many producers' 
credits, arranges for annual verification, registers credits with CCX, 
sells credits and returns sales proceeds to enrollees.
    Different types of aggregators exist. Some focus on a particular 
project type such as sustainable rangeland management, continuous 
conservation tillage or sustainable forestry. Others focus on a 
specific geographic area of the country. The aggregator can ultimately 
be referred to as the ``project manager'' of an aggregated offset pool, 
as the carbon offsets are the property of the aggregator for the 
duration of the contract. Aggregators are responsible to CCX for any 
losses due to non-compliance or failure of a producer to honor the 5 
year contractual commitment to maintain the conservation practice.
    NFU retains ten percent of the gross sales as an aggregator's fee 
to cover program development, software costs, program promotion, 
education and other costs. Other costs associated with the program 
include a mandatory $0.20 per ton charged by CCX to register and sell 
an offset and third-party verification charges that average $0.10 per 
ton of soil offsets and $0.30 for forestry offsets. Despite the fee's, 
producers can net a profit. For example in 2008, fees accounted for 
$0.74 of every ton of carbon credits sold through the Farmers Union 
program. In the first 2 full years of the Farmers Union Carbon Credit 
Program (2007 and 2008), the pools earned, on average, between $3.75 
and $4.50 per ton, allowing us to return more than $8 million to 
producers.
Example: Kandiyohi County, Minnesota
    A farmer in Kandiyohi County has 1,000 acres of no-till he wants to 
enroll in the Farmers Union Carbon Credit Program. According to the CCX 
Conservation Tillage Soil Offset Map below, his county is in Zone A and 
accrues 0.60 tons of carbon per acre annually. Under this example, the 
Kandiyohi County farmer will accrue 600 tons of carbon annually.
    Upon successful certification and verification of the project, the 
Farmers Union Carbon Credit Program staff would register the 600 tons, 
but because CCX mandates 20 percent of the offset tons are held in 
reserve until the end of the 5 year contract, can only sell 480 tons. 
Assuming $4.00 per ton (2008 price), the Kandiyohi County farmer would 
gross $1,920. CCX charges $0.20/ton for registering and selling the 
credits, the verification fee is $0.10 per ton and Farmers Union 
aggregation fees total ten percent of sales, leaving this farmer with a 
$1,548 for the year.
    This calculation process is repeated annually at the varying offset 
price and at the end of the contract period, assuming full compliance, 
the farmer would receive the sales from the cumulative tons that had 
been held in the mandatory CCX reserve fund.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        Zone A = .60 ton per acre annually; Zone B = .40 ton per acre 
        annually; Zone C = .32 ton per acre annually; Zone D = .20 ton 
        per acre annually; Zone E = .40 ton per acre annually; Zone F = 
        .20 ton per acre annually; Zone G = .40 ton per acre annually.
Enrollment Process
    An interested producer can log onto www.carboncredit.ndfu.org to 
enroll in the Farmers Union Carbon Credit Program. Currently, the 
website utilizes a map-based enrollment method for the nine Midwestern 
states, Wisconsin, Minnesota, North Dakota, South Dakota, Nebraska, 
Kansas, Colorado, Wyoming and Montana (a 48-state map will be launched 
by the end of this summer). Upon creation of an account, the producer 
selects the appropriate contract(s) and adds acres by selecting the 
appropriate parcels on a digital map. Required information, such as 
farm and tract numbers must be input to allow the system to 
automatically calculate total acreage. The producer can continue to add 
parcels until all acreage he/she wishes to enroll has been selected.
    A customized 5 year contract must be printed, signed and sent to 
Farmers Union with appropriate documentation. Upon submission of all 
required paperwork, the producer enrollment process is complete. 
Producers must maintain the contracted conservation practice for the 
full 5 years, submit an annual postcard re-certification to Farmers 
Union, notify Farmers Union of any changes and make contracted acres 
available for verification. Farmers Union Carbon Credit Program staff 
contracts and coordinates with third-party verifiers, registers and 
sells credits with CCX and distributes annual earnings to the enrollee.

    No-Till Required Documentation Checklist

    After entering acres into the online database, the producer must 
print and sign the contract and certification page. The following is a 
checklist of required documentation to complete enrollment of a no-till 
soil carbon project:

   Most recent FSA Form 578 Report of Commodities (Farm and 
        Tract Detail Listing) for all acres enrolled;

   Most recent FSA Form 578 Report of Commodities (Farm 
        Summary) for all farms enrolled; and

   Most recent Aerial Maps for all parcels enrolled. Maps must 
        be originals or clear copies. Maps MUST be marked with:

     Farm and Tract numbers;

     Acres in each tract; and

     Legal Description of mapped areas.

    Additional documentation is required for contracts outside 
Wisconsin, Minnesota, North Dakota, South Dakota, Nebraska, Kansas, 
Colorado, Wyoming and Montana.

    No-Till Crop Production Practice Management Guidelines

    Crops must be grown annually. Pulse crops (e.g., beans, pea's, 
lentils) may be seeded no more than 3 of 5 years, the use of chemical 
fallow is not permitted; and crop residue shall not be burned.
    Implements acceptable for use include: no-till planter/drill; 
subsurface disturbance implements (vertical slot created by these 
implements must be closed at the soil surface), anhydrous applicator, 
manure knife applicator, subsoil/ripper. Implements NOT acceptable for 
use include: moldboard plow, tandem/offset disk, chisel plow, field 
cultivator, row crop cultivator, harrow (limited or emergency work 
only).

    Verification

    CCX protocols require a minimum random sample of ten percent of 
contracts and enrolled acres be verified on an annual basis. The sample 
must include a minimum of ten percent of contracts representing ten 
percent of acres in order to prevent a single, large enrollee from 
skewing results. The Farmers Union Carbon Credit Program actual 
verification sample is generally closer to 15 percent of all contracts 
and enrolled acres. The verification process is conducted by 
CCXapproved third-party vendors. The North Dakota Association of Soil 
Conservation Districts, Association of Official Seed Certifying 
Agencies, AgriWaste Technology, Inc., SES Inc and Winrock International 
have conducted audits under the Farmers Union program.
    The producer's costs of verification are split evenly on a per-ton 
basis since the compliance rate of the verified sample is credited to 
the entire pool of credits. Farmers Union covers the cost of 
verification and is reimbursed out of the pool sales proceeds prior to 
calculating the effective average ton price payable to producers. Very 
large projects (ranches of more than 30,000 acres and forestry projects 
earning more than 12,500 tons annually) must receive a site compliance 
check prior to initial offset registration. The actual verification 
process is completed through paperwork review and site visits. 
Verifiers do not take individual soil samples, but rather confirm the 
contracted practice is being conducted and maintained. Since the 
beginning of our program, we have not found the verification costs or 
process to be a deterrent to producer participation.

    Confidentiality

    As a private enterprise, all contracts and supporting documentation 
are held in complete confidentiality by the Farmers Union Carbon Credit 
Program. In order to complete the verification process, approved third-
party verifiers are provided copies of necessary documents for the sole 
purpose of program compliance confirmation. Verifiers are legally bound 
to protect producers' information. Further, as an aggregator, we must 
submit limited information, enrollee's name, contact information and 
acreage totals, to CCX when requesting credits be registered on the 
exchange.
Conclusion
    The Farmers Union Carbon Credit Program and other aggregators are 
the bridge between agricultural producers and the carbon offsets 
market. For producers willing to commit to a management system, carbon 
credits are currently an additional source of income today. If Congress 
successfully crafts a cap-and-trade system that includes a robust and 
flexible offset program, the cost of compliance for capped sectors will 
be reduced and significant amounts of GHG emissions can be mitigated.
    Enacting legislation to address global climate change will be one 
of the most significant challenges and opportunities for this Congress 
to undertake. Balancing environmental goals with consumer and economic 
impacts will be difficult. Yet, the chorus of those calling for action 
continues to get louder. While my testimony aims to detail the role of 
aggregators and opportunities for agricultural producers to participate 
in an offset program as well as highlight some of the policy priorities 
for NFU in the climate change debate, there is no question other issues 
and concerns will arise. As an organization that has been around for 
more than 100 years, we stand ready to help Congress accomplish one of 
the most significant policy challenges facing our country today. I look 
forward to answering any questions Committee Members may have and thank 
you again for including our perspective.
                              Attachment 1

      Farmers Union Carbon Credit Program Acreage Enrollment Totals
------------------------------------------------------------------------
     State         No-Till       New Grass      Forestry      Rangeland
------------------------------------------------------------------------
          AR               0              0          1,740             0
          CO          50,802         80,145              2       262,031
          GA             218              0            314             0
          IA           4,456            355              0             0
          ID               0              0              0        18,109
           IL         10,285            433            131             0
          IN          52,635          1,105            235             0
          KS         103,367          8,465              0         9,432
          KY           4,476            128              0             0
          MD           4,634            521              0             0
          MI           3,434            205              0             0
          MN          10,458         39,901            789             0
          MO          24,254          4,584            168             0
          MT         239,517         54,708              0       297,933
          ND       1,386,746         69,416             81       212,515
          NE         232,230         27,246            193       878,361
          NJ               0              0             19             0
          NM               0              0              0        40,712
          NY             236             63            254             0
          OH          43,939          1,547            220             0
          OK           3,747            670              0        15,917
          OR               0          1,402              0             0
          PA           1,837            217              0             0
          SC             141              0              0             0
          SD         528,828         33,566            443       314,026
          TN           6,432            693            125             0
          TX           1,527            411              0             0
          VA           3,785            911            514             0
          WA               0          1,648              0             0
          WI          19,714          3,065          1,086             0
          WY           3,063          3,222              0       220,652
               ---------------------------------------------------------
  Total.......     2,740,761        334,627          6,314     2,269,688
------------------------------------------------------------------------
Updated: June 9, 2009.

                              Attachment 2

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]



    Mr. Boswell. Thank you.
    Mr. Nobis?

  STATEMENT OF KEN NOBIS, TREASURER, NATIONAL MILK PRODUCERS 
            FEDERATION; DAIRY FARMER, ST. JOHNS, MI

    Mr. Nobis. Mr. Chairman, Ranking Member, and Members of the 
Committee, thank you for the opportunity to testify on dairy 
farmers' views on H.R. 2454, the American Clean Energy and 
Security Act of 2009.
    My name is Ken Nobis, and I am a dairy farmer from St. 
Johns, Michigan. I am also Treasurer of the National Milk 
Producers Federation and President of Michigan Milk Producers 
Association, a Michigan-based dairy cooperative.
    Today, I am speaking for the more than 40,000 dairy farmer-
members of National Milk Producers Federation on the subject of 
proposed climate change legislation. And I want to thank you 
for the opportunity to offer this testimony on their behalf 
today. My testimony will focus on the specific context of 
offsets and allowances, and the changes we would like to see in 
H.R. 2454.
    But before I begin, I would also like to thank the Members 
of this Committee for their continued support during these very 
difficult times for dairy producers across the nation. We are 
seeing some of the worst prices in history, combined with 
continued high input costs, and we greatly appreciate your help 
in trying to address this terrible situation.
    With respect to greenhouse gases, inaccurate perceptions 
have persisted that animal agriculture is a significant 
contributor to U.S. greenhouse gas emissions. The reality is 
that dairy farmers have a history of dramatically reducing the 
carbon footprint of the industry, as noted in a Cornell 
University study published last year.
    This study indicated that there had been a 40 percent 
reduction in greenhouse gases since 1944. And the dairy 
industry wasn't even trying; we were just advancing our herds 
to the more efficient production system we have today, which, 
coincidentally, lowered the carbon footprint of a gallon of 
milk.
    We have committed ourselves to continue our efforts to 
reduce our carbon footprint by an additional 25 percent by 
2020.
    Although the dairy industry doesn't support all climate 
change legislation, if such legislation is in our future, we 
support the cap-and-trade concept. Agriculture should not be a 
capped industry, and dairy farmers should be allowed the 
ability to trade carbon credits with capped industries. And we 
would like a system that allows all dairies, regardless of 
size, to have an opportunity to participate.
    One of our greatest concerns is the economic impact of 
climate change legislation. This has been a very difficult year 
for dairy farmers. One concern is how this legislation would 
impact our ability to continue to provide an affordable, highly 
nutritious food for consumers.
    A cap-and-trade scenario would provide a method of raising 
additional funds to help us pay for added measures we could put 
into place to lower our carbon footprint more than we already 
have.
    We feel strongly that, under cap-and-trade, USDA should be 
the agency dealing with farmers on developing and implementing 
standards regarding offsets. We understand EPA probably needs 
to be involved to some degree to oversee the environmental 
integrity of the offsets program, but EPA should not be 
empowered to act without involvement from USDA. USDA personnel 
are already located in most agricultural counties throughout 
the U.S., and farmers are accustomed to working with USDA 
personnel. The overall infrastructure is already in place to 
make the program a success.
    Many farmers are by nature innovative and have already 
invested to reduce greenhouse gas emissions and sequester 
carbon. Congress must recognize and reward these efforts. These 
farmers should be eligible for compensation for the ongoing 
greenhouse gas emission reduction or carbon sequestration that 
they achieve within the offset program if they qualify under 
other offset protocols. Even if their practices existed prior 
to legislation, they should be eligible for offset credits.
    In addition, baseline rules should not be changed without 
consideration of the economic impact on farmers. Frequent 
baseline changes will severely limit participation.
    Climate change legislation must not be used as a backdoor 
method of adding even more regulations to large dairies than 
already exist today. It needs to be clear that emissions from 
all agricultural and livestock activities are not regulated, 
either directly by climate emission caps or indirectly by 
performance standards.
    A very great concern of ours is that legislation would be 
passed here without similar regulations in other countries with 
whom our dairy farmers compete in the global marketplace. U.S. 
dairy farmers are suffering losses, like many other segments of 
our society, in this global recession. We are struggling to 
survive today because of the dramatic decline in export demand 
for dairy products. If we can't compete on a level playing 
field with other countries, we won't survive.
    We in the dairy industry appreciate the help you have been 
able to give us in this economic crisis. And we are here today 
asking that we continue to work together, including on this 
important issue of climate change legislation, to continue to 
grow our very efficient dairy industry.
    Thank you.
    [The prepared statement of Mr. Nobis follows:]

   Prepared Statement Ken Nobis, Treasurer, National Milk Producers 
                Federation; Dairy Farmer, St. John's, MI
    Mr. Chairman, Ranking Member and Members of the Committee: thank 
you for the opportunity to testify on agriculture's views on H.R. 2454, 
the American Clean Energy and Security Act of 2009. My name is Ken 
Nobis and I am a dairy farmer from St. John's, Michigan and I also 
serve as the Treasurer for the National Milk Producers Federation 
(NMPF). NMPF develops and carries out policies that advance the well 
being of dairy producers and the cooperatives they own. The members of 
NMPF's 31 cooperatives produce the majority of the U.S. milk supply, 
making NMPF the voice of more than 40,000 dairy producers on Capitol 
Hill and with government agencies, and I am offering this testimony on 
their behalf.
    H.R. 2454, introduced by Representatives Waxman and Markey, is a 
very complex legislative proposal. Our organization appreciates the 
fact that the bill's authors do not regulate agriculture under the cap-
and-trade system they propose in the bill. NMPF supports the concept of 
cap-and-trade as long as agriculture is not a cap industry. However, 
supporting cap-and-trade does not equal supporting all climate change 
legislation. This is why it is critical that before this bill becomes 
law, Congress must address a number of concerns. My testimony today 
will focus on the specific context of offsets and allowances from which 
we view this bill and climate change policies overall and the changes 
we would like to see in H.R. 2454.
The Dairy Farm Economic Crisis
    It has been a very difficult year for dairy farmers. And we have 
greatly appreciated all of your help and support as farm level milk 
prices headed sharply lower creating tremendous economic stress and 
pressures in the dairy farming community. The price that farmers were 
receiving for bottled milk was down nearly 50% from last winter. 
Current prices received by farmers do not even cover the cost of feed. 
The reason farm prices have declined so drastically is due to the 
slowdown in the U.S. and global economy with the end result of a 
precipitously drop in U.S. exports. The problems in the global economy 
and the effects on consumers' buying habits are adding to that downward 
pressure.
Dairy Farmer's GHG Commitment
    Despite these severe economic challenges, dairy farmers and their 
cooperatives have maintained their deep commitment to reducing their 
GHG emissions on farm and throughout the dairy chain. Our industry has 
voluntarily committed to an action plan to reduce the carbon footprint 
of fluid milk by an additional 25% by 2020. Work is underway throughout 
the dairy industry to help achieve this goal. We are looking at farm 
practices ranging from dairy feed systems, efforts to reduce enteric 
methane production, to farm energy audits, and addressing barriers to 
methane digesters. At the processing level, practices being examined 
include items like non-thermal UV technology as an alternative to heat-
based pasteurization, increased energy efficiencies in dairy plants, 
improved transportation systems, as well as product packaging and 
delivery systems.
Dairy Sector's Strong GHG Performance Historically and Today
    There have been inaccurate perceptions that animal agriculture is a 
significant contributor to U.S. greenhouse gas emissions. In fact, the 
modern dairy sector has improved its performance on GHG emissions 
dramatically over the last 60 years and any effort to return to the 
production systems that prevailed in the 1940s would have a disastrous 
effect on our industry's GHG performance.
    EPA has reported that animal agriculture is responsible for 
approximately 2.5% of U.S. GHG emissions, about half of which is 
enteric fermentation (1.7% of total).\1\ As these statistics show, 
modern U.S. livestock agriculture is a very small portion of U.S. 
emissions. Manure methane and nitrous oxide emissions from dairy cows, 
as reported in the EPA Inventory, are only about 0.3% of total U.S. 
emissions of all GHGs on a CO2 equivalent basis. The 
emissions from all livestock are only about 0.8%.\2\ Research conducted 
recently at Cornell University and published in the Journal of Animal 
Science explores these questions and finds that the most efficient and 
environmentally friendly way to raise dairy cows and produce milk is 
definitely not the use of the dairy farm systems that prevailed before 
the advent of modern commercial farming. The article, entitled ``The 
environmental impact of dairy production: 1944 compared to 2007,'' 
found that:
---------------------------------------------------------------------------
    \1\ Environmental Protection Agency (EPA), 2008. ``Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2006.'' EPA, Washington, 
D.C. Calculated from statistics provided in tables ES-2 and 6-1.
    \2\ The other .2% of emissions associated with livestock production 
comes from nitrous oxide.

        ``Modern dairy practices require considerably fewer resources 
        than dairying in 1944 with 21% of animals, 23% of feedstuffs, 
        35% of the water, and only 10% of the land required to produce 
        the same 1 billion kg of milk. Waste outputs were similarly 
        reduced, with modern dairy systems producing 24% of the manure, 
        43% of CH4, and 56% of N2O per billion kg 
        of milk compared with equivalent milk from historical dairying. 
        The carbon footprint per billion kilograms of milk produced in 
---------------------------------------------------------------------------
        2007 was 37% of equivalent milk production in 1944.''

    Not surprisingly, the dairy sector's total carbon footprint has 
also been dramatically reduced. Total GHG emissions for the dairy 
sector in 1944 was 194 million metric tons in CO2 
equivalents. By 2007 this had been reduced by 41%, to 114 million 
metric tons. The article closes with, ``Contrary to the negative image 
often associated with `factory farms,' fulfilling the requirement for 
dairy products of the U.S. population while improving environmental 
stewardship can only be achieved by using modern agriculture 
techniques.'' Modern U.S. dairy farming is a tremendous example of how 
the world can produce the goods and services needed by people, in this 
case the very food we eat, and doing so while producing less GHGs per 
calorie of food.
    Dairy producers and the entire dairy chain are committed to meeting 
these goals. It is from our dairy sector's commitment to continuing 
this record of GHG performance while helping feed the U.S. and the 
world and helping our businesses thrive that we offer the following 
comments on H.R. 2454.

    1. The bill must establish a strong role for USDA. Currently, H.R. 
        2454 empowers EPA alone to establish, audit and implement all 
        the offsets standards and protocols with no involvement from 
        USDA. This is simply unacceptable. It is USDA that has the 
        technical understanding of the various practices that can 
        generate offsets and has done research on how to measure GHG 
        reductions or sequestrations coming from these practices. It is 
        USDA that has the relationships with ranchers and farmers to 
        facilitate the implementation of the program. And, it is USDA, 
        not EPA that has the infrastructure to manage such a program--
        with county extension offices across much of the country. We 
        understand that there is a necessary role for EPA to play in 
        overseeing the environmental integrity of the offsets program, 
        but equally important is the role that USDA should be given in 
        helping to set the standards for measuring and verifying 
        agricultural offsets.

    USDA is best positioned to create technical standards and protocols 
        for GHG emissions reductions and sequestration from the 
        agricultural and forestry sectors. Nearly all of the scientific 
        data and documentation behind existing agricultural and 
        forestry standards used by carbon registries is grounded in 
        work conducted by USDA scientists or their land grant 
        university partners. Thirteen of USDA's Forest Service 
        scientists shared in the Nobel Peace prize for the UN 
        Intergovernmental Panel on Climate Change report connected to 
        their forestry work. USDA's Natural Resource Conservation 
        Service, Cooperative State Research, Education, Farm Service 
        Agency and Extension Service, Economic Research Service and 
        Agricultural Research Service have done similar work for 
        agricultural practices that reduce GHG emissions and sequester 
        carbon, such as methane capture and conservation tillage. 
        USDA's work is already part of the only comprehensive set of 
        GHG inventory methods in the DOE's 1605(b) Program. USDA also 
        has the institutional resources, administrative structure, and 
        established relationships in place to engage farmers and 
        ranchers across the country. USDA has tens of thousands of 
        employees working with agricultural producers on various 
        conservation issues. The relationships that USDA has with 
        farmers and ranchers allow it to have the trust necessary to 
        create, administer as well as drive higher levels of 
        participation in the offset program. Indeed, their field 
        assets, technical expertise and the level of trust that USDA 
        has developed make it uniquely positioned. For these reasons  
        2709 of the 2008 Farm Bill gave USDA the authority to create 
        technical standards to facilitate participation in emerging 
        carbon, water or other ecosystem service markets.

    Since EPA will be charged with administering the overarching cap-
        and-trade system, we would expect EPA to review the integrity 
        of the offset program. In that regard, EPA can periodically 
        review the standards, protocols and verifications systems 
        established by USDA to ensure that they are being successfully 
        implemented into the larger cap-and-trade system.

    2. The bill's requirement for additional ``performance standards'' 
        must be clarified so that CAFOs are not included in ``back-
        door'' climate regulation. Section 811 of H.R. 2454 tasks EPA 
        to set standards for regulatory compliance measures that would 
        be required of some uncapped sectors. The criteria listed for 
        this section could include some of the larger CAFOs in the 
        livestock industry and would therefore remove these operations 
        from being able to provide offsets and would instead require 
        measures such as digesters to reduce their emissions as part of 
        the performance standard for their category. While enteric 
        emissions from animals are not counted, nothing is mentioned 
        about methane or nitrous oxide emissions from manure or from 
        combustion processes. It needs to be made clear that emissions 
        from all agricultural and livestock activities are not 
        regulated--either directly by the climate emissions cap, or 
        indirectly by the performance standards.

    3. The bill should shorten the time allowed for setting up offsets 
        program standards. Section 732(a) of the Waxman-Markey bill 
        creates an offset program via regulation ``Not later than 2 
        years after the date of enactment of this title''. As written, 
        it is probable that regulations establishing an offset program 
        will not be in place when the cap-and-trade system takes 
        effect. Having regulations in place early will allow the 
        necessary infrastructure to develop to establish a carbon 
        market that can complete transactions and trades. Agricultural 
        and forestry offset projects are currently being created across 
        the country and in other countries under voluntary private and 
        state or regional carbon markets. The Clean Development 
        Mechanism (CDM) in the Kyoto Protocol, the Chicago Climate 
        Exchange (CCX), the Regional Greenhouse Gas Initiative (RGGI), 
        and California's Climate Action Review Board (CARB) all are 
        examples of systems with existing carbon protocols and markets, 
        providing ample precedent from which a Federal program can be 
        crafted. Further, under the 2008 Farm Bill USDA has been 
        charged with establishing protocols for carbon and other 
        ecosystem service markets. The government of Canada is 
        establishing a carbon offset program (to include agricultural 
        and forestry offsets) in 2010, and the carbon trading program 
        in 2012, to ensure the availability of offsets at the start of 
        the system.

    4. The bill must recognize and reward the avoided emissions efforts 
        undertaken by agricultural leaders to reduce GHG emissions and/
        or sequester carbon. Significant numbers of agricultural and 
        forestry landowners have already undertaken actions that reduce 
        GHG emissions or sequester carbon. These early actors should be 
        eligible for compensation for the on-going GHG emissions 
        reductions or carbon sequestration that they achieve. The 
        reason this is so important is because the greenhouse gas 
        reductions and sequestration performed by early actors is not 
        required by law and can be undone if the current bill's 
        perverse incentive is not corrected. In order to maintain these 
        avoided emissions--or emissions that could otherwise be 
        emitted, there must be compensation. Since these actions will 
        likely not qualify as offsets, they should be paid for out of 
        the allowances or auction revenue of the bill. Currently, the 
        bill has a very limited recognition of early actors. In 
        previous climate legislation, 5% of the overall allowances were 
        designated to the agriculture industry. If restored, this 
        provision could create the necessary funding to reward early 
        actors and continue the important avoided emissions of the 
        livestock and agricultural sectors.

    Congress must recognize and reward the early efforts undertaken by 
        agricultural leaders to reduce GHG emissions and/or sequester 
        carbon. Significant numbers of agricultural and forestry 
        landowners have already undertaken actions that reduce GHG 
        emissions or sequester carbon. Changes in management taken by 
        these early actors include, but are not limited to, switching 
        to or maintaining zero tillage (``no-till''), using new 
        technology to capture methane for improved animal waste 
        management, and afforesting or reforesting buffers or larger 
        ecosystem landscapes. These early actors should be eligible for 
        compensation for the on-going GHG emissions reductions or 
        carbon sequestration that they achieve within the offset 
        program, if they qualify under all other offset protocols.

    The treatment of early actors is vital to agriculture's 
        participation in a climate change system. Produces across the 
        American landscape have been engaged in innovative efforts to 
        sequester carbon using a variety of techniques. These producers 
        should be allowed to participate in the offset program being 
        created by Congress under a cap-and-trade regime. The central 
        purpose of any offset program is to encourage the widespread 
        adoption of conservation or other practices that reduce GHG 
        emissions or sequester carbon and which in turn reduces, and 
        potentially reverses global warming impacts, as well as 
        provides cost containment for the entire cap-and-trade system. 
        Agricultural producers who have already begun to experiment 
        with GHG emissions reductions and carbon sequestration 
        practices, techniques and projects are critical emissaries to 
        promote and ensure widespread adoption of these practices. In 
        fact, these early actors often are the leaders of agricultural 
        organizations and their leadership is needed to constructively 
        engage their organizations and their membership on climate 
        change policy. Thus, by rewarding early actors we support 
        constructive political engagement by agriculture and we create 
        a core group of emissaries who will encourage offset projects.

    Allowing early actors' projects to be eligible does NOT 
        automatically result in offset credits being issued for 
        previous reduction activities. Early actor projects, like any 
        other project, would have to comply with all other offset 
        protocols for the practice, technique or project type that they 
        are engaged in. Thus even if a producer adopted a practice in 
        2002, if that producer does not meet other offset protocols he 
        will not be eligible to provide offset credits. Further, early 
        actors will not be paid for GHG emissions reductions or carbon 
        sequestered retroactively. Instead, they will be paid for 
        future GHG emissions reductions or carbon sequestration. As an 
        example, if a producer began no till in 2002 and his soil is 
        projected to reach saturation in 25 years then that producer 
        will only be paid for carbon sequestered between the date any 
        cap-and-trade system starts and 2027.

    5. The agricultural sector should be provided with an allocation of 
        allowances, or a portion of allowance auction revenues. While 
        climate change legislation will impose higher input costs (such 
        as fuel and fertilizer) for agriculture as a sector, producers 
        have an extremely limited ability to pass higher costs along to 
        downstream purchasers. Agricultural producers are typically 
        price takers in economic terms and in such a situation an 
        allowance allocation, or the proceeds of an allowance auction, 
        could serve to smooth the transition for producers, especially 
        those that are not in a position to capture potential offset 
        credit benefits. Small producers for example are less likely to 
        be in a position to generate offset credits--it may be a simple 
        matter of the amount of credits that they could generate not 
        warranting the cost of changing the practice or the cost of 
        compliance to verify the offset credits themselves. Allowance 
        set asides, or the proceeds from an allowance auction, should 
        be used to smooth the transition for at-risk agricultural 
        producers as we establish a new carbon reduction system.

    The agricultural sector faces unique challenges in dealing with the 
        impacts of climate change as it begins to impact our nation and 
        world. Agricultural producers experience and are impacted by 
        climate and weather changes perhaps more than any other sector; 
        for most farmers and ranchers changes in moisture, temperature, 
        and alterations in the growing season directly impact the 
        ability to produce the food and fiber our nation and world 
        need. As such, allocating allowances or allowance revenues for 
        research into adaptation is vital. New seeds, new technologies 
        and new techniques will be needed for the farmer and rancher of 
        the future to produce the same vast quantities of food that we 
        enjoy today. As global populations continue to expand, the 
        American producer will be called upon to produce even more, and 
        government aided research efforts into adaptation can help 
        achieve that objective.

    Farmers and ranchers are creative and innovative. As carbon markets 
        develop, new techniques, practices and technologies for 
        reducing GHG emissions and for sequestering carbon will be 
        developed, yet funding could be vital to bridge the development 
        phase for producers. Allowance allocations, or the proceeds of 
        an allowance auction, could serve to encourage the development 
        of these yet to be discovered carbon sequestration or emissions 
        reduction methods--allowances could in effect serve as a bridge 
        as data is collected and verified. Eventually, after an 
        appropriate developmental phase, some of these techniques could 
        be certified as accredited offsets, and thus would no longer 
        require allowance funding.

    6. Offset eligibility and compensation should be based on whether a 
        project, technique, or practice sequesters carbon, or otherwise 
        reduces greenhouse gases (GHG) from a date certain. Use of the 
        BAU methodology in the Waxman/Markey bill will limit the amount 
        of GHG emissions reductions or carbon sequestration by 
        agriculture and forestry. The central purpose of the 
        legislation is to reduce or eliminate as much CO2 as 
        possible, yet by using a BAU methodology to determine project 
        eligibility limits the amount of low cost offsets that will be 
        provided. Section 734(a)(1) requires that offset projects 
        conform to a standard methodology that will determine whether 
        the offset project is BAU for an industry. The text further 
        provides that the government can change baselines, perhaps 
        significantly, on a regular basis. This unnecessarily creates a 
        high level of uncertainty for agricultural producers and 
        investors regarding whether offset projects they are 
        undertaking or about to undertake will qualify for offset 
        credits. Uncertainty in turn will dampen the level and scale of 
        participation in an offset program, and hence the success of 
        the offset program, which is an important component of cost-
        containment in a cap-and-trade system.

    By applying this type of updated BAU test for additionality the 
        draft also ensures that the ``hardest'' or least likely 
        projects or producers (i.e., those least likely to participate 
        at modest prices and early stages of a program) will never 
        participate. Rather than actively ignoring or omitting the 
        ``hardest'' projects/least environmentally sensitive producers, 
        an offset program should specifically strive to reach this 
        population. Further, the logic of this type of BAU methodology 
        devalues carbon emission reductions overtime. Projects that 
        produce real, verifiable GHG reductions should receive credit.

    To give one example: currently there are approximately 125 methane 
        digester systems across the country, accounting for less than 
        1% of all dairy, hog, and beef cattle operations. Congress 
        should enact a statute that incentivizes the installation of 
        more digesters--striving for 100% penetration, for instance--
        rather than deciding that at 50% market penetration the 
        practice is considered BAU and will no longer receive offset 
        credits. Thus digesters installed when market penetration is at 
        45% are just as valuable to GHG impacts as digesters installed 
        at 95% market penetration (and perhaps more so, if early 
        reductions have already been achieved, and we are seeking the 
        latter, ``harder'' reductions); each of these digesters should 
        receive just compensation for the emissions reductions 
        delivered--actual tons of GHG destroyed--and not be dependent 
        on when they were built in relation to each other.

    Currently the Waxman-Markey bill changes baselines over time 
        unfairly moving the goal posts and limiting project 
        investments. Rather than recurrently changing baselines as 
        established in the bill, producers and investors need a static 
        baseline to make production and investment decisions. USDA 
        should be charged with determining the normal activity baseline 
        for each offset project type using a historical or temporal 
        baseline. Once USDA sets that baseline, offset projects can be 
        judged against the baseline to determine whether a proposed 
        action is additional vis-a-vis the temporal baseline. Such a 
        baseline system will ensure certainty to producers (offset 
        providers) and buyers.

    7. Global Implementation of Climate Change Legislation. It is 
        critical that the United States negotiates quickly a 
        comprehensive implementation of GHG reductions around the 
        world. Although we support the concept of cap-and-trade we 
        remain concerned about the potential costs to the economy from 
        unilateral action by the United States. There are a number of 
        important agricultural exporters around the world that could 
        gain competitive advantage if careful consideration is not 
        given to the application of these reductions throughout the 
        world.

    These are the dairy industry's top recommendations for realizing 
the ag offset opportunities promised by H.R. 2454. We urge this 
Committee to take on the role of champion for the agriculture industry 
in this matter as it has so often in other ag-related legislation. Our 
industry is strongly concerned that should the underlying bill pass 
without these important corrections, there will not be a workable 
offsets title for America's livestock and farming sectors.
    We cannot emphasize enough how important it is for this Committee 
to submit language that improves the existing bill and clarifies the 
issues we have raised today. There are some who would advise standing 
on the sidelines and opposing this effort entirely. We believe that 
this risks for too much for the livestock and row crop producers of 
America.
    The bill at hand is flawed, but there are opportunities to craft a 
real market opportunity from it. The alternative could be outright 
regulation or costly energy and input increases with no way of 
recovering additional revenue if the agriculture sector as a whole 
takes a pass on getting involved in this issue.
    We urge this Committee to proactively engage in making the Waxman-
Markey bill better for agriculture.

    Mr. Boswell. Thank you.
    We will go to questions at this time, and I will yield my 
time to Mr. Costa of California.
    Mr. Costa. I want to thank the gentleman for yielding his 
time. Thank you, Mr. Chairman.
    I thank the panel of witnesses.
    Let me begin with Mr. Nobis. You talked about the plight of 
the U.S. dairy industry. I am third-generation dairy family. 
And that ground zero started in California, but it has now 
spread around the entire country. And it is very, very 
difficult, as you noted.
    I am wondering, as we see some of the dairies trying to be 
innovative and look at efforts to deal with digesters to 
provide energy, where you see that fitting with this whole 
effort. We have complicating factors in California because of 
conflicts with attainment, non-attainment air basins.
    But as it relates to--where do you see the digesters 
providing energy and, at the same time, fitting in with this 
Waxman bill?
    Mr. Nobis. Well, there are problems with digesters, as you 
know. They cost a lot of money to build. In addition to that, 
the energy that most of us are able to sell from a digester is 
valued far below the cost of producing that energy. So----
    Mr. Costa. Do you think that needs to be a consideration as 
a part of the change on this larger energy package, to how much 
energy, potentially, across the country could be provided if we 
could sell those back to the utility companies for energy? Has 
your group done any national evaluation as to the potential of 
energy source?
    Mr. Nobis. We have done a lot of work trying to get a 
higher price in individual states for renewable energy and have 
met with little success.
    But if we could get--generally speaking, it takes 7 cents 
to 8 cents per kilowatt hour to break even with a digester. In 
my state, in Michigan, the buy-back from the utility is 3 cents 
per kilowatt hour, 3 cents to 4 cents. So we would need 
something above 7 cents or 8 cents to make them economically 
viable.
    Mr. Costa. I would like to move on, and I am not sure which 
of the panel members might want to address this. But, there has 
been a lot of discussion of not punishing early adopters. And 
farmers and dairymen around the country have done a lot of 
things, like you noted in your various testimonies, with no-
till and a host of other efforts to reduce emissions, switch to 
other environmentally friendly farming practices.
    How do we account for that in this proposed Waxman-Markey 
bill or the Senate proposals that, under the category of ``no 
good deed goes unpunished,'' that you get credit for what you 
have already done?
    Mr. Yoder. I will take a shot at that.
    I think the thing that is important to remember here is 
that each and every crop that is grown, new carbon is 
sequestered. So it is additional carbon each time you grow it. 
Why in the world would we want to punish some innovative farmer 
that went to great lengths to learn and adapt and try to find 
new ways to do it in a more conservative and environmentally 
friendly way?
    Mr. Costa. I would go further. I think we should get credit 
for that. Don't you?
    Mr. Yoder. Well, that is why, in my testimony, I am going 
even further back yet. Let's go back to the original Kyoto 
Protocol and go from there. And we have done a tremendous 
amount already from there.
    So I would say, if during those years somebody would have 
adopted these new technologies for no-till, then they should 
actually have the option to go ahead and participate in this.
    The one thing that we don't want is to have people breaking 
plow and turning this stuff under so they can qualify for a new 
program. So we have to make sure that those early adopters are 
rewarded, not punished.
    Mr. Costa. Right. And if the current law that is being 
proposed requires measurable improvements, we are going to be 
disadvantaged if we don't take that into account. And so I 
think that has to be an important issue, that this Committee, 
in essence, draws the line in the sand for American farmers and 
ranchers.
    One final question here before my time runs out, and I 
don't know who wants to take a stab at this. Some of you may 
have noted it in your testimony.
    How would the offset program with the current farm bill 
that we passed last year work, since many of the farmers are 
using the conservation programs that were in the 2008 bill to 
do the things similar to what might be included in an offset 
program?
    Mr. Johnson. If I could take a stab at that, I think that 
is pretty much what all of us are saying when we talk about 
stackable credits, that just because a farmer is engaged in a 
certain practice that has a societal benefit, the fact that you 
are engaged in it and may be paid for it from wherever should 
not preclude----
    Mr. Costa. EQIP program or whatever?
    Mr. Johnson. Exactly--should not preclude you from 
participating in a carbon offset program.
    Many folks will find that, before they will adopt a 
practice, it has to be more than just, ``We are going to get a 
little bit of cost share,'' or, ``We are going to get some of 
this.'' You have to add the various benefits, not unlike any 
other business. Before you make a business decision to purchase 
something, you have to figure out what are all the different 
advantages that you can get from that purchase.
    Mr. Costa. Get credit and incentivize good behavior.
    Mr. Johnson. That is right.
    Mr. Costa. Thank you, Mr. Chairman, for yielding your time. 
I appreciate it very much.
    Mr. Boswell. You are welcome. The chair recognizes Mr. 
Lucas.
    Mr. Lucas. Thank you, sir.
    Gentlemen, members of the panel, you know from listening to 
the last witness that the issue before us is the question of 
how do we address the current draft of this cap-and-trade 
legislation put forth by Chairman Waxman and Chairman Markey.
    So I would like to go down the row and discuss for the 
record, starting with you, Mr. Stallman, for the record, does 
your organization recommend a ``yes'' vote or a ``no'' vote for 
the current draft of the Waxman-Markey cap-and-trade bill, as 
we will see it in 2 weeks?
    Mr. Stallman. That is the easiest question I have ever been 
asked. A ``no'' vote.
    Mr. Lucas. This is a follow-up question I will ask 
everyone. If an ag offset program is established--and there are 
still possibilities for change--but established with the EPA in 
charge, your response then to the bill would be?
    Mr. Stallman. Still a ``no'' vote.
    Mr. Lucas. Mr. Ruddell?
    Mr. Ruddell. The current title for offsets is really 
lacking enough, and that there is enough detail to be able to 
say anything but ``no'' to that.
    Mr. Lucas. So ``no'' on the present bill draft and ``no'' 
if the EPA is put in charge of an ag offset program?
    Mr. Ruddell. USDA would have to have some sort of a co-
working agreement with EPA.
    Mr. Lucas. So ``no'' and ``no'' to my question.
    Mr. Garber?
    Mr. Garber. On behalf of the conservation districts, I am 
somewhat limited in that we haven't set a policy on the 
position on this bill, so I won't really be able to answer the 
first question, in that we are working on policy and should 
have something in the near future so that we can take a 
position on that.
    And in relation to if the EPA has control of conservation 
districts across all the spectrums of agriculture and into all 
small land ownerships, and we are able to work cooperatively 
with a lot of different organizations. And, again, we really 
don't have a policy on this, but we do try to work 
cooperatively with all agencies.
    Mr. Lucas. So, Mr. Garber, if you were a Member of Congress 
from Louisiana and you voted for the Waxman-Markey bill as it 
is now, could you go home?
    [Nonverbal response.]
    Mr. Lucas. Good enough answer, sir.
    Mr. Yoder?
    Mr. Yoder. The first part of your question is whether we 
could vote the way it is today?
    Mr. Lucas. Waxman-Markey in its present draft, which, as 
far as we know at this point of time, because Committee action 
is going to be cut off on the 16th of June, this will be the 
draft that will come to the floor the following week.
    Mr. Yoder. As I said in my testimony, in its present form 
it does not have any ag offset provisions for it, so, 
therefore, NCGA would be opposed to this bill.
    Mr. Lucas. Thank you. If language was added between now and 
the time it comes to the floor to create an ag offset program, 
but it is administered by the Environmental Protection Agency, 
what would your organization's recommendation be to Members?
    Mr. Yoder. I think it would be horribly inefficient and 
ridiculous to have EPA reinvent the wheel and have people that 
don't understand agriculture promote this bill. I would think 
it would not make sense.
    The devil would be in details, but my first inclination 
would be that it would not work, so, therefore, probably not.
    Mr. Lucas. I will take that as the appropriate answer.
    Mr. Johnson?
    Mr. Johnson. We very much would like to support a bill. 
But, in its current form, we will not support this bill.
    If EPA is put in charge of offsets and USDA does not have a 
significant role in the implementation of offsets, we will 
oppose that, as well.
    We very much want to pass a bill, because we think the 
ramifications of not doing it may, in fact, be worse than what 
we are going to face in it. But we can't support the current 
version.
    Mr. Lucas. You were very clear, and I appreciate that, Mr. 
Johnson.
    Mr. Nobis?
    Mr. Nobis. Well, I testified today that we were not 
necessarily in favor of climate change legislation, but if we 
were, it would have to include cap-and-trade, that concept. And 
since this bill does not include cap-and-trade, as I understand 
it----
    Mr. Lucas. The answer would be a ``no.''
    Mr. Nobis.--it would have to be a ``no.''
    Mr. Lucas. And if the bill was modified to allow for 
offsets to address cap-and-trade, but it was administered by 
the Environmental Protection Agency, the answer would be? 
Because we only get a ``yes'' or ``no'' when we vote, as 
Members.
    Mr. Nobis. We would have to see it first, but the 
inclination would be ``no.''
    Mr. Lucas. Thank you, sir.
    And in my few remaining moments, to Mr. Nobis, I 
particularly feel for the dairy industry. Oklahoma was a 
substantial dairy state until the mid-1980s. And much like the 
rest of the country, the industry has changed across the board.
    I would just simply put the question to you: One of the 
things I worry about in our remaining dairies across America, 
and especially the smaller ones, if it comes down to the 
decision of how to allocate that methane gas, that the little 
dairymen--and there are still some 50 cow dairies in certain 
parts of this country, and 200 and 250 cow dairies--I worry 
that they will not be able to compete with municipal sewer 
lagoons over who gets that allocation of methane. Unless it is 
addressed clearly, as you and my colleague from California 
addressed, they are not going to be able to afford these 
digesters or these other technologies. I worry very much about 
your people.
    Mr. Nobis. And so do we, sir. As I have testified, we are 
very concerned about the small- and medium-sized producer. The 
larger producer is more able to spread those costs over more 
cows.
    Mr. Lucas. Thank you very much.
    I yield back, Mr. Chairman.
    Mr. Boswell. The chair recognizes Mr. Walz.
    Mr. Walz. Thank you, Mr. Chairman.
    And I thank the Ranking Member for being very clear.
    Each one of our witnesses, I want to thank you for several 
reasons, for creating quality of life in southern Minnesota. 
Agriculture is very, very important, and each of your 
organizations have improved the quality of life not just of 
your producers, but for all of us.
    And you have also been on the forefront--I reject the false 
dichotomy, again, that our producers aren't on the leading edge 
of environmental concerns. They are. And so, the questions that 
are being raised today are truly how to make this workable. I 
don't think you are going to find anybody in this room who 
disagrees, we need to get this right.
    I think that the most poignant thing that Secretary Vilsack 
said that I could not echo more is, we are part of the 
solution. We are not the problem; we are part of the solution. 
And what we want to try and do is see how we get at that. And 
we want to get there.
    And, Mr. Johnson, you brought up a very, very good point 
that I want to be very clear on, too. And I guess I will do the 
same thing, maybe, that the Ranking Member did and go down the 
line.
    It has been suggested that we just do nothing and go on as 
usual. Would your organization support that? Just throw this 
all out, do nothing on climate change, reject it, and just go 
on with business as usual?
    Mr. Stallman. If it meant rejecting this current bill and 
doing that, yes.
    Mr. Walz. Okay.
    Mr. Ruddell. No.
    Mr. Garber. NACD does feel like we need to do something on 
climate change.
    Mr. Yoder. For the last 4 years, we have been working on 
figuring out opportunities that could be present for 
agriculture, and there are. So I would say, no, that we would 
seek ways that we could showcase agriculture as a solution, as 
you said.
    Mr. Johnson. As I think my testimony was quite clear, we 
believe very strongly that this issue needs to be addressed. We 
think it should be addressed legislatively. We have a Supreme 
Court decision staring at us, a determination that EPA has made 
that is very troublesome for us. We understand that other 
people can sue, and that compels a lot of the actions that get 
put on us.
    And, frankly, as you know, much of the rest of the world is 
doing this. I think it would be very sad if the U.S. didn't try 
to re-exert a leadership role in solving this troubling issue 
for our planet. And the time to do that is now.
    Mr. Nobis. The problem that we have with it currently is 
that it is going too fast, that there are too many questions 
yet, there are too many assumptions. It would appear that maybe 
we need to do something, and especially in the case of energy 
security. We are willing to look at it under the proper 
context.
    Mr. Walz. Well, I appreciate that. And I hope there are 
other Members of Congress listening to this. I think Mr. 
Lucas's two questions were very appropriate and needed to be 
there. And it is also appropriate, the question that I asked, 
that they need to hear: We want to be part of the solution, as 
we already are. We want to get something done here. We want it 
in a workable manner.
    And we don't have to take the false choices that this has 
to be economically damaging. I have seen golden opportunities 
in southern Minnesota where we have benefited. We have also 
benefited on energy security, and we have also benefited on 
reducing carbon emissions. Those things are there, but it needs 
to be smart.
    So, again, I will yield back my time, but I do want to 
thank each of you for being part of this solution and being 
here.
    And I thank the Chairman and Chairman Peterson for 
recognizing that we are not be here to be naysayers on 
everything. We are here to make something that actually works. 
My largest concern is that whatever we do needs to work for 
everyone.
    So thank you all, and I yield back.
    Mr. Boswell. Thank you.
    Mr. Goodlatte?
    Mr. Goodlatte. Mr. Chairman, thank you very much.
    And I appreciate all the members of the panel for their 
candid answers to our questions. I want you all to take a deep 
breath and step back.
    Mr. Johnson, I know you said you have a Supreme Court 
decision staring you in the face. Congress can certainly take 
action to prohibit the EPA from acting on that. That 
legislative effect could go on from year to year, or we could 
actually repeal where they stand right now on that. That 
certainly is not where the Congress is today, but I would urge 
you not to rush forward without taking a look at where we may 
be heading.
    Now, you also said that you felt that there were countries 
in the world who were doing this already. Can you name one?
    Mr. Johnson. Of course----
    Mr. Goodlatte. One that has anything remotely like the 
Waxman legislation?
    Mr. Johnson. Well, much of the EU has adopted cap-and-trade 
legislation. That is their tool of choice. Most of the 
signatories to Kyoto have adopted some sort of a market-based 
mechanism. And the tool of choice seems to be cap-and-trade, 
because it allows the market to sort of figure out who the 
lowest-cost emitters are and let them get the emissions from 
the lowest-cost sources first.
    Mr. Goodlatte. I think, if you look, you will find that 
none of those countries have adopted anything remotely like the 
Waxman legislation.
    Mr. Johnson. Well, I spent some time in Europe meeting with 
the folks in charge of the system that was created over there, 
probably, about 3 years ago. And so I visited at some length 
with the folks from the European Commission. We went around to 
different countries and visited with environmental ministers. 
We looked at coal plants and the technologies they were trying 
to use. We learned a lot about what they did that didn't work 
very well.
    I mean, to compare exactly that to Waxman-Markey is quite 
difficult, but the cap-and-trade methodology is what is being 
used there. It is what we use here in EPA with other criteria 
pollutants.
    And so, that methodology seems to be the best tool. 
Certainly, it is better than simply regulating down--squashing 
down emissions from everybody.
    Mr. Goodlatte. Well, let me ask you, in terms of looking at 
what we should do here, are you familiar with a book called 
Cool It--The Skeptical Environmentalist's Guide To Global 
Warming by Bj2 or CO2 
equivalent.
    And so, it is much, much, much more efficient if you can 
have the science that says, over a large area, if you follow 
this protocol, you are going to get this result, as opposed to 
having to prove on a project-by-project-by-project basis. It is 
efficiency more than anything else, cost-effective.
    Mr. Garber. I might also add that, in the USDA, the NRCS is 
very much qualified in doing this. And that knowledge is there 
and can be improved to meet whatever needs are here.
    Mrs. Halvorson. Thank you.
    Mr. Boswell. Thank you.
    Mr. Moran?
    Mr. Moran. Mr. Chairman, thank you very much. Thank you for 
associating yourself earlier with my remarks. I appreciate the 
working relationship you and I have.
    Let me start with this the Energy and Commerce Committee 
held some hearings on this bill. To my knowledge, no 
agricultural witness was asked to testify or testified during 
any of those hearings. And I want to confirm that, as far as 
you know, that is true.
    Farmers Union, Farm Bureau, Wheat Growers, Corn Growers--
did you all have any opportunity for input for a piece of 
legislation that I assume you would tell me will have a 
dramatic effect upon your members?
    Mr. Stallman. Nothing beyond what we did behind the scenes 
with the staff, trying to exert some influence and provide some 
input. But, no, we had no ability to affect the outcome.
    Mr. Moran. Anyone else?
    Mr. Johnson. We did not. We testified in front of Small 
Business, I believe. In fact, a number of us on this panel did. 
We shared all of our testimony with folks on the E&C but were 
not provided any opportunity for direct input or testimony on 
that language.
    Mr. Moran. The same with Corn Growers?
    Mr. Yoder. Yes, sir.
    Mr. Nobis. Dairy had no opportunity, either.
    Mr. Moran. Well, I assume that you would all concur with 
the reality that agriculture will be dramatically affected by a 
piece of legislation that, as far as we know, no one from the 
agriculture community had an opportunity to testify on. Is that 
true?
    Mr. Stallman. That is why we so greatly appreciate what the 
House Agriculture Committee here is doing. It is our first 
opportunity to weigh in.
    Mr. Moran. I appreciate that.
    I guess, let the record show that none of our witnesses 
know of any agricultural witness that was asked or had the 
opportunity to testify before the Energy and Commerce 
Committee, which, as I think about it, is just--I am astonished 
by that, knowing what the consequences will be.
    It is a reminder of why we have this discussion about how 
we want the Department of Agriculture involved in this issue. 
The same is true in committees. The Agriculture Committee has 
hope that agriculture will have a voice, just as we hope the 
Department of Agriculture is. Doesn't happen with the Commerce 
Committee and unfortunately doesn't happen with the EPA when it 
comes to interpretation and implementation of rules and 
regulations.
    Mr. Johnson indicated that, at least to some degree, the 
European Union is operating under rules related to--in climate 
change, global warming--to some degree, cap-and-trade. I don't 
know how similar they are or not.
    But what percentage of our ag income comes from exports for 
American agriculture?
    Mr. Stallman. It varies. A quarter to a third, basically.
    Mr. Moran. Across the agriculture sectors, a quarter to a 
third of what income we produce in agriculture comes from our 
ability to export agricultural commodities, food, to other 
countries. True?
    And is there any analysis that any of you have done or seen 
that determines the consequence of the increasing cost that 
will come from this legislation upon our ability to remain 
competitive, to continue to have 20 to 30 percent of ag 
economics, ag income come from foreign sources?
    Or, let me ask the question more precisely: Any analysis 
out there that shows how increasing costs associated with cap-
and-trade, as written, will affect our ability to sell 
agriculture commodities and food around the world?
    Mr. Stallman. That is strictly an international 
competitiveness issue. And that answer really can't be provided 
until we know if other countries are going to burden themselves 
with the same economic constraints that we see under the 
Waxman-Markey bill for us.
    I mean, if China, India, and some of the advanced 
developing countries that compete with us directly, sort of, 
want the U.S. to lead, which means the U.S. should give and 
they shouldn't, and they don't have to be restricted by the 
same kind of economic burdens that looks like we would be under 
Waxman-Markey, then, yes, that would have an impact and, yes, 
we would be able to measure it at that point.
    Mr. Moran. But under the current scenario, in the absence 
of those legislative changes, that policy change in other 
countries, what is the effect upon our ability to compete in 
the global economy?
    Mr. Stallman. It would make us less competitive.
    Mr. Moran. And can you----
    Mr. Stallman. I can't quantify that at this point. We did 
not analyze that at this point.
    Mr. Moran. Well, it is an interesting observation that we 
might wait and see what other countries might do before we know 
the outcome of this legislation. Or one might think that we 
would want to set down, as we have attempted to do in trade 
agreements, and reach a conclusion at the same time so that we 
are operating under similar constraints and a much more level 
playing field.
    But, clearly, the United States unilaterally making this 
decision, in the absence of someone immediately following us, 
any of our competitors, it seems to me we would be at a 
significant competitive disadvantage.
    Mr. Yoder. If I could just clarify an answer to your 
question?
    Mr. Moran. Please do.
    Mr. Yoder. One of the things that I think is very 
imperative is, if this Waxman-Markey bill does not include 
agriculture offsets and if it gets passed in the House and that 
is the so-called marker or template for when the United States 
goes to Copenhagen this next winter to negotiate a Kyoto II, we 
will be at a horrible, horrible disadvantage in agriculture.
    If we can showcase agriculture offsets as a possible way 
that they can use and be on the same page, it is going to be 
much more important than if we go in there with nothing 
provided for agriculture, we will be at a horrible 
disadvantage. So it is very important that ag offsets are 
included in this bill.
    Mr. Moran. I appreciate your remarks. That is a good 
reminder that, if we are setting the template, if we are 
setting the standard by which we expect the rest of the world 
to operate, we ought to make certain that we do it right, as 
compared to just do it.
    Mr. Yoder. You bet.
    Mr. Moran. And the only other observation I would make, Mr. 
Chairman, is I appreciate Mr. Johnson pointing out that, in the 
absence of these agricultural offsets, it is not just 
agriculture that is negatively affected. What he pointed out, 
it is across the board to the economy. And I had not thought 
about that, but I think that, to me, seems a very important 
feature or fact to know, is that, in the failure to get what 
many on this Committee are seeking in regard to agricultural 
offsets, the entire U.S. economy--you point out about what 
happens if it becomes worldwide if this is the framework. But 
what we are saying is that the additional cost--there is going 
to be a significant increase in the overall cost of cap-and-
trade in the absence of agricultural offsets that will affect 
everybody else, not just ag producers.
    Mr. Johnson. I know the timer has expired, Mr. Chairman, 
but if I could add just a point to what the Congressman said.
    Ag offsets expand the market for carbon. When you can 
expand the market and have more players involved in the market, 
either by more people under the cap or more people allowed to 
bring offsets into the cap, you have more opportunities for 
more efficient emission reducers to act. And as you get more 
efficient emission reducers acting, you tend to lower the cost 
for everybody. You lower the price for carbon, in fact, to the 
whole system, and that helps to make the whole system more 
competitive.
    That is the reason, fundamentally, why most of us think 
that, if you are going to do something relative to climate 
change, it makes more sense to have a cap-and-trade system that 
allows the market to sort of move these things, as opposed to 
having a regulatory agency say, ``You will reduce, you will 
reduce by X, Y, or Z.'' If you let the market do it, it will be 
more efficient.
    Mr. Moran. Thank you, Mr. Chairman.
    I am additionally troubled that not only was there no ag 
testimony in the Energy and Commerce Committee, but a 
gentleman, Mr. Space from Ohio, offered an amendment to bring 
agriculture in with those offsets and that amendment was 
withdrawn, which suggests to me that there is no support among 
that sector of those Members of Congress for the things we are 
talking about.
    Thank you.
    Mr. Walz [presiding.] I thank the gentleman.
    The gentleman from North Carolina is recognized for 5 
minutes.
    Mr. Kissell. Thank you, Mr. Chairman.
    And I thank everybody for being here.
    And following along the lines of some of the questioning 
that we have had, and maybe in a way that Mr. Lucas did 
earlier, if--and I emphasize the word ``if''--if we had 
adequate, good agriculture offsets in this program that were 
administered in an acceptable way by the USDA--and if each one 
of you could respond to this--would that change your opinion of 
how you would look at this bill?
    Mr. Stallman. That would be a necessary but not a 
sufficient condition for the American Farm Bureau. We would 
still have to have some of the other provisions I talked about 
in the testimony. And even then, we would have to analyze what 
the ultimate economic effect would be on agriculture.
    Mr. Ruddell. I would have to agree with that. You know, it 
is important to have USDA have a strong role, but there are 
many other parts of the offsets provisions that are too weak to 
be able to support it.
    Mr. Garber. The offsets is very much a big part of what 
NACD believes in, and it would definitely need to be a part of 
it for us to support it.
    Mr. Yoder. Once again, the devil will be in details. If the 
ag offsets would be sufficient and robust, and the protocol 
would be put forward where we could manage it efficiently and 
appropriately and have it all ready to go, definitely, we would 
have a much better chance of supporting it, absolutely.
    Mr. Johnson. We would be very inclined to support the bill 
if it contained all the provisions that have been outlined in 
the letter that I referenced in my testimony, and all the 
Members of the Committee received, just short of a month ago.
    Mr. Nobis. For us, it would be a move in the right 
direction, but it would not necessarily mean that we could 
support it. That is just one piece of what we think we need.
    Mr. Kissell. Okay. Thank you, gentlemen.
    And, Mr. Chairman, I yield back my time.
    Mr. Walz. Thank you.
    The gentleman from Texas is recognized for 5 minutes.
    Mr. Conaway. Thank you, Mr. Chairman.
    Guys, thank you all for staying late and putting up with 
our nonsense and running back and forth across the street and 
all that kind of stuff. I appreciate you being here.
    The broad, 10,000 foot statement is, it looks like 
everybody wants to go to heaven but nobody wants to die to get 
there. You know, nobody wants to pay for all this kind of 
stuff.
    I was particularly keen on Mr. Johnson's comment about your 
idea that there should be a cost-benefit analysis, there should 
be a cost-benefit to this overall program. I had an opportunity 
to talk to--I am also on the Intel Committee, and we have some 
scientists over there that spend a good amount of their time on 
climate change as it relates to our national security 
interests.
    And I asked him, if we got this Waxman-Markey bill done, 83 
percent reduction over the next 40 years, could you measure, as 
a scientist, measure the benefit to the atmosphere for putting 
ourselves through this thing? Because, some conservative 
estimates are showing $3,100 a year in costs to the average 
family. And he looked me right in the eye and said, ``Maybe.'' 
And I said, ``You might be able to measure the positive 
benefits?'' He said, ``Yes, we might be able to.''
    Concurrent with that, we had a conversation with a fellow 
named Niger Ennis with CORE, the Congress on Racial Equality, 
not someone you would normally think would be lined up with all 
things Republican, but he has a great presentation on the 
impact that this regressive tax will have on the poor and low-
income of our society and all the swaps and credits and all the 
other stuff--that is always inefficient, it never works well--
will have on those folks. They have a study that shows that if 
America went to a zero carbon footprint, that over the next 100 
years it might make a .007, \7/1000\ C difference on the 
atmosphere. Again, not measurable in benefits.
    So, Mr. Johnson, do you generally recommend to your folks 
that they spend whatever amount of money, whether it is $1,000 
a year or $3,100 a year, and get no benefit for those 
expenditures? Is that something that any good businessperson 
would normally do?
    Mr. Johnson. There is a little bit of a rhetorical element 
to that question.
    Mr. Conaway. Sure.
    Mr. Johnson. I am not a scientist, and I can't tell you 
what the deal is and how much reductions are going to be and 
all those sorts of things.
    My understanding is that the glide path that Waxman-Markey 
outlined in terms of emission reductions is similar--and there 
is fuzziness around that word--but it is similar to what Kyoto 
and the scientific consensus, if you will, has suggested is the 
necessary glide path.
    Our input is not into what the numbers should be----
    Mr. Conaway. But the issue, though, is, who presumes that 
that glide path is right, that that is where we ought to go? 
And, again, it is rhetorical. I just question that--it is like 
a giant SimCity exercise. We have decided to build a new city, 
whether we need one or not. Then we go through all of this 
exercise, and then we put all this stuff together, and, oh, my 
goodness, we have jammed up this deal, we have jammed up that 
deal. And we start trying to fix all these kinds of things. But 
the predicate is, do we really need this? And I get to be 
skeptical in this regard.
    Let's switch over to the EPA real quickly. Any experience 
with your members in which the EPA has been particularly 
farmer-friendly and would make a decision that would--and I am 
thinking off the top of my head of these pending regulations 
that would require them, every time they put down a chemical, 
to have to go get a permit from somebody. Recent headlines, 
that the EPA has decided that farm dust has to be regulated, as 
well, and controlled.
    So, anybody have any positive experiences with the EPA and 
their pending takeover in this arena?
    Mr. Johnson. Well, I don't want to suggest that it is in 
this arena, but, I mean, in fairness to EPA, I just spent 12 
years as an elected official in the State of North Dakota as 
the Agriculture Commissioner, and we did numerous engagements 
with EPA. We regulated pesticide use through the Department. 
Most states have similar arrangements with EPA.
    And so, there are ways that states and state agencies can 
cooperate with them. And we happen to have--our local office, 
if you will, was Denver, Colorado, so----
    Mr. Conaway. Okay. Let me--just, again, it was more 
rhetorical than anything else. This is a new EPA, bigger 
budgets, more lawyers, different head. Lisa has a particular 
bent toward more regulatory schemes, et cetera.
    One final question. Does anybody on the panel think that it 
is in Congress's best interest to make a decision on this bill, 
right, wrong or indifferent, without having USDA's best guess 
as to what the overall impact on all things ag--the ag 
industry, ag community, our local small farmers, big farmers, 
middle farmers, whatever it is--should we make the decision on 
this bill before we get USDA's estimate?
    Anybody think that is a good idea?
    Mr. Stallman. Well, not only should you not make the 
decision before you have USDA estimates as to the effect on 
agriculture, but all of the alternate scenarios I talked about 
that could happen beyond the, sort of, best-case scenario 
presented by the EPA analysis, that Congress should take the 
time to have analyses that shows what happens if the best case 
doesn't work.
    So, yes, I would think you would want much more information 
than you have now.
    Mr. Conaway. All right.
    Thank you, Mr. Chairman. I yield back.
    Mr. Walz. The gentlewoman from Pennsylvania is recognized 
for 5 minutes.
    Mrs. Dahlkemper. I thank you, Mr. Chairman.
    And I also want to thank the panel for your patience with 
us today and for giving us your afternoon and now into your 
evening.
    I just want to go back to carbon offsets and ask you, to 
what extent do you think Congress should identify eligible 
practices and legislation? Or should authority be delegated to 
the Federal agency that oversees the program and develops 
regulations and standards for the program? I think everyone in 
this room believes that that agency should be USDA.
    So, if someone could answer that.
    Mr. Stallman. In the statement we submitted for the record, 
we included section 733 in the Energy and Commerce Committee 
report, which actually laid out a list of offset practices that 
could be included. It wasn't specific; it was general enough to 
where there was still room for development within those 
categories. But at least it listed the types of projects that 
would qualify for offsets. And what we are asking is that such 
a list be included in the actual legislation.
    Mrs. Dahlkemper. What land use changes and practices should 
be eligible? You know, when we are talking about land 
conversion, restoration, retirement, we are talking about 
livestock operations and grazing and crop production practices, 
if anybody maybe could identify in your specific area what you 
think should be eligible?
    Mr. Yoder. Well, I think that we tend to just think of 
credits as carbon sequestration and for no-till or reduced-
till. I think the sky is the limit, as far as creating these 
carbon credits.
    For instance, technology is going to be coming very soon 
where we can raise the crop with drought-resistant genes, so we 
can pump 40 percent less water to grow a bushel of corn. And so 
we think that there should be a carbon credit maybe to deliver 
from that. Or if a livestock person wanted to cover their 
lagoon and capture the methane from that, there should be a 
carbon credit generated from that.
    There are lots and lots of ways that you can create these 
credits that you don't necessarily have to completely change 
your cropping practices, but they are still real and 
verifiable, and you can prove that they are worthy of a carbon 
credit and payment. So let's not limit ourselves to just no-
till or carbon sequestration.
    Mr. Johnson. We would agree with that. You know, if you 
will go back to my testimony, you will see a reference to a 
number of different practices that are currently in use and the 
science is robust, it is there, it is accepted. It has pretty 
much all been generated by USDA. So listing those kinds of 
things would make some sense.
    But, you also want to make sure that you leave some room 
for new science to develop and new practices to be economical, 
such that we can, through offsets, encourage their more rapid 
adoption if they, in fact, contribute to reducing greenhouse 
gas emissions.
    And there is a long, long list of those. If you will look 
at page 12 of my testimony, which is probably 10 pages longer 
than it should have been, you will see a list of the various 
states that currently participate in the Farmers Union 
aggregation program and a listing of four different practices 
that are currently--certainly, at a minimum, you ought to start 
with the stuff that we know and then leave flexibility.
    And, again, we don't want EPA in charge of this. This 
should be USDA's science. And, we have pretty much all, 
watching body language, come to that conclusion.
    Mrs. Dahlkemper. Mr. Garber, do you want to comment on 
that?
    Mr. Garber. Yes. Might I add--and I have that in my 
testimony--basically, we believe that USDA needs a lead role in 
this. We firmly believe that the NRCS has the ability to work 
on this technology to clarify these different practices so they 
will qualify and set the standards so they can be verified out 
in the field.
    Mrs. Dahlkemper. Okay, thank you, and I yield back.
    Did you want to comment on that, Mr. Ruddell?
    Mr. Ruddell. Yes. Within the voluntary recovery markets for 
forest offset projects, it is a fairly short list that I 
mentioned orally and in my written testimony that includes 
afforestation, reforestation, managed forest, and also avoided 
deforestation. So there are ways of being able to avoid 
emissions through avoiding deforestation and changing land use, 
but also active sequestration, which would be through 
afforestation, reforestation and active forest management.
    Mrs. Dahlkemper. Thank you. Thank you, gentlemen. I yield 
back.
    Mr. Walz. Thank you. The gentleman from Ohio, Mr. Latta, is 
recognized for 5 minutes.
    Mr. Latta. Well, thank you, gentlemen and thank you for 
sticking with us and bearing with us this afternoon and 
evening.
    I would like to go back and revisit what the Secretary said 
a little earlier, and we are talking about China, and is China 
is going to abide by what is being recommended that the United 
States do to our producers here. And the Secretary, if I can 
paraphrase him, said that he believes that over time--I am not 
sure if it is a month or 6 months or what it might be--that the 
Chinese will fall in line and decide that they are going to go 
to cap-and-trade.
    I happen to disagree with that philosophy because 
everything I have read and everything I have seen from their 
Ministers said they are not going to do it because they are not 
going to put themselves behind an eight-ball. One of the 
Ministers that was quoted in the Washington Times in the not-
too-distant past said, ``You don't know what the problem is. 
The problem is that we only produce it, you consume it; since 
you consumed it, you pay for it, since we are not going to. We 
are just producing it.''
    And that is the attitude. And I would just like to ask each 
of you on the panel, do you think that this philosophy that the 
Chinese have right now, that they are not--I should say that 
they are going to fall within cap-and-trade, or do you think 
that they are going to stay outside of it and keep doing what 
they are doing right now and be in direct competition to the 
United States? Which, in my fear is this: When we put a ball 
and chain around the American producers' legs and say, go start 
swimming, I don't think it is going to work.
    Mr. Stallman. I am skeptical that the Chinese will come on 
to the extent that they need to in terms of implementing a cap-
and-trade program. I mean, Exhibit A, as of yesterday, I mean, 
their Foreign Ministry says they would not be bound by any 
mandatory caps on their emissions; but oh, by the way, they 
want the U.S. to reduce our emissions from the 1990 levels by 
40 percent by 2020, which is an order of magnitude greater than 
the 83 percent that we are proposing in Waxman-Markey by 2050.
    And by the way, we want you to dedicate one percent of your 
GDP to help us and other countries become cleaner.
    Now, I just think it is unrealistic to think that the 
Chinese will cooperate to the extent that we would think it is 
necessary to keep a competitiveness issue from arising.
    The other issue is we don't have a lot of leverage, they 
hold too much of our debt.
    Mr. Latta. That is true.
    Mr. Ruddell. China is developing a clean development 
mechanism project, which essentially is an offset concept 
through the Kyoto protocol to be able to trade primarily in the 
European trading scheme.
    And so they have actively developed offset projects, and 
invested in those to be able to trade in Europe. But, because 
they are considered to be a Non-Annex I country within Kyoto, I 
can't expect that they are going to develop their own cap-and-
trade system anytime soon.
    Mr. Latta. Thank you. Mr. Garber.
    Mr. Garber. Basically on this subject, I probably answer as 
a producer and as a crop consultant, in that it is somewhat of 
a tough situation for us to move out into the arena and hope 
that the others would follow us in that area. So, it would be 
pretty much a dangerous situation for us to do.
    Mr. Latta. Thank you.
    Mr. Yoder. Last November, when I was in Poznan, Poland, I 
heard with my own ears the Chinese say that they are going to 
commit to do this, and I heard India say that too, but 
sometimes talk can be very cheap.
    The only way this whole thing will work is if it is a 
global thing. There is no doubt. You can't tie America's one 
hand behind their back and expect to compete globally. We can't 
do it. And that is one reason that there is such an attempt to 
get a marker down, a template so to speak. So when we go to the 
meeting, which this Administration has said they want to be a 
big part of being in a leadership role in Copenhagen, that we 
get everybody on board. If the United States is the only one 
doing this, it is not going to work.
    Mr. Johnson. Yes, as sort of a takeoff on that, I don't 
know that any of us feel like we are experts in Chinese 
diplomacy, but it does seem to me that our country is going to 
Copenhagen. We are going there for the purpose of trying to 
advance climate change mechanisms around the world.
    It seems to me that what the Secretary said about having 
leverage made some sense; that if you had at least some 
evidence of doing something in this country, that gives you 
more standing to argue with the Chinese, the Indians and 
others.
    Now, I don't know anybody, maybe I am misreading 
everything, but I don't know anybody that really believes that 
this is not only going to pass the House but the Senate, and be 
conferenced and signed into law before Copenhagen. That would 
shock me if that happened.
    It seems to me we would have a pretty strong lever if you 
had a bill through one of the Houses and you could say with a 
straight face, we are not sure we can get the rest of the way 
without some concessions from other countries.
    It seems to me that that is kind of how this international 
diplomacy works.
    Now, I would hasten to add that if it is in its present 
form without the ag provisions, it is the wrong lever to be 
using. And so, as we indicated earlier, we would all oppose 
that.
    Mr. Nobis. And the dairy industry feels very strongly that 
climate change legislation, if enacted here, similarly has to 
be enacted around the world. We have learned, very, very well 
this year, what happens when we are not competitive or if 
somebody is not buying our product. A year ago, we exported 12 
percent of our dairy production, and we had very good prices.
    This year, that has dropped to seven percent, and that is 
the primary reason the dairy industry is suffering the economic 
problems it is suffering this year.
    Domestic consumption has remained stable. It is that five 
percentage point drop in export that has devastated our 
industry. So, in our opinion, it has to be comprehensive or we 
won't be in business.
    Mr. Latta. Right. I appreciate your comments because, 
again, as you mentioned about how much debt that the Chinese 
hold of ours--and the last time I checked it was $767 billion. 
You throw in the Fannies and the Freddies, it is over a 
trillion dollars. And, yes, you diminish your bargaining chips 
real quick.
    But I appreciate your comments, because I think the 
American people need to know that this is serious and we have 
to compete.
    And I appreciate it. Thank you. Thank you, Mr. Chairman.
    Mr. Walz. The gentleman from Pennsylvania is recognized for 
5 minutes.
    Mr. Thompson. Thank you, Chairman.
    To change gears just a little bit. Mr. Ruddell, you made a 
point to say that a primary goal in a U.S. climate bill should 
be to keep our forest as forests. Now I am hoping you mean that 
we should encourage our forests to grow as we actively manage 
them.
    Could you elaborate a little bit on your statement, please?
    Mr. Ruddell. Yes. Keeping forests as forests is kind of a 
principal when we think about putting a climate bill together. 
We can use carbon markets to do that.
    It is important to maintain forests because they provide 
many different ecosystem services along with climate 
mitigation. And so, from a climate mitigation perspective, 
having forests as forests is really important.
    I also mentioned that a bill needs to support the concept 
of avoiding conversion of forests to other land uses, and that 
is also a project--an offset project type as well. You know, we 
need to ensure that forests are here, because we rely on them 
for many things like clean water and biodiversity as well as 
climate mitigation.
    Mr. Thompson. Just to follow up--and I would agree in terms 
of use in keeping forests, in terms of wilderness areas that 
generally cannot be managed, and because management is so 
important, the question is should we halt converting more of 
our Federal lands into wilderness areas?
    Mr. Ruddell. Well, that is certainly a policy decision that 
I am probably not qualified to address.
    I think that in terms of a bill, we are talking primarily 
about private landowners, because there is a private investment 
issue.
    When we talk about public lands, it is important to think 
about how we manage public lands to ensure that they are 
healthy.
    Healthy forests will also be better forests in terms of 
mitigating climate and providing the other benefits, ecosystem 
service benefits.
    Wilderness is important in and of itself, but converting 
all public lands to wilderness would not provide for all of the 
conservation services along with healthy forests.
    Mr. Thompson. Actually, and I have a concern, that as we 
look at what we are talking about, the cost benefits, the 
benefit of this Waxman bill is about reducing carbon emissions. 
And at least some of the numbers that I have seen is that where 
human activity constitutes or contributes less than four 
percent of CO2 emissions; wildfires, the number I 
have seen, is approximately ten percent.
    Now I know you are a forester, I know that is your 
background. Is that in the ballpark of your experience?
    Mr. Ruddell. I am not familiar with the numbers, and so I 
can't comment on that. But, the data shows over the last 10 
years, for example, at least in the recent past, that the 
wildfires are getting worse, not better, or they are a bigger 
impact on the environment. And that relates mostly to unhealthy 
forests and the lack of management on those forests.
    Mr. Thompson. And essentially wilderness areas are 
unmanaged, left to----
    Mr. Ruddell. Yes.
    Mr. Thompson. Mr. Nobis, one of the biggest issues I have 
in my area is with my dairy farmers. I come from a long line of 
dairy farmers. We got out of that business when the Corps of 
Engineers took the valley where my family farmed, but we still 
have a lot of farms in Pennsylvania's Fifth District. And 
throughout Pennsylvania agriculture is our number one industry.
    Do you see that they are really suffering now with milk 
prices the way they are? That is something that just tends to 
be ongoing.
    And given the current state of dairy prices and the cost 
structure of dairy farm operations, do you think the dairy 
farmers in this country can really handle the price increases 
inherent in this piece of legislation as proposed?
    Mr. Nobis. As proposed, no, we couldn't. That is why we 
testified very strongly that we would have to have some sort of 
carbon cap-and-trade to try to offset the increased cost.
    Mr. Thompson. Do you have any projection, does the 
Federation have any projection as to what percentage of dairy 
farmers do you think can reasonably be expected to participate 
and benefit from the crediting system?
    Mr. Nobis. Well, we haven't seen it yet. But as it stands 
now, the one clear process that would be a credit would be the 
methane digesters. And that could be a lot of cows, but it will 
not be a high percentage of dairy farmers. Because as it stands 
now, for a digester to pay, you need a huge grant to build it, 
and you need a special deal cut with the electrical power 
company to give you more than that 3 cents a kilowatt buying 
it.
    So I don't see a lot of people building digesters under the 
current economic situation.
    Mr. Thompson. And just real quick, one follow-up question. 
The average size farm in my district is about 80 head for a 
dairy operation. For those folks, let's just take the scenario 
of those folks who do qualify for the credit, and so we are 
just dealing with the ones who don't. What do you think the 
economic future is for those farms?
    Mr. Nobis. Not very bright, to be real honest, unless there 
is some other system in place that they can make up that 
shortfall in revenue, that is not going to cover their 
increased input costs.
    Mr. Thompson. Okay, and thank you.
    Mr. Walz. The gentlewoman from Wyoming is recognized for 5 
minutes.
    Mrs. Lummis. Thank you, Mr. Chairman. I neglected to 
mention earlier that I have an opening statement that I would 
like to submit for the record.
    Mr. Walz. Without objection.
    Mrs. Lummis. Thank you. And I would like to add my 
compliments to those of you who have stayed with us this 
afternoon.
    I would like to ask, Mr. Stallman, without ag offsets, do 
you believe this bill amounts to the equivalent of a huge cost 
increase to the American farmer and rancher?
    Mr. Stallman. Yes, absolutely.
    Mrs. Lummis. Anyone else have any different response to 
that? Thank you. I will assume that means that you uniformly 
feel that way, and of course I do too.
    I wanted to mention also that this morning the Wyoming 
Stock Growers Association joined the list of fellow farmers and 
ranchers around this country that are opposed to this bill, and 
see only increases in their costs of operation as opposed to 
real benefits to them. And particularly so for those of us who 
have livestock producers who graze on public lands.
    I have a question regarding that. Mr. Stallman, can you 
talk to us a little bit about why western states with large 
Federal lands would have a limited opportunity to use offsets?
    Mr. Stallman. Well, grazing on public lands, I doubt that a 
structure would be in place, like there is for a landowner, to 
create a long-term program that would allow for offsets. Not to 
mention the fact that for a lot of western lands there would 
probably be limited opportunities for sequestration to start 
with, just because the forage load is very light compared to 
areas that have more rainfall, and the western areas don't 
really have enough rainfall to grow a lot of forage or create a 
lot of plant mass which would sequester the carbon.
    Mrs. Lummis. Thank you. And I would like to ask, Mr. 
Johnson, how would you describe the difference between a carbon 
credit, as you envision it, and a derivative.
    And I am getting to the--my point is this. You know, we 
have seen in the financial markets the creation of financial 
products that didn't exist 10 years ago, things like credit 
default swaps and collateralized mortgage obligations that were 
taken to a different level than we previously saw.
    What is to protect the American consumer by way of the 
utilities and entities that will have to buy these carbon 
credits, from the creation of an artificial financial product 
like a derivative, like a credit default swap, that went 
horribly awry and now has cost the American consumer billions 
of dollars by way of the TARP program?
    Mr. Johnson. You know, actually that same issue could 
potentially be an issue in any market.
    And so I presume that if this Committee is hoping to weigh 
in with changes to the bill that is currently under 
consideration, that that would be one of the things that you 
might weigh in on.
    I would point out that a carbon credit offset is more like 
a bushel of wheat than it is like a derivative. And by that I 
mean what you are selling is essentially a commodity, it is 
undifferentiated, it is a ton is a ton is a ton, it doesn't 
matter. A ton of CO2, whether it is in North Dakota 
or Oklahoma, you take it out of the atmosphere, the science 
suggests that it has the same impact on the climate. And so it 
is much more like a commodity than it is like some of the 
credit default swaps, the derivatives, et cetera, et cetera.
    And so to that point, if you are concerned about those sort 
of market shenanigans, as I detect from the tone of your 
question, you ought to prevent those sorts of actions. And I 
have read enough about what the Chairman of the Committee has 
been saying to believe that he has that concern pretty deeply. 
And so it certainly could apply here like it does anywhere else 
in any other commodity market.
    Mrs. Lummis. Thank you, Mr. Johnson. I share our Chairman's 
concerns.
    And, Mr. Yoder, with regard to very small ethanol plants 
around the country, I know there is a threshold below which the 
EPA is not expected to get involved in regulation in this bill. 
However, there is an opportunity for emitters of 25,000 metric 
tons to be regulated by the EPA. And that is a fairly small 
threshold. A small ethanol plant could be regulated under that 
standard.
    Do you have the same concern that I do?
    Mr. Yoder. No, it is true. I don't know whether it is 
20,000 or 25,000 and something like that, it could be 
regulated.
    But there are some technologies that are being developed 
now. I know in my own state, in Greenville, Ohio, they are 
actually coming up with a program with respect to where they 
are actually sequestering that carbon that is captured from the 
ethanol plant below the ground, deep in the ground in the City 
of Greenville.
    So there are other possibilities they are working on. In 
Ohio, also, there is a company called Univenture that is 
actually taking some of those greenhouse gases, that 
CO2, capturing it and putting it into long tubes of 
buildings and growing algae and using it up completely.
    So technology, as the Secretary said, is going to be a big 
component of this.
    They will be subject--there will be some subject to those 
regulations, but we will just have to make sure technology 
keeps up with that.
    Mrs. Lummis. Well, gentlemen, I want to thank you.
    My time is up, but I share your--you have educated me on a 
number of things, and I am deeply grateful. Thank you.
    Mr. Walz. The gentleman from Louisiana is recognized for 5 
minutes.
    Mr. Cassidy. Thank you, thank you. You all have wisdom. 
Believe me, I sure wish that some of you had had input with 
some of your ideas into this bill. It would make me feel a lot 
better about it. So first let me just compliment you. Bingo.
    Second, Mr. Johnson, I think it was you that said 
something--I have been kind of conferring with staff ever 
since--that this bill does not necessarily--that farms are not 
a covered entity. And yet, I was reading my CRS reports--and, 
Mr. Garber, hello from a fellow Louisianan.
    Mr. Garber. How do you do?
    Mr. Cassidy. And, Mr. Stallman, I was reading about how 
rice produces methane. And in one of the tables here, it says 
here that a ton of methane is equal to 25 tons of carbon 
dioxide. And so I asked staff: Does that mean that that my rice 
farmers could be affected?
    And they said probably not at the current level, but if you 
look on, section--oh, I had it written down, and now I lost 
it--722--it says in 2020 that the Administrator, the EPA 
Administrator, would be allowed to decrease the threshold for 
something to be considered a covered entity from 25 tons to--by 
60 percent. That would decrease it to 10 tons.
    I am maybe getting my math wrong, but with this conversion 
of 25 tons of carbon dioxide as 1 ton of methane, that suddenly 
starts bringing in rice farmers, I am told.
    Now, I don't understand this bill yet. In fact, Mr. 
Stallman, when you said you couldn't vote for it until you all 
did an analysis, I said, boy, wouldn't it be great if the 
Federal Government felt the same way?
    But that said, what are your thoughts about this potential 
to bring in rice farmers by the year 2020?
    Mr. Stallman. Well, being a rice producer, there has been 
concern expressed, I don't know, decades ago, about the degree 
of rice production in the world and what that meant for methane 
production as soon as there started to be a concern about 
global warming.
    There is not a lot we can do about that because that is the 
interaction between the water and the biomass. Basically, there 
are some techniques to reduce that, but I would have--well, in 
my testimony, I pointed out that not all agricultural producers 
will have the same opportunities or be treated the same, even 
under an agricultural offset program or under some regulatory 
scheme, because livestock producers obviously have methane-
emission issues, rice producers do.
    Other producers don't have the opportunity to sequester 
carbon. So there is a wide variation among agricultural 
commodities as to what the potential is either for regulation 
or for actually sequestering carbon and providing offsets.
    I would note in section 733 of the Energy and Committee 
report, though, they did offer one opportunity for rice farmers 
to provide offsets, and that was in the reduction in the 
frequency and duration of flooding of rice paddies. Now, 
frankly, being a rice producer, I am not sure how that works, 
because every time my rice has been deprived of water, it 
hasn't produced very well. But regardless, at least the 
Committee did acknowledge there was an opportunity there.
    Mr. Cassidy. Mr. Garber.
    Mr. Garber. The methane is a natural occurrence, because 
when a rice crop is flooded, the plant begins to obtain its 
oxygen through the leaves and then, of course, transpires 
everything back out into the atmosphere. So this is what is 
going to occur no matter what we want to do.
    That relates to the flooding occurrence that Bob just 
referred to there, in that if you can pull it out of the flood, 
then you may not have that occurrence of transpiration into 
there, the CO2.
    But the best yields come with the flood, the best weed 
control comes with the flood. So we would definitely have to 
have a complete change in the culture of rice production into a 
dryland-type culture, and that complicates it tremendously. So 
we are going to be subject to that at that point, yes.
    Mr. Cassidy. Right. And so what I learned, speaking with 
staff, this bill doesn't statutorily preclude you guys being 
brought in as covered entities; it is just right now you don't 
make the threshold.
    But what I am hearing from you is that it is reasonable, 
given this conversion factor, and also reasonable to consider 
that in 2020 she can decrease or he can decrease by 60 percent, 
that at some point you would be brought in, at which point your 
options with current farming techniques would be limited.
    Mr. Garber. I had attended a briefing by the Subcommittee 
when they were going to submit this bill. They have had it for 
agriculture, and I think most of the representatives of these 
gentlemen were there.
    The general principal that they presented to us was that 
agriculture is not mentioned in it, but it is specifically 
written to where we won't be affected by it. And that was the 
premise which they presented to us that day.
    Mr. Cassidy. And the staff is telling me it is only because 
of the threshold they set. But if you take 2020, and you 
decrease it by 60 percent, then all of a sudden you guys are 
threatened to be covered entities. Now, that may be one 
person's interpretation.
    Mr. Garber. That may be very much possible.
    Mr. Cassidy. The last thing I will say, I think we all 
agree that it would be nice to decrease carbon, and everyone is 
speaking about how we have to have a bill. But I have to say 
from my personal view, that it--in fact, I know what is worse, 
a bad bill or no bill. I think a bad bill is worse than no 
bill.
    But thank you, again, for your input.
    The Chairman [presiding.] I thank the gentleman. The 
gentlelady from Ohio.
    Mrs. Schmidt. Thank you, Mr. Chairman. I have been kind of 
frustrated today, not by you gentlemen, you have put some light 
on a very important situation, because we are about to embark 
on changing the economic landscape of the United States with 
this potential bill. And while I have to be concerned with the 
economy of the United States, my personal concern is with the 
State of Ohio and, of course, with the folks in the Second 
Congressional District, so I am really going to--it is one 
question, but I want to talk for a minute first.
    And so my question really is to Mr. Yoder.
    But looking at the bill, and looking at Ohio and 
recognizing that we are a coal-producing state and that our 
energy comes from coal, and recognizing that in this bill the 
energy costs for coal are going to go up significantly, 
recognizing that there is a direct correlation between energy 
costs and farming, I think that one can calculate that the cost 
of production of farming is going to go up. And whether you get 
an offset for that or not, the cost of producing your corn is 
going to go up.
    Mr. Vilsack was trying to be very upbeat and Pollyannic in 
his views and tried to talk about the fact that we are going to 
be innovative and create new opportunities. But knowing the 
landscape of Ohio and the difficulties that we have faced with 
the last recession--not even coming out of it and coming into 
the current recession--knowing that whenever you change a 
paradigm, you have winners and losers in that paradigm. Mr. 
Yoder, the challenge is not just what farmers will face in this 
bill, but that all people in the State of Ohio will face. Do 
you think Ohio is going to come out a net winner or a net 
loser?
    Mr. Yoder. Well, Madam Congresswoman, that will depend. The 
devil will be in the details.
    There is potential for Ohio farmers to come out very good. 
I know in your district, your types of soils, there is a great 
chance to sequester additional carbon, or your farms could 
participate in a carbon market.
    But I am not sure you were here when I said before, one of 
the things that makes it so imperative for the State of Ohio, 
which gets the majority of our electricity from coal, is we 
have to produce a robust amount and plentiful amount of low-
cost credits so that those burners of coal can go ahead and 
remain in business. Because the shock to the community and the 
shock to the State of Ohio would be tremendous if electricity 
went up 50 percent, so to speak.
    We know, we know good and well that farmers are going to be 
faced with higher input costs. There is no doubt. We know that 
the only way we are going to be able to survive is have some 
kind of mechanism to offset those additional costs.
    And so if we are going to go down this road, then it is 
imperative that we have to have agricultural offsets. That is 
the bottom line, or farmers are going to be hurting really bad.
    Mrs. Schmidt. And thank you, Mr. Yoder, because the way 
this bill is written, there is not a real clear direction that 
we are going to have the offsets that Ohio is going to need to 
remain competitive, not just in the United States but in the 
world. And that is what really concerns me.
    The other thing, for all the gentlemen here, I submitted 
two pieces of letters, one from the American Frozen Food 
Institute, and for the Food Industry Environmental Council. And 
in both of those letters, it talked about the ramifications of 
this bill or the impact of this bill, that food costs will go 
up for the American consumer. So whether you are a farmer or 
not a farmer, all of us are consumers and go to the grocery 
store to buy some part of our groceries.
    Is that going to help or hurt the families in the United 
States, up or down? If the food costs go up, is that going to 
help or hurt the families? Yes or no, to all of you.
    Mr. Stallman. Well, it is definitely going to hurt. Our 
analysis shows that food costs would increase by about $13 
billion if you assume kind of the 2050 scenario in the Waxman-
Markey bill and fast-forward it to 2012.
    So an increase, a definite increase, it will hurt them. And 
that is under the rosy scenario of the EPA analysis of the 
Waxman-Markey bill.
    Mrs. Schmidt. We are running short of time. If you guys can 
just do a yes or no, because I know the Chairman is going to 
get anxious with me.
    Mr. Ruddell. I will defer to the other panelists. I haven't 
studied that.
    Mrs. Schmidt. All right.
    Mr. Garber. Our indication is if consumer costs go up, then 
it definitely hurts their pocketbook.
    Mrs. Schmidt. Mr. Yoder.
    Mr. Yoder. The costs could be greatly curtailed if we have 
offsets to keep the cost of our raw products down. If we don't 
have offsets, the public will get much higher food prices, that 
is for sure.
    Mr. Johnson. I agree.
    Mr. Nobis. So do I.
    Mrs. Schmidt. Thank you. Thank you, Mr. Chairman. And I am 
20 seconds beyond.
    The Chairman. I thank the gentlelady, and I thank the 
panel.
    I apologize for having to miss most of this. I was at a 
meeting that was a little bit important, and I won't belabor 
this.
    We have some folks that are on the next panel, and this has 
been going on quite a while.
    So I was getting reports on what you guys were up to while 
I was in the meeting, so I have been kept up a little bit on 
what you have been saying. So thank you very much for being 
with us, for your patience and waiting. And there is a lot of 
interest in this topic, obviously, and it has taken a little 
longer than we expected.
    Mr. Lucas told me he thought this would be a short hearing 
today. So I don't know what he considers a long hearing. Thank 
you very much
    And we will call the next panel, the last panel of the day.
    So we welcome our final panel: Mr. Glenn English, CEO of 
the National Rural Electric Cooperative Association, and Mr. 
Ford West, the President of The Fertilizer Institute.
    So, gentlemen, thank you very much for your patience. You 
have been hanging around here quite a while. I hope you haven't 
been worn out so you still know what you need to tell us.
    Welcome to the Committee. We appreciate your being here. 
Your full statements will be made part of the record. You can 
feel free to summarize it at your discretion.
    Mr. English, do you want to start?

 STATEMENT OF HON. GLENN ENGLISH, CEO, NATIONAL RURAL ELECTRIC 
                    COOPERATIVE ASSOCIATION,
                         ARLINGTON, VA

    Mr. English. Thank you very much, Mr. Chairman. I 
appreciate it, and let me just say first of all, I am delighted 
to be back at this Committee.
    I spent nearly 20 years in this Committee back some years 
ago as Mr. Lucas' predecessor, and so this has always been 
home. And it is a delight to be here to talk about electric 
cooperatives and to talk about the American Clean Energy and 
Security Act.
    And let me just start with saying, of course, America's 
electric cooperatives, over 900 electric cooperatives scattered 
across this country in 47 states; 42 million consumers all 
across this nation are served by electric cooperatives. And we 
are not-for-profit.
    That means your constituents own those electric 
cooperatives, own them as utilities. And certainly as not-for-
profits, we do our best to keep those electric bills as low as 
we possibly can, and that is what I am going to be talking 
about here today. And to also make sure electric cooperatives 
have enough electric power to meet those members' needs and we 
are able to grow in this nation.
    First of all, let me say that I testified before the Energy 
and Commerce Committee over 2 months ago that, in fact, 
electric cooperatives felt that we needed an energy bill, we 
needed a bill.
    And let me say the reason why is because of the Supreme 
Court action in 2007, which instructed the Environmental 
Protection Agency to determine whether carbon was an 
endangerment to the health of the American people. And, of 
course, we are now into the process of that happening.
    Now, as I understand it--and I am no expert on the Clean 
Air Act, I was here when it was passed in 1990. I don't 
remember anything said about carbon at the time.
    Mr. Chairman, you were here as well. I don't recall 
anything said about carbon when we voted. And I voted for that 
legislation. You probably did, too.
    But I do know that the former Chairman of the Energy and 
Commerce Committee, Chairman Dingell, has made the observation 
that if we try to regulate carbon under the Clean Air Act, we 
are going to have a glorious mess. And we wholeheartedly agree 
with him.
    It is a slow drip-by-drip torture that we would undergo as 
a nation as that legislation, according to what attorneys tell 
me, takes on an automatic approach. It gets beyond the control 
of the Administrator of the EPA. It even gets beyond the 
control of the President of the United States and the Congress. 
It gets on automatic pilot as to what takes place.
    So it is not a pretty thing, and we need to fix that 
problem. And that is what I urge the Committee to do, fix the 
problem. But we need to fix the problem and only that problem. 
It needs to be something that is affordable, something that is 
flexible, and something that is sustainable.
    And what I mean by sustainable, it needs to be politically 
sustainable. That means the American people have to accept it 
and be able to live with it, year in and year out. Not just the 
first year or 2, but for the next decade and for the next 40 or 
50 years. It has got to stand that test of time.
    And certainly from the draft that was initially presented, 
there have been many improvements that have been made, and 
there is no question that there are still improvements that 
need to be made in this legislation. It has, still, a long ways 
to go in our opinion. But we would not be raising serious 
concerns, not to the level that we are raising today, if it 
were not for an issue of fairness, of fairness, Mr. Chairman.
    We would, in fact, not be objecting to moving this bill 
forward if it were not for those levels of concern of fairness. 
We would recognize the legislative process that as you move 
along, you have to make these changes and make these 
improvements that are still needed in the bill.
    The fairness is not something that we can accept. Fairness 
is not something that we can simply turn a blind eye toward. In 
this case, the allowances that are allowed under the bill, the 
allowances that under the original concept were supposed to be 
there to help those that were carbon-based, that had carbon-
based fuels, whether it is coal, natural gas, whatever it may 
be, to reduce what is going to be a rather severe shock in 
their electric bills--and that was the original concept and 
idea of those allowances.
    And it seemed to us that those allowances should be focused 
on those people who have the greatest need, not on the 
utilities, on people. Because that is what this is really about 
is people and their electric bill and what kind of economic 
impact that this is going to have, their ability to grow 
economically in this country.
    And certainly those of us who live in rural areas that rely 
on rural development, who have hopes for rural development, we 
depend on reliable, affordable, electric power to be able to 
carry that out.
    Well, Mr. Chairman, what we ended up with was a piece of 
legislation that has wide disparities, does not focus those 
allowances on the people who need them the most. In some cases, 
those who need it the least get the most.
    Let me give you an example. For example, the State of 
Kentucky really gets the fewest allowances from a statewide 
standpoint. The best we can tell, the best that the Energy 
Information Agency can tell, they get the least, about 59 
percent of what their needs are going to be.
    But the fortunate folks in Washington, not to their fault, 
they didn't ask for this, but they are getting blessed. They 
are one of the big receivers. In fact, they are going to get 
3,700 percent of their needs met for the allowances, a huge 
windfall for them.
    Now, we have electric cooperatives that are catching it 
both ways, folks. We have many that are going to be well short 
of what their needs are. We have others that are going to be in 
excess of what their needs are.
    But we all understand these are electric co-op members. We 
all recognize and understand that we have to stick together and 
work together. And I know that many of those folks from some of 
those areas that are neediest for these allowances have been 
some of the first to speak up and defend those who have been 
fighting to protect the PMAs over the last 20 years. Some of 
those that have been defending them most vigorously have come 
from areas, from other parts of the country that had no hydro 
whatsoever.
    Because we have learned, under the cooperative principles, 
that people have to work together, stick together and look 
after each other. And that is what they have done. And in this 
case, we find that electric co-op members who are rallying to 
their colleagues, they are getting shortchanged through this 
legislation.
    Well, Mr. Chairman, as we move forward here we are 
suggesting that this legislation should not be about winners 
and losers. We are suggesting that this legislation shouldn't 
be a situation of one region of the country versus another. We 
are suggesting this shouldn't be a case of Democratics versus 
Republicans.
    What this ought to be is about the American people and 
making sure that all of our citizens have affordable 
electricity, affordable electricity, trying to make sure that 
the needs of all of our citizens are met. Most of these folks 
didn't have any say as to what fuel was used to generate their 
electric power. Their fuel was determined from what region of 
the country they came from. In some cases, Mr. Chairman, it was 
the United States Government itself who dictated what fuel they 
would have to use.
    This goes back many years for us old-timers, to 1978. We 
had something called the Fuel Use Act down in our home State of 
Oklahoma. Mr. Lucas, I know, remembers this. Oklahoma, we had 
natural gas, in some cases a mile away from the generating 
plants. And we were using natural gas like crazy. But all of a 
sudden the United States Government decided we had a shortage 
of natural gas. So the United States Government came in, passed 
a law called the Fuel Use Act that required all of those gas-
fired utilities down through the State of Oklahoma and many 
other parts of the country to switch to coal.
    We had to switch to coal. We had to start shipping coal 
from Wyoming to burn in those generating plants in Oklahoma, 
Louisiana, Texas, and elsewhere around the country. We had \3/
4\ of all the power plants that were built for electric 
cooperatives built during the 10 years of the Fuel Use Act in 
which we had a case in which they had to--either planning, or 
building or converting to coal-fired generation during that 
period.
    So those people shouldn't be penalized because they met 
those requirements. They obeyed what the Federal Government 
said and they carried it out.
    They ought to be treated in a way that we try to lessen the 
impact on their electric bills and continue to make their 
electric power affordable to them. That is fairness, that is 
what is right, and I think that is what most citizens in this 
country expect to be done.
    Mr. Chairman, I would also point out that some states get 
well over 100 percent of the allowances they need. It is not 
fair that any state get more than 100 percent, that is just not 
right. Just not right.
    And I would also say one other thing, Mr. Chairman, that no 
Member of Congress should be asked to vote for a bill that 
would require them to take allowances away from their own 
constituents and give it to constituents in another region of 
the country. That is not right either.
    So, Mr. Chairman, what we are urging here is fairness. What 
we are urging is that all of our citizens be looked upon as 
deserving of affordable electric power, that we recognize and 
understand we are making a change in policy and that some 
people are going to be very fortunate.
    They are not going to see their electric bill soar higher, 
because they are using hydro. They are not going to see their 
electric bills soar higher because they may get their power 
from a nuclear power plant.
    But there are many others that are going to see their 
electric bill soar higher, much, much higher because in fact, 
unfortunately, they get their power from a fossil-based fuel.
    Mr. Chairman, I hope this Committee will join with us and 
help us get some fairness for all American people, no matter 
what region of the country they are from and no matter what 
their power source might be.
    Thank you very much.
    [The prepared statement of Mr. English follows:]

  Prepared Statement Hon. Glenn English, CEO, National Rural Electric 
                 Cooperative Association, Arlington, VA
Introduction
    Thank you for inviting me to provide the views of electric 
cooperatives on pending climate change legislation in the House of 
Representatives. The National Rural Electric Cooperative Association 
(NRECA) is the not-for-profit, national service organization 
representing nearly 930 not-for-profit, member-owned rural electric 
cooperative systems, which serve 42 million consumers in 47 states. 
NRECA estimates that cooperatives own and maintain 2.5 million miles, 
or 42 percent, of the nation's electric distribution lines covering \3/
4\ of the nation's landmass. Cooperatives serve approximately 18 
million businesses, homes, farms and other establishments in 2,500 of 
the nation's 3,141 counties.
    Cooperatives still average fewer than seven customers per mile of 
electric distribution line, the lowest density in the industry. Low 
population densities, together with the issues of traversing vast 
expanses of remote and often rugged topography, present unique economic 
and engineering challenges for electric cooperatives. As well, many co-
op consumers are facing their own economic challenges. The service 
territory average household income for 786 electric co-ops (93 percent) 
falls below the U.S. average household income of $71,212. The service 
territory average household income for all electric co-ops is $61,416.
    NRECA's objective is to help Congress develop and pass an 
affordable, workable, and sustainable piece of legislation to address 
the nation's energy and climate change objectives. Maintaining the 
affordability of electricity is the principle against which NRECA will 
judge all climate change and energy legislation.
Properly Structuring a Climate Change Cap-and-Trade Program
    We appreciate very much the time being taken by this Committee to 
gain a deeper understanding of the issues surrounding climate change 
legislation. The Energy and Commerce Committee has been working on 
climate change legislation for several years, and reported H.R. 2454, 
the American Clean Energy and Security Act (ACES) of 2009, on May 21. 
It is a complicated piece of legislation that deserves significant 
analysis by Congress and affected stakeholders. This hearing is an 
important part of that process and we compliment the Committee for 
shining a spotlight on issues important to agriculture and rural 
America.
    My comments will focus on one major objective: keeping electricity 
bills affordable for all Americans while achieving long-term emissions 
reductions. The purpose of this legislation should be to establish a 
national greenhouse gas policy, and should not be used for a variety of 
other purposes. Properly structuring a climate policy can achieve the 
necessary emissions reductions, and should do so using least-cost 
alternatives to keep costs affordable for consumers.
    The legislation reported by the Energy and Commerce Committee has 
moved in that direction. However, there are still provisions in the 
legislation that will increase costs on consumers more than is 
necessary to achieve the emissions reductions required by the bill. At 
this time, NRECA is not able to support the bill. However, we look 
forward to working with any and all interested Members to improve the 
legislation so that it provides a national policy that reduces 
greenhouse gas emissions in a simple, affordable, and flexible manner.
    Following are some specific areas that NRECA would like to see 
improved in the legislation.
The Near-Term Cap Should Be Amended To Protect Consumers
    The legislation's emission reduction levels and timelines are 
overly aggressive, particularly in the early years of the program. The 
bill's requirement to reduce emissions by 17 percent below 2005 
emissions levels by 2020 is extremely ambitious, and we believe a very 
costly short term requirement. It is very important to point out that 
this ``17 percent cut'' is actually closer to a 24 percent cut when 
compared to the expected baseline of emissions forecast by the Energy 
Information Administration (EIA) for 2020. According to EIA data, 
emissions in 2020 are expected to be approximately seven percent above 
2005 levels. Therefore, the short term goal for the first 8 years of 
the legislation is to de-carbonize the nation's economy by 
approximately \1/4\.
    In the short run, there are relatively few choices to achieve 
reductions of greenhouse gas emissions. Outside of energy efficiency 
improvements, switching from coal to natural gas is the most likely 
scenario to comply with the caps in the bill, with some additional 
renewable energy being added to the generation mix for the utility 
sector. Congress and the Administration will have to make Federal 
investments and solve considerable policy challenges if energy 
efficiency, renewable electricity and natural gas are to be adequate 
baseload resources. Other sectors of the economy covered by the cap 
have even fewer options for reducing emissions. In fact, most analysis 
of cap-and-trade programs have determined that the utility sector will 
make reductions beyond its proportionate share because other sectors 
have few options to achieve the reductions required.
    NRECA believes long-term emissions reductions can be achieved if 
there is sufficient new research, development, and deployment of new 
technologies that reduce or avoid emissions of greenhouse gases. In the 
utility sector, this research program must include renewable energy, 
nuclear power, carbon capture and sequestration, energy efficiency, and 
other technologies that will give us the tools necessary to accomplish 
the long-term reduction goals.
    To address the short-term problem with the caps in the bill, NRECA 
recommends that the reduction requirements be adjusted during the first 
15 years of the program to more accurately reflect the expected 
availability of technology. Even a 14 percent reduction by 2020 (from 
2005 levels--or a 21 percent cut compared to the baseline), as proposed 
by President Obama and being discussed by some Members of the House, 
will be extremely challenging to meet and result in more and more 
natural gas being used for electricity generation. The Senate 
recognized this challenge last year when the Lieberman-Warner bill 
failed to get the votes to invoke cloture, and several Senators from 
both political parties expressed concern that the short term caps could 
not be met in a cost-effective manner.
    NRECA is also concerned that the Environmental Protection Agency 
(EPA) and other agencies which will administer this bill will not have 
sufficient time to develop all the rules and regulations that will need 
to be developed between the time climate legislation is signed into law 
and the first year of the program, currently slated for 2012. Within 
the legislation, there are countless new requirements on Federal 
agencies, particularly the EPA. Even with the best leadership, the best 
of intentions and additional resources, experience teaches us that 
Federal agencies have significant difficulty meeting congressionally-
imposed deadlines that are overly aggressive.
    We have no intention of ``kicking the can down the road'' simply 
for the sake of delay. I have testified today and before other 
committees that NRECA supports enacting affordable, flexible 
legislation to address climate change because the alternative of 
leaving carbon regulation to the EPA using only the existing Clean Air 
Act would create a ``glorious mess,'' to quote the Dean of the House of 
Representatives, Rep. John Dingell. Our intention is to provide Federal 
agencies with sufficient time to develop the rules necessary to make as 
smooth a transition as possible to a lower carbon economy.
The Allowance Allocation Methodology Protects Some Consumers at the 
        Expense of Others
    The bill includes an allowance allocation methodology for the 
utility sector that unfortunately protects some consumers at the 
expense of other consumers. This methodology represents a political 
compromise among the investor-owned utilities that belong to the Edison 
Electric Institute (EEI). As a former Member of this Committee, I 
understand very well the need for compromise to achieve common 
objectives. However, the deal that was reached by EEI's member 
companies is not in the best interest of all consumers because it 
creates winners and losers in different regions of the country.
    Before delving deeply into the allocation methodology issues I want 
to stress how important free allowances are to electricity consumers, 
especially those consumers who are the member-owners of electric 
cooperatives. The alternative, auctioning allowances to the highest 
bidders, only serves to increase costs for consumers without achieving 
any additional emissions reductions or other environmental benefits. As 
not-for-profit, consumer-owned utilities, co-ops would have to pass 
along all those additional costs to consumers, while freely allocating 
allowances directly avoids those costs going to consumers. On this 
point, all three major utility trade associations agree: allowances 
provided to local distribution companies will help mitigate unnecessary 
costs to electricity consumers while still achieving the emissions 
reductions required by the cap. If the bill that has come out of the 
Energy and Commerce Committee had included a complete auction, NRECA 
would be in outright opposition to the bill instead of working to 
improve its provisions.
    NRECA recommends that the bill allocate emission allowances to 
local distribution cooperatives (LDCs) based upon the carbon content of 
the fuel used to produce the electricity sold by the LDCs, and in 
proportion to the utility sector's share of emissions. This methodology 
harmonizes carbon allowances with carbon emissions, and protects those 
consumers most exposed to the costs of achieving emissions reductions.
    Based on the analysis we have conducted so far on the legislation 
(and we will continue to conduct more data analysis), we have concluded 
that regions of the country with heavier reliance on coal will receive 
a disproportionately low share of the allowances, while regions of the 
country with more reliance on nuclear, hydro, and natural gas for power 
will receive a disproportionately high share of the allowances. We have 
determined approximately how many allowances co-ops in every state will 
receive, as a proportion of their share of the emissions cap in 2012.
    Analyzing the allowance allocation in relation to each utility's 
proportionate share of the cap is the only rational way to evaluate 
whether allowances are being used to maximize the protection of 
consumers. If a utility is receiving more than 100 percent of its share 
of the cap, then it can sell the excess allowances and that utility's 
consumers could see a rate cut. Most utilities across the country will 
not be so lucky, but the formula does in fact provide some utilities 
with well over 100 percent of their share of the cap. Other utilities 
consumers do not fare so well.
    The memo developed by Chairman Waxman and Chairman Markey prior to 
the Energy and Commerce mark-up that outlined the proposed allowance 
allocation methodology states that utilities will receive allowances 
``representing 90 percent of current utility emissions.'' 
Unfortunately, most electric cooperatives will receive nowhere near 90 
percent of our share of the cap (which is three percent below 2005 
emissions levels and even further below current emissions).
    According to our analysis, cooperatives in Minnesota will receive 
approximately 61 percent of their proportionate share of the cap in 
2012. Co-op consumers in Kentucky will receive 59 percent of their 
share of the cap; Illinois, 61 percent; Arkansas, 62 percent; Ohio, 63 
percent. Mr. Chairman, the good news is the co-op consumers in your 
district do slightly better than the state's average, receiving 62 
percent. But co-op consumers in Chairman Oberstar's district are back 
at 61 percent. Chairman Obey's co-op consumers would also receive 61 
percent of their share of the cap, while Chairman Skelton's co-op 
consumers would receive 63 percent, Chairman Spratt's co-op consumers 
would receive 65 percent, Chairman Thompson's co-op consumers would 
receive 68 percent, and Chairman Gordon's co-op consumers would receive 
about 74 percent of their share of the cap. Other committee chairmen's 
districts do not have any significant cooperative presence.
    It is not just Democratic co-op districts that get a 
disproportionately low share of the allowances. Co-op consumers in 
Minority Leader Boehner's district would receive 63 percent of their 
share; Ranking Member Lucas does a little better at 71 percent.
    Even on this Committee, there are significant variations depending 
on the carbon intensity of the cooperatives in your districts. The 
following table summarizes our best analysis of the allocations to 
cooperatives as a percentage of their share of the cap in each 
Congressional district represented on this Committee:

------------------------------------------------------------------------
            Democratics                          Republicans
------------------------------------------------------------------------
Holden (PA)--no co-ops               Lucas (OK)--71%
McIntyre (NC)--97%                   Goodlatte (VA)--82%
Boswell (IA) 73%                     Moran (KS)--72%
Baca (CA)--no coops                  Johnson (IL)--64%
Cardoza (CA)--no coops               Graves (MO)--64%
Scott (GA)--88%                      Rogers (AL)--68%
Marshall (GA)--78%                   King (IA)--72%
Herseth (SD)--68%                    Neugebauer (TX)--74%
Cuellar (TX)--67%                    Conaway (TX)--67%
Costa (CA)--no coops                 Fortenberry (NE)--65%
Ellsworth (IN)--62%                  Schmidt (OH)--63%
Walz (MN)--62%                       Smith (NE)--67%
Kagen (WI)--64%                      Latta (OH)--63%
Schrader (OR)--3,300 %               Roe (TN)--73%
Halvorson (IL)--66%                  Luetkemeyer (MO)--64%
Dahlkemper (PA)--109%                Thompson (PA)--109%
Massa (NY)--227%                     Cassidy (LA)--67%
Bright (AL)--65%                     Lummis (WY)--71%
Markey (CO)--66%
Kratovil (MD)--81%
Schauer (MI)--66%
Kissell (NC)--98%
Boccieri (OH)--62%
Pomeroy (ND)--67%
Childers (MS)--74%
Minnick (ID)--3,400%
------------------------------------------------------------------------

    Comparing these cooperative consumers from the rural heartland and 
southern parts of this country to consumers of utilities in other 
regions demonstrates the disparity created by the formula in the bill. 
According to our analysis, several utilities will receive more than 100 
percent of their share of the cap. For example, Southern California 
Edison will receive 144 percent of their share of the 2012 cap; Public 
Service Electric and Gas Company (PSE&G) in New Jersey will receive 132 
percent; Consolidated Edison in New York will receive 100 percent; and 
Pacific Gas & Electric in California will receive 181 percent of their 
share.
    This is not a co-op versus investor-owned utility issue. It is not 
a Democratic versus Republican issue. This is a consumer issue, an 
affordability issue, and an issue of basic fairness. Some co-ops 
receive more than 100 percent as well, and some IOUs receive 
disproportionately low allowance shares too. For example, in the Energy 
and Commerce Committee hearing this week, David Sokol of Mid-American 
Energy (which is a holding company with two utilities serving ten 
states) testified that his utilities would receive approximately 50 
percent of their share of the cap. Similarly, according to our 
analysis, IOUs in Indiana (the most coal-intensive state) would receive 
approximately 60 percent of their share. Similar examples can be found 
among municipal utilities as well.
    My point is that we should be protecting utility consumers from 
unnecessary costs under the cap-and-trade system, and not rewarding 
others for some other rationale not related to reducing carbon 
emissions.
    We have attempted to determine where the emission allowances 
provided to utilities will go on a state-by-state basis, but 
unfortunately the data does not appear to be available to conduct that 
type of analysis with a high degree of accuracy. Data from the Energy 
Information Administration (EIA), on which we have relied heavily for 
our analysis, is not available for the state-by-state fuel mix for 
electricity sold at retail in each state. EIA has data for emissions 
associated with electricity generated in each state, but because some 
states are net importers of power, and others are net exporters of 
power, conducting analysis based on the locations of generating plants 
does not approximate where allowances will go under the formula in the 
bill.
    If this allocation formula is unfair, it is appropriate to ask why 
and what would be a fair formula. NRECA believes all emission 
allowances should be allocated to local distribution companies based on 
the emissions attributable to the production of the electricity sold at 
retail. The allowances available to LDCs to protect consumers are 
distributed based on a formula that provides 50 percent to utilities 
based on their share of all electricity sales and 50 percent to 
utilities based on their share of CO2 emissions associated 
with the production of the electricity sold at retail. The bill further 
reduces the effectiveness of allowances by providing allowances to 
merchant generators of electricity, thereby diluting the allowances 
available to LDCs.
    Proponents of the 50-50 split in the bill argue that the allowances 
distributed based solely on sales are necessary to compensate consumers 
for higher costs they have faced because of past investment decisions 
by their utilities prior to carbon controls being imposed. If we are 
going to use this legislation to compensate people for past actions, 
rather than dealing solely with carbon reduction, I can assure you 
there will be a long line out the door of the Capitol stretching as far 
as the eye can see. Instead, this legislation must be limited to 
addressing the carbon issue in a manner that holds down the cost as 
much as possible on the people who will have to face the costs of this 
bill. Consumers getting power from non-CO2 emitting sources 
will not face the cost of reducing CO2 emissions. The cost 
of their power will not increase by the additional cost of addressing 
carbon emissions while other consumers' bills will increase as their 
utilities make efforts to reduce their CO2 emissions. But 
this bill goes even further and actually rewards those consumers with 
allowances they can sell to consumers in rural Minnesota or rural 
Oklahoma, forcing consumers in carbon-intensive districts to subsidize 
consumers in non-carbon-intensive districts. Mr. Chairman, I just do 
not believe that is fair and it needs to be corrected before this 
legislation moves further.
    Finally, NRECA believes the free allocation of allowances should 
not be phased out in favor of an auction, as the bill currently does 
between 2025 and 2029. Auctioning is a bad idea in 2009, will continue 
to be a bad idea in 2012, and the simple passage of time until 2030 
will not make it a better idea.
Promote the Use of Offsets and Biomass
    H.R. 2454 provides flexibility to cooperatives in reducing their 
emissions through the inclusion of offset provisions that allow a 
portion of the compliance obligation to be met with domestic and 
international offset credits in lieu of emission allowances. 
Nationally, capped sources can use up to 2 billion metric tons of 
emission credits annually with half from domestic sources and up to 1.5 
billion metric tons from international offset projects if sufficient 
domestic offsets are unavailable. In the early years, a covered entity 
can satisfy approximately 30 percent of its compliance obligation with 
offset credits, split evenly between domestic and international offset 
credits.
    The addition of up to two billion offset credits that can be used 
to satisfy compliance obligations to the pool of annual emission 
allowances is extremely important in controlling the costs of the cap-
and-trade program and provides regulatory flexibility to cooperatives 
in reducing emissions over the near to mid term as new, cost-effective, 
low-carbon technologies are developed.
    Robust, workable domestic and international offset programs are 
critical to protecting American consumers, particularly in the early 
years of a climate program. EPA, CBO, and others have concluded that 
the use of domestic and international offsets will decrease the cost of 
allowances from 70 to 100 percent. Likewise, if offsets are not 
available, the allowance price doubles or triples. And while the 
availability of quality international offsets in the early years is 
highly uncertain (CBO and David Montgomery), U.S. agriculture and 
forestry can provide domestic offsets readily with the appropriate 
administrative framework.
    NRECA recommends that Congress modify the offset provisions so that 
a domestic offset credit program can be quickly established and 
implemented. Authority for a domestic offset credit program as part of 
a national cap-and-trade program should be assigned to USDA in 
consultation with EPA. To expedite implementation, offset provisions 
should include an initial list of qualifying project types for which 
USDA can rapidly set standard protocols. Additionally, USDA should 
explore the feasibility of allowing producers to register offset 
credits as part of its farm programs. Congress should also strengthen 
and simplify provisions in the bill that manage project-specific offset 
risks, inter alia, making the program seamless and protecting buyers.
    Finally, NRECA recommends that a covered entity not be constrained 
by an artificial limit on the use of offset credits to satisfy its 
compliance obligation. It is not necessary to cap the use of offsets by 
covered entities, as the size of the domestic and international offset 
programs will be limited by the available verified, cost-effective 
offsets.
The Continued Critical Role of the Rural Utilities Service
    The greenhouse gas emissions caps under this bill will make it very 
difficult for electric cooperatives to meet their consumers' growing 
demand for energy. Cooperatives are leaders in efficient delivery of 
electricity; demand is growing in co-op territory because people are 
moving there. There are only a few sources of energy--coal, nuclear and 
natural gas--capable of providing baseload generation. Baseload 
generation is the backbone of our electricity delivery system and 
allows utilities to meet their obligation to serve all customers with 
reliable electricity that is there when the switch is flipped. Until 
and unless Carbon Capture and Sequestration (CCS) technology is 
commercial and economic, building new coal plants to meet the needs of 
our customer-owners will be extremely difficult, with the result that 
the only baseload energy sources at our disposal will be nuclear and 
natural gas.
    As this Committee knows, rural electric cooperatives are able to 
deliver power to Americans in over 75 percent of the country's land 
mass because of electric cooperatives' 70 year partnership with the 
U.S. Department of Agriculture (USDA) Rural Utility Service (RUS). The 
RUS Electric Loan program makes it possible for cooperatives to 
construct and maintain their distribution and generation systems, while 
keeping electricity rates down and keeping them stable. NRECA 
appreciates this Committee's steadfast support of the RUS program over 
the years. Now, more than ever, the restriction on RUS lending for the 
construction of baseload power derived from nuclear and coal with 
carbon sequestration should be lifted.
The Importance of Derivative Instruments
    As discussed above, significant new investments in natural gas 
generation will subject cooperatives to new levels of marketplace risk. 
NRECA's members will need to keep consumer prices stable as usage of 
natural gas increases. That means our cooperatives will need to 
continue to hedge their natural gas risk on the over-the-counter 
derivatives market. If the costs of hedging become unaffordable, 
electric cooperative consumers will be exposed to the unpredictable, 
and often expensive, price swings in the natural gas market--in 
addition to the costs already inherent in carbon reduction policies.
The Nation Needs a Comprehensive Transmission Policy
    NRECA supports efforts to expand the transmission grid to meet the 
needs of consumers, including the need to deliver renewable resources 
from remote locations to high-consumption urban load centers. As it 
happens, many of these renewable energy-rich remote locations are 
within the service area of NRECA's member electric cooperatives, many 
of whom have joined together in the National Renewables Cooperative 
Organization (NRCO) to facilitate the development of renewable 
generation.
    In order to effectively utilize and increase the nation's current 
supply of economic renewable energy, Congress must provide a 
comprehensive, effective national transmission policy which 
contemplates and provides solutions to four key issues: planning; 
siting; cost allocation and recovery; and integration of renewable 
resources.
Planning
    Experience has taught NRECA that bottom-up planning--with full 
participation by load serving entities (LSEs)--is far preferable to 
top-down planning. In fact, only through bottom-up planning can the 
industry ensure that new transmission infrastructure operates 
effectively, efficiently and reliably with the existing transmission 
grid. Because the electric grid in each interconnection is a single 
complex machine, an overlay system planned in isolation from the 
existing grid and the long-term plans of the stakeholders would impose 
enormous unnecessary costs on consumers and undermine the reliability 
of the existing transmission system.
    As it stands, ACES adopts an effective transmission planning 
process that appropriately builds up from existing local and regional 
transmission planning efforts and that focuses on meeting consumer 
needs reliably and affordably, as well as meeting national 
environmental priorities. State and Federal governments lack the staff, 
resources, and operational experience required to perform the highly 
technical tasks involved in transmission planning. The legislation 
appropriately limits Federal involvement in the planning process to 
coordination and loose oversight to ensure that national priorities are 
addressed by the planning entities. As the ACES transmission provisions 
evolve, Congress should resist any push to create a large Federal 
bureaucracy to conduct planning and be wary of claims that bottom-up 
planning is unsuited to developing transmission that spans many regions 
across an interconnection.
Siting
    At this time, ACES is silent on the critical issue of siting. NRECA 
believes there are instances where the Federal Government should have 
siting authority and the ability to over-ride state decisions. NRECA 
has consistently supported the backstop siting authority granted to the 
Federal Energy Regulatory Commission (FERC) in the Energy Policy Act of 
2005. This authority allowed FERC to site both conventional, as well as 
extra-high voltage (EHV) transmission facilities within ``National 
Electric Interest Transmission Corridors'' designated by the Department 
of Energy (DOE).
    NRECA also supports Federal authority to site EHV transmission 
facilities anywhere in the country provided (1) the facilities are 
identified in a regional planning process as needed to ensure 
reliability or provide consumers power more economically; (2) the 
facilities are interstate projects; (3) the owners of the facilities 
are not eligible for enhanced rates of return or other financial 
incentives that raise the cost of the facilities for consumers; (4) the 
costs of the facilities are fairly and broadly allocated; and (5) use 
of the facilities is not limited to renewable resources. NRECA proposes 
that Congress add a new section on EHV siting that permits entities 
wishing to build EHV facilities (and meeting these conditions) to 
petition FERC for a Federal certificate of convenience and necessity 
and Federal eminent domain authority.
Cost Allocation and Recovery
    NRECA recognizes that expanding the transmission grid to meet 
consumer needs, including the integration of renewable resources, may 
result in substantial costs. Experts believe that new transmission 
could cost, on average, approximately $1 million per mile. Co-ops must 
not be made to bear more than a fair share of the cost of EHV 
transmission to deliver renewable energy to higher population load 
centers. NRECA urges Congress to develop cost allocation policies that 
are fair and take into consideration the benefits received from any new 
transmission facilities. NRECA proposes that Congress add a new section 
on cost allocation that provides for broad sharing of the cost of new 
EHV interstate transmission facilities that arise from the transmission 
planning process defined in ACES, as well as the cost of any lower 
voltage facility upgrades required for the reliable interconnection and 
operation of interstate EHV facilities. Broad cost allocation should be 
conditioned on: the facilities arising from the planning process; a 
right for any entity to own a share of the facilities; limits on rate 
``incentives'' available to those who build the facilities; and, 
consideration for those consumers in regions that may not obtain any 
benefit from the investments.
Integration of Renewable Electricity
    While Federal legislation may call for the construction and 
financing of ``renewable-only'' electric transmission lines, in 
practice it is impossible, in an integrated grid, to segregate 
renewable electricity from conventional electricity. No element of the 
integrated transmission system is physically able to distinguish which 
form of generation produced the current. The only way to assure the 
delivery of purely ``green'' electrons would be to construct an 
isolated line directly from a renewable generation source to its 
customer. Other legislation may call for incentives for lines that give 
priority access to renewable resources. Such preferences would 
unnecessarily increase the cost of power for consumers, reduce the use 
of expensive transmission facilities, and undermine grid reliability.
Conclusion
    Again, thank you for the opportunity to testify at today's hearing. 
The electric cooperative industry faces many challenges, including 
consumer uncertainty, transformative policy changes, technology 
evolutions and large-scale infrastructure needs. However, the 
cooperative business model and the public-private partnership with RUS 
make cooperatives well-equipped to innovate, adapt and continue 
providing the basic human right of affordable, reliable power. NRECA 
looks forward to working with Members of this Committee, other 
committees with jurisdiction over various aspects of this issue, and 
the entire House of Representatives to develop an affordable, workable, 
and sustainable piece of legislation. I look forward to answering the 
Committee's questions.

    The Chairman. I thank you very much, Mr. English. We 
appreciate your being with us.
    Now, Mr. West, we appreciate you as well, and you are 
recognized to summarize your statement.

STATEMENT OF FORD B. WEST, PRESIDENT, THE FERTILIZER INSTITUTE, 
                        WASHINGTON, D.C.

    Mr. West. Thank you, Mr. Chairman, and I appreciate the 
opportunity to be here.
    First of all, let me say that the fertilizer industry is 
very supportive if this Committee can generate some carbon 
emission offsets for agriculture. We have been working with the 
Province of Alberta up in Canada to put together a protocol 
based on fertilizer best management practices to reduce nitrous 
oxide emissions in the field. It is peer-reviewed. The protocol 
is based on fertilizer best management practices, using the 4R 
nutrient stewardship system which is use the Right Product @ 
Right Rate, Right Time, Right Place. It has the potential to 
increase agriculture yields, to enhance fertilizer use 
efficiency, reduce emissions and greenhouse gas emissions to 
really generate emission allowance for farmers.
    We think the Alberta farmers will be using that this fall, 
and we want to make sure that we are working with the USDA to 
make sure they are aware of the program and they understand it, 
and we think it ought to be part of any offset program.
    Now, let me talk about fertilizer. If my good friend, Mr. 
English, here is urging fairness, I am urging survival out of 
this climate change legislation. We are energy-intensive, we 
are greenhouse gas intensive, we are trade-intensive, we are 
subject to competition in the global market, and we meet the 
25,000 ton criteria in this bill.
    Fertilizer is nitrogen phosphate and potash, but I am going 
to focus on nitrogen because it is the most vulnerable economic 
impact to the cap-and-trade system.
    One of the challenges that we have is that we take nitrogen 
from the air, combine it with hydrogen from natural gas and 
make ammonia, which is the building block of all nitrogen 
fertilizers, and we produce CO2 in that process. 
Now, that is a chemical process, and we are bound by that 
process and we can't change that process.
    And so when everybody wants to get to this new economy that 
we are in, this low-carbon economy, we are kind of old-school. 
We are stuck in the old economy, because if we produce ammonia, 
we produce CO2. And 65 percent of our emissions are 
tied to what we call process gas emissions--that is, 
CO2--and 35 percent are combusted-related emissions.
    Now, when we repealed the Fuel Use Act after all these 
utilities have built all these coal plants, we allowed the 
utilities to go back to burning natural gas to produce 
electricity. And there is a term in this whole complex called 
leakage that has come up. And leakage is a term that says what 
industry can we afford to lose or what economic activity can we 
afford to lose to meet our policy goals?
    Well, when we converted, repealed the Fuel Use Act and 
allowed the utilities to burn natural gas to produce 
electricity, and we went from zero of electricity produced by 
natural gas to about 20 percent today, the leakage was the U.S. 
nitrogen industry.
    We closed 29 plants, as the natural gas price went from 
about $2 to about $7.50, simply because we were not competitive 
in rural markets with that price of natural gas. It takes about 
32,000 cubic feet of natural gas to make a ton of ammonia, and 
about 90 percent of the cost of doing that is from ammonia--is 
from natural gas, I am sorry.
    Now, we are eligible for the emission allocation program 
that is in H.R. 2454. We are eligible for that. And that whole 
program is designed to provide transition assistance for 
industries like ours, energy-intensive, trade-intensive. About 
15 percent of the emission allowances in H.R. 2454 are targeted 
for the energy-intensive industries. And they will be adjusted 
down two percent a year starting in 2015 to 2025.
    Now, right now I can't tell you how many allowances our 
industry will be eligible for, whether it is 100 percent in 
year 1, and we have to downsize to 80 percent in 2025 or we 
started out with 75 and we have to get to 50. We don't know 
because that determination is not yet met.
    But it looks like to us that we are not going to get enough 
allowances to keep us competitive in this 10 year transition 
period between 2015 and 2025. And so the real issue for us is 
are we going to produce nitrogen in the United States.
    We currently import about 55 percent of our nitrogen. And 
if we cannot be competitive in this 10 year transition period--
and, of course, after that it gets phased out--then we will 
look offshore for our production.
    Now, we have 29 fertilizer plants, nitrogen plants left. 
These are good-paying jobs, about 150, 200 jobs tied to each 
plant that are located in rural America. It is about $75,000 
per year per employee. That is considerably higher than what 
your average job is, $42,000. So these are good-paying jobs, 
these are very efficient plants, but we are very concerned 
about their viability at this time.
    We already talked about fuel switching. That is another 
issue. Mr. English, we were talking to him about being late 
here, just us two left. He said, well, I am going to tell you 
what our answer is. We are going to switch all of our coal 
plants back to natural gas, and we will use up all our natural 
gas.
    Today natural gas is $3.50 MMBtu. We are saying because of 
the new finds of natural gas, we are going to have a lot of 
natural gas. Natural gas has spiked three times above $10 since 
2000. A year ago at this time, natural gas was $13. We were 
producing ammonia at $13, but ammonia was $1,000 a ton. Today 
it is $3.50 and ammonia is about $3.50.
    Certainly everybody is concerned what this cost will be. 
Production costs will go up. Doane Advisory Service did an 
analysis for us. Lieberman-Warner said production costs will go 
up $6 to $12 billion. We are trying to wait for EPA's analysis 
to do that again.
    In conclusion, let me just say that we want to be the 
leakage this time around in this legislation. And I just want 
to remind this Committee that food security is a national 
security; 40 to 60 percent of the world's production is tied to 
fertilizer use. And if we ship our fertilizer offshore, that 
will be a detriment to our own food security.
    And I thank you and I will take your questions.
    [The prepared statement of Mr. West follows:]

 Prepared Statement Ford B. West, President, The Fertilizer Institute, 
                            Washington, D.C.
    Good afternoon Chairman Peterson, Ranking Member Lucas and Members 
of the Committee. I am Ford West, President of the Fertilizer 
Institute. The Fertilizer Institute is the leading voice for the 
nation's fertilizer industry and I am pleased and appreciative of the 
opportunity to provide you with our industry's perspective on climate 
change legislation.
    The fertilizer industry is made up of nitrogen, phosphate and 
potash production. Nitrogen is made from natural gas, which there is no 
substitute for in the chemical process. This means that the nitrogen 
fertilizer industry is highly dependent on supplies of natural gas. 
Phosphate and potash are minerals mined from the Earth, and this 
process also requires a great deal of energy.
    The fertilizer industry has gone to great lengths to advocate 
environmental stewardship and many of our members participate in 
voluntary climate change markets. If Congress insists that a climate 
change policy is necessary, we believe that it is important to 
implement a policy that preserves our ability to compete as 
manufacturers, while reducing greenhouse gases (GHG) to protect the 
environment.
    Farmers can play a very important role in the reduction of climate 
change related emissions. Not only can low till and no till farming 
techniques help increase the carbon content of soils and reduce 
erosion, there are also practice based approaches such as the Alberta 
Protocol, which is based on fertilizer best management practices, that 
demonstrate farmers' capacity to reduce nitrous oxide emissions from 
the field. The Alberta Protocol is a peer reviewed set of fertilizer 
best management practices based on the 4R nutrient stewardship system, 
which promotes the use of the right product applied at the right rate, 
right time and right place. These best management practices have the 
potential to not only increase agricultural yields but they can also 
enhance fertilizer use efficiency, significantly reduce emissions of 
GHGs and improve water quality.
    Both our nitrogen and phosphate products will be impacted by H.R. 
2454, but I will focus today's comments on our nitrogen industry 
sector, which is most vulnerable to the impacts of a cap-and-trade 
system. As I will explain in my testimony, this cap-and-trade proposal 
will place our industry at a serious competitive disadvantage compared 
to global fertilizer production and likely will force the domestic 
fertilizer industry overseas to countries that have no carbon reduction 
policies in place
    A multitude of crop producers, the largest of which are corn 
growers, rely on our products to produce food, feed and now fuel. 
Fertilizer is an essential agriculture input that is responsible for 40 
to 60 percent of world food production.
    The nitrogen industry will be impacted by a cap-and-trade system 
because it is uniquely sensitive to the price of natural gas as it is a 
feedstock, or input, required to make nitrogen. We use natural gas as 
an ingredient in a fixed chemical process that combines nitrogen from 
the air and hydrogen from the gas to produce nitrogen fertilizer, in a 
form that the plant can take up. Outside of changing the laws of 
chemistry, there is nothing we can do to change this process and, 
consequently, as much as 90 percent of the cost of producing a ton of 
ammonia, the building block for all other nitrogen fertilizers, can be 
tied directly to the price of natural gas. This makes nitrogen 
production one of the most energy intensive manufacturing processes 
that exists.
    Between 1983 and 2006, the industry reduced the amount of natural 
gas used to produce a ton of ammonia by 11 percent. With that energy 
efficiency came carbon reductions. The U.S. Environmental Protection 
Agency (EPA) estimates that between 1990 and 2006, U.S. nitrogen 
producers reduced their GHG emissions by 4.5 million tons of 
CO2 equivalent. While our member companies are committed to 
additional energy efficiency projects, there will come a point where, 
due to the constraints of chemistry, the efficiency gains will be 
limited. There are simply no loopholes in the principles of chemistry.
    Historically, the cost of natural gas has exacted a heavy toll on 
America's nitrogen fertilizer producers and the farmer customers they 
supply. The resulting impact on the American fertilizer industry has 
been unprecedented and threatens to irreversibly devastate the U.S. 
nitrogen fertilizer manufacturing industry. The U.S. nitrogen 
fertilizer industry now supplies a little less than \1/2\ of U.S. 
farmer nitrogen fertilizer needs--a very notable departure from a 
domestic nitrogen fertilizer industry which typically supplied 85 
percent of farmers' nitrogen needs during the 1990s.
    Specifically, since 2000, the U.S. nitrogen industry has closed 26 
nitrogen fertilizer production facilities, due primarily to the high 
cost of natural gas. Currently, only 30 nitrogen plants are still 
operating in the United States and presently 55 percent of U.S. 
farmer's nitrogen fertilizer is imported. Of this imported fertilizer, 
82.7 percent is made up of countries without climate change policies in 
place to regulate carbon, and a majority of these countries are those 
from whom we are striving for energy independence.
    U.S. farmers are becoming increasingly dependent on foreign sources 
of fertilizers from places that offer cheap natural gas like the Middle 
East, China, Russia and Venezuela. In 2007, U.S. farmers imported 314 
thousand tons of nitrogen materials from Libya; 477 thousand tons from 
Egypt; 1.8 million tons from the Middle East; and over 3 million tons 
from countries of the former Soviet Union.
    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 turn to 
natural gas as an alternative for generating electricity and fertilizer 
producers are forced to buy emission credits on the open market. It is 
important to understand that fertilizer is a global commodity traded in 
a world market. In addition to the nitrogen producing countries I 
listed earlier, which are already at a competitive advantage over U.S. 
producers thanks to their easy access to supplies of natural gas and 
reduced manufacturing costs, U.S. fertilizer producers are also 
competing against producers in the European Union and Australia, whose 
governments have adopted or drafted policies that aim to fully protect 
their energy-intensive/trade-intensive industries. As H.R. 2454 is 
currently drafted, it would place U.S. fertilizer producers at a 
competitive disadvantage and force them to make a stark choice between 
losing market share to imports or moving production overseas. American 
policy that would increase demand and thus drive the cost of natural 
gas up will further handicap our domestic production and lead to more 
plant closures.
     Moreover, reduced domestic production of fertilizer will only 
increase costs to American farmers since they will be more exposed to 
price volatility and product availability resulting from importing such 
a great deal of our plant nutrient needs.
    Increased input costs for farmers are another concern under a cap-
and-trade system. Last year, TFI commissioned a study on the impacts of 
high energy costs resulting from a cap-and-trade system on American 
farmers. Using the Lieberman-Warner bill as a baseline and EPA's 
moderate economic analysis of the impacts to energy prices resulting 
from the legislation, Doane Advisory Services measured the production 
cost increases for eight farm commodities. Doane economists found that 
any such cap-and-trade system would add $6 to $12 billion to total crop 
production costs leading to a significant decline in farm income. If a 
cap-and-trade system is enacted in the United States, it is imperative 
that American farmers are able to offset these additional crop 
production costs with the ability to earn soil carbon sequestration 
credits through various best management practices.
    Congress must tread cautiously and consider all ramifications and 
unintended consequences of any potential climate change legislation. 
Fertilizer is a strategic commodity and global food security cannot be 
attained without the use of commercial fertilizers. It is frightening 
to imagine the uncertainties that could result if U.S. policy made us 
completely reliant upon foreign sources for our food production.
    In closing, I would like to again express our concerns with H.R. 
2454, The American Clean Energy and Security Act of 2009. Particularly, 
I draw your attention to the proposed allowance allocation program 
designed to provide transition assistance for energy-intensive, trade-
exposed industries. While this allowance program has been designed to 
cover such industries' increased costs from the climate change program, 
the number of allowances that would ultimately flow to the fertilizer 
industry appears to fall short of what would be needed to ensure global 
competitiveness for U.S. fertilizer producers. Absent dramatic changes, 
the current allocation program will render the U.S. nitrogen industry 
uncompetitive, and threatens to force fertilizer production overseas to 
countries that do not regulate emissions resulting in a loss both for 
the economy and for the cause of reducing CO2 emissions.
    I would like to thank you for the opportunity to present the 
fertilizer industry's concerns related to climate change legislation. I 
appreciate your interest in our industry's needs and I am happy to 
answer questions at the appropriate time.
                              Attachment 1
American Clean Energy and Security Act of 2009
Internationally Recognized Protocols to Reduce Greenhouse Gas Emissions
Position--
    Congress must recognize and adopt the efforts undertaken by 
International Governments to reduce GHG emissions and/or sequester 
carbon. The province of Alberta is developing a protocol that will 
allow farmers to sell greenhouse gas offsets based on their adoption of 
best management practices that reduce emissions of nitrous oxide from 
the application of fertilizer. It is estimate that adoption of the 
Nitrous Oxide Emission Reduction Protocol (NERP) by farmers could lead 
to 1 to 2 million tons of CO2 equivalent greenhouse gas 
reductions across Canada.
Rationale--
    The NERP is designed to quantify GHG emission reductions associated 
with Best Management Practices to manage nitrogen fertilizer. The 
quantification approach of the NERP is based on the methods used in the 
Canadian Inventory Report, prepared to meet Canada's Kyoto commitments 
and validated by the IPCC. The operational framework of the NERP is 
based on a comprehensive nitrogen management plan supporting the 
performance areas described in the 4R stewardship model--Right Product 
@ Right Rate, Right Time, Right Place (``4R''). The NERP is developed 
according to the ISO 14064-2 standard, which meets the requirements of 
the Alberta Offsets System, and which is compatible with the stated 
intentions of Canada's Offsets System and the California Climate Action 
Registry. By recognizing projects in the United States, that have 
already been adopted by other international governments; offers U.S. 
farmers the same opportunity to earn offset credits as their 
international competitors, as well as prohibits them from being at a 
competitive disadvantage.
    Amendments to the Waxman-Markey draft--Section 740(a)(2)(A) should 
be amended to allow offset projects established by international bodies 
to be recognized and the protocols be adopted to be used by U.S. 
farmers for the purpose of earning offset credits.
                              Attachment 2

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The Chairman. I thank the gentleman for his testimony.
    So do you know how many credits you are getting or is that 
what you said you don't know?
    Mr. West. Well, here is how it works. The energy-intensive 
industries gets 15 percent, and there are probably 45 sectors 
in energy-intensive, okay?
    The Chairman. So you are in with those guys.
    Mr. West. I am in with all of them.
    The Chairman. So you don't know what your share is going to 
be?
    Mr. West. I don't know what my share is going to be. And if 
we have enough, then I will probably be 100 percent. But if we 
don't have enough, then everybody gets prorated, okay. And all 
of those sectors are trying to figure out what their emissions 
are.
    We are right now in rulemaking at EPA to determine the rule 
that all those sectors will have to report to EPA. EPA decides 
who the sectors are and then will decide what the average 
emission rate is for that sector, and then that is what you 
get.
    The Chairman. But the law hasn't passed yet, so they are 
already doing this?
    Mr. West. The rule, absolutely.
    The Chairman. Well, the rule, okay.
    Mr. West. The rule to report. Anybody over 25,000 tons of 
emissions, there is a rule underway right now. We just 
submitted our comments on the rule. That will be finalized, and 
that will be the standard for which you have to report under 
this bill.
    The Chairman. And if you go offshore, you move this to 
producing it in Canada, then you don't have to comply with any 
of this?
    Mr. West. Well, what is interesting, when I go to my 
counterparts around the world, Europe, Canada, Australia, they 
are all--they all signed up on Kyoto, but none of them has ever 
gone to implement it yet, because they don't know what to do 
with their energy-intensive industries. And they don't want 
their industries to get--their manufacturing facilities to get 
out of their country. So they are just kind of playing around 
right now.
    The only political body that is regulating energy-intensive 
industries is Alberta. Now how Alberta treated their nitrogen 
plant was they took their processed gas and set it out. They 
said we won't include processed gas in the calculations for 
your energy-intensive. And you have to remember now, in the 
states, in this bill, there is no requirement that any facility 
has to cut emissions. You do have to have emission allowances. 
And if you don't get your emission allowances you will have a 
permit from EPA that says you have to have emission allowances 
to cover your emissions. And if you don't get those emission 
allowances, then you have to cut back on your production.
    The Chairman. Or you have to buy them from someplace.
    Mr. West. Or you have to buy them.
    The Chairman. Okay. Mr. English, you speak about the 
cooperatives using over-the-counter derivatives to hedge 
natural gas risk. There is language in the Waxman-Markey that 
appears to close down the over-the-counter market for energy 
derivatives.
    Do your members have a position on that?
    Mr. English. Well, we are very concerned that that will 
obviously eliminate an opportunity to hedge for our members. We 
are small. We are not of the magnitude that was envisioned 
there. So we have some great concerns over that.
    We think, particularly, that market needs to be made 
available for legitimate hedging purposes and that there 
shouldn't be anything, language-wise or implementation-wise, 
that would damage our opportunity to carry that out. That risk 
mechanism, should it be eliminated, would increase the cost to 
our membership significantly.
    The Chairman. You were talking about Kentucky having 59 
percent and Washington, say, 3,700 percent.
    Can you supply the Committee with the sheet of paper that 
shows us--or we already have it?
    Mr. English. Yes.
    The Chairman. In your testimony?
    Mr. English. Right. Well, also I know the Committee had 
made the request to the Energy Information Agency regarding 
that information as well. We are making it available as far as 
electric cooperatives are concerned, as far as investor-owned 
utilities. They have not been that forthcoming.
    The Chairman. Are we getting that information, do you 
think?
    Mr. English. The Energy Information Agency evidently 
doesn't have good information on it. What I would suggest to 
Members of Congress--and I know there are a lot of Members that 
are wondering, well, am I a donor state or am I a reciprocal 
state, which one am I? I would suggest that you call your local 
investor-owned utility at home and ask them what percentage of 
the generation do we have that is coal- or fossil-fuel 
generated?
    If it is over 50 percent, considerably over 50 percent, 
then I would say their odds are pretty good they are going to 
be a donor state.
    In other words, they are going to lose. If it is a lot less 
than that, you may be one of those states that is winning. But 
they have not been that forthcoming with this information. The 
information we have gotten so far we have pulled out of a few 
annual reports and some public information that we have found 
on websites. It would be nice if we could get all of that 
information forthcoming, and then we could truly get an 
accurate picture of that. But we feel for electric 
cooperatives, and that is what you have before you, that is 
pretty close.
    The Chairman. My time has expired. The gentleman from 
Oklahoma, Mr. Lucas.
    Mr. Lucas. Thank you, Mr. Chairman.
    Mr. West, let me get this straight. You are telling me that 
you are now providing information to a registry about what you 
emit and the Federal Government until this point had no clue, 
we have been working on policy on things we didn't understand.
    Mr. West. There is a rulemaking underway at EPA right now, 
and that rulemaking is in the final stages. And when it becomes 
final, we are going to have to start reporting our emissions to 
EPA.
    Mr. Lucas. It is kind of like tying your own noose, isn't 
it?
    Mr. West. And that will be the basis for really the 
industry-wide baseline, especially for the energy intensive 
industries, that we will have to comply with.
    Mr. Lucas. And the impetus for this rule came from EPA 
internally as far as you know? Do you have any idea what their 
justification was for launching into the rulemaking process?
    Mr. West. Well, I assumed it was getting ready for climate 
change legislation.
    Mr. Lucas. You got it. Let us touch for a moment on the 
survival of your industry. From what you have told us, if the 
present form of Waxman-Markey were to become law--and that is 
what we are dealing with now, the present form passed out of 
the Energy and Commerce Committee--what percentage of your 
industry under the present law as proposed will survive?
    Mr. West. Well, we have 29 nitrogen plants. Each one of 
them has a different carbon footprint. So every one of them is 
impacted a little bit. But I don't think if we don't get 100 
percent of our direct and indirect costs and maybe some 
emissions for what happens to the price of natural gas, none of 
them will be here in 10 years.
    Mr. Lucas. So every pound, ton of your product we buy 
domestically now----
    Mr. West. We are already buying 55 percent of it.
    Mr. Lucas. But it could be 100 percent in 10 years, 
imported. Congressman English, Mr. English, Mr. President, 
whatever the case may be. Let us talk for a moment about the 
effect on our folks out in the countryside. I guess my first 
question is, if you were still the Sixth District Congressman 
for Oklahoma and you voted for this present version of Waxman-
Markey, could you go home?
    Mr. English. I would have a very difficult time, 
Congressman Lucas, explaining to the folks back in my district, 
the Sixth District years ago, as to how I could agree to vote 
to give away allowances that would keep their electric bills 
less than what they were going to be otherwise, and giving 
those allowances to some other region of the country. I don't 
think I would be good enough at explaining that to be able to 
convince them that I did the right thing.
    Mr. Lucas. Nor would any of your successors be good enough 
either. The NRECA, were you all a part of this process of 
negotiating these allowance allocations?
    Mr. English. No, we were not a part of the negotiating of 
any of the allowances as far as the allocations were concerned. 
No.
    Mr. Lucas. Fascinating. So If you were not a part of the 
process and you take care of a huge amount of America, tell me 
what happens when the free allowances go away? What will the 
impact be on the price paid by country customers in this great 
United States?
    Mr. English. Well, keep in mind as the bill is written----
    Mr. Lucas. As written, of course, as written.
    Mr. English. As it is written, we will see the cap steadily 
reduced each and every year as we move toward, say, 2020. And 
under the objectives of the legislation, we will be 17 percent 
less than where we were in 2005. Now, also at the same time, we 
have some growth that is going to take place. We hope our 
economy is going to recover. We expect to have growth. So if 
you use the Energy Information Agency's actual numbers as to 
what they project as a growth in emissions, you are really 
talking about more in the neighborhood of 24 percent rather 
than 17 percent. So that is something you have to keep in mind. 
And these are 2005 emissions that we are talking about here. So 
it is a pretty steady reduction and a sizeable number.
    Mr. Lucas. So then under this present bill proposal, it is 
fair to say the folks back home will pay more to get less, so 
they can be hotter in the summer, colder in the winter, and 
stay real close to home?
    Mr. English. Without getting your fair share of emissions 
allocations as it stands today.
    Mr. Lucas. Exactly. Thank you, sir.
    I yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Indiana, Mr. Ellsworth.
    Mr. Ellsworth. Thank you, Mr. Chairman. Thank you, 
gentlemen. Mr. Chairman, thank you for holding this hearing. 
Just because it was long, it was extremely important and a lot 
of things need to be heard. I hope a lot of people hear them.
    Gentlemen, if my notes are correct, it was probably 
supplied by the Rural Electric Association. I have 132,775 
electric rural electric customers in my district in Indiana. 
And I know these name tags don't say where we are from, but I 
have this little thing called the Illinois Coal Basin that my 
whole district is sitting right on top of. Numbers vary widely 
from whether we are a 96 percent coal-fired district 
electricity to 98 percent. So you know where I am coming from. 
We are going to get--62 percent is my understanding of what 
they are showing us in carbon emissions allocated under the 
current plan. That leaves 38 percent to be purchased. Like I 
said, when you told us, Mr. English, that some of these will 
receive well over 100, in fact some are going to receive 3,741, 
if the numbers are correct. What they actually need--I guess my 
question is simple. Don't either of you gentlemen think that 
these areas that are going to get 3,000 times a year are just 
going to donate those to Indiana and Ohio, out of the goodness 
of their heart and for the goodness of America so that those 
poor Hoosiers don't happen--and if you don't think that and you 
can answer that first. But, if you don't think that, then 
please tell me what is going to happen to those 132,775 members 
of rural electric in my district? I think we all represent 
about 675,000 people. So that is a pretty good chunk of my 
people. What is going to happen to their electric bills? Will 
they donate from those other fortunate areas that have the 
nuclear and hydro? And if not, what is going to happen to my 
electric bills?
    Mr. English. Well, I think that obviously--as I mentioned, 
we are very proud of the cooperative spirit we have in this 
country. We are very proud of our cooperatives in the 
Northwest, and this would be a huge windfall for them. But they 
recognize that the people from other regions of the country 
that have no hydro have come to their defense, have supported 
them with PMAs and help make certain that they are able to keep 
their electric bills low. And they are responding in the same 
way in this particular instance. That is tough. That is tough 
to turn around and recognize and understand it. But that is 
what you do with neighbors. One neighbor helps another. Why, in 
their time of need you respond, and we are experiencing that 
same kind of response.
    As to what happens with those folks, if you are from the 
cause of the reduction of the carbon emissions, your electric 
bill is going to increase substantially, substantially. And as 
I mentioned earlier, the whole idea of those allowances is to 
try to dampen that somewhat, take some of the pain out of it. 
If you are not getting your full share of allowances, that just 
means that it is going to be that much more painful and more 
difficult. It means that basically people are piling on. It 
basically means that in effect they are saying not only should 
you--do we want to eliminate or to reduce carbon emissions in 
this country for clean air purposes or for climate change 
purposes, but we are going to penalize you as well.
    Mr. Ellsworth. I know sometimes it is easy to be neighborly 
when times are good. If the state budgets are in the situations 
they are, California and many states, even Indiana, and you 
have this commodity in hand that you can then sell, trade, 
barter with, I think that neighborliness might be a little 
less.
    Mr. English. It is going to be tough, and there is no 
question that there is a huge amount of money that can be made. 
It is expected that you will have a lot of speculators from 
Wall Street that are going to be big time in this market. I 
know many have talked about even international speculators will 
likely be in on this. That is who your local co-ops are going 
to have to go to, to buy the allowances after they have 
acquired them elsewhere. And so you are going to be paying this 
huge premium which then, of course, gets reflected on your 
electric bill that is going to impact all of the economy in 
your district. If your folks are suffering now, they are going 
to be suffering a whole lot more with that approach.
    That is the reason, as I said, we are kicking up a big 
fuss. And some folks are telling us, you all just be quiet or 
you guys go to the Senate, go talk to the Senate, don't talk to 
us. This is already set. It is a very delicate matter here. It 
is a delicate coalition we have put together. Well, I would 
suggest the reason it is so darn delicate is because of the 
unfairness of this thing. And if you are really going to have a 
piece of legislation that is going to have this kind of impact 
on the economy of this country and on so many districts around 
this nation, it should be something that people get behind and 
support because it is not going to be easy to do this job. But 
if it is delicate and it is really balanced on taking away from 
one group of people and inflicting pain on them to the expense 
and benefit of somebody else, I don't think that is going to be 
sustainable and I don't think that is going to work. And we 
just want to make sure that every Member of the House 
understands, as I pointed out to Mr. Lucas, one of these days 
you may have to go home and explain how you could give away 
your allowances to somebody else in some other part of the 
country, and how that was justified and how that was fair. I 
sure couldn't do it. But I am sure there are folks that are lot 
better communicators than I am that might be able to pull that 
off. But I don't see how.
    Mr. Ellsworth. Thank you very much, Mr. English. Mr. 
Chairman, I yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Virginia, Mr. Goodlatte.
    Mr. Goodlatte. Thank you, Mr. Chairman. And, Mr. English, 
welcome back. I served on this Committee for a very brief time 
before you departed. And since that time, I have been sitting 
close by this gentleman from Oklahoma. He has done a great job. 
We are glad to have him, but we are also glad to have you back. 
And, Mr. West, it is good to have you here, too.
    Mr. English. He has made them all forget about me. I just 
want you to know that, Mr. Goodlatte.
    Mr. Goodlatte. We are remembering you today. We are 
honoring you today. But I appreciate very much your plea for 
fairness and Mr. West's plea for survival. I am making a plea 
today for common sense, and I very much appreciate your 
discussion of the unfairness with the allocations.
    I represent a district in western Virginia. We have a lot 
of rural electric cooperatives there. We have an unfair 
allocation here that is going to cause electricity prices to go 
up for my constituents more than they will in other places. But 
the premise behind this whole legislation and the Kyoto Treaty 
and whatever may be negotiated, moving forward, is that the 
greenhouse gas emissions that every power plant, business, 
home, automobile, truck, person emits are collectively causing 
a reduction--an increase in carbon dioxide in the atmosphere 
and other greenhouse gases, which is causing an effect that is 
raising the temperature of the world.
    So as we juggle all of these different allocations between 
different communities, different industries, and different 
forms of energy production and energy usage, we have to be 
mindful of the fact that we are not just talking about what 
happens here in the United States, because it is one 
atmosphere, it is one globe. And when you have China building 
one new coal-fired power plant a week, I am told, and India 
doing something similar and many, many other developing 
countries doing the same and even countries that have signed 
onto the Kyoto Protocol, as Mr. West has talked about with 
regard to fertilizer, they are honoring it in the breach in 
many instances. They are nowhere near meeting the targets that 
they had agreed to.
    So I guess my common sense question is, does it make sense 
to go forward with this legislation at all if what we are in 
the end accomplishing is simply transferring to countries 
elsewhere in the world, who I don't think have any intention of 
participating in this, like China or India, or being given such 
allowances because they are developing countries or whatever, 
that we will never, ever catch up to them; or losing the 
competitiveness that the United States presently has in terms 
of manufacturing, in terms of agriculture, in terms of other 
things that we have to use sources of energy for?
    Mr. English. Mr. Goodlatte, if the Supreme Court hadn't 
pulled that trigger on the Clean Air Act, we would have had the 
luxury of being able to have that discussion and come to that 
conclusion.
    Mr. Goodlatte. Let us talk about that. Because the Supreme 
Court decision does not say that the EPA is right or wrong. It 
just says the EPA has authority to do what they are doing.
    Mr. English. I believe, if I recall correctly, it ordered 
them to make a determination as to whether carbon was harmful 
to the health of the American public.
    Mr. Goodlatte. Correct.
    Mr. English. And if----
    Mr. Goodlatte. Lots of different ways you can define what 
is harmful to the health of the American public.
    Mr. English. That is correct.
    Mr. Goodlatte. What we emit, when we exhale, is hardly 
harmful to our health. But perhaps if you were reducing the 
temperature of the globe by reducing these emissions, you might 
accomplish that. But it is highly doubtful that we are going to 
significantly reduce those emissions, even if we go through 
this process. So it might make more sense for the Congress, for 
example, to take a different approach in terms of how to do 
this, or even to simply cut off the funding to the EPA and tell 
them you cannot spend these funds for this purpose. Because the 
Supreme Court wasn't saying this is a Constitutional 
requirement. It was simply saying this is our interpretation of 
what the Congress already did. The Congress gives, the Congress 
can take away. The Congress could on a year-by-year basis say 
don't spend any money on implementing these rules and 
regulations, let us instead take these trillions of dollars 
that we are going to spend and put them toward developing new 
technologies, and over the long period of time move away from 
carbon-based fuels, and over the long period of time address 
the effects of climate change, whether it be flood control 
measures or measures to help different communities adapt to 
temperature changes. And let us take the other trillions of 
dollars that we save and fight disease and let us fight 
starvation. Let us make sure we have clean water around the 
United States and around the globe, all of these things we are 
going to give up in order to pursue this goal of somehow 
lowering the thermostat of the world.
    And if you look at the mean average of what different 
scientists say, you will be successful in reducing that 
temperature, that mean average is about \1/20\ of 1 C. So for 
trillions of dollars and decades, we will pursue a goal that 
scientists today don't know--we don't know--but scientists 
today on average say we will only have a minuscule impact on 
reducing the temperature.
    So I agree with you we have a Supreme Court decision, but I 
don't think the Congress should be blackmailed by the EPA, do 
you?
    Mr. English. The point--I guess the position we are put 
into is that we recognize that the Environmental Protection 
Agency is already moving forward to make that determination. 
There is not a lot of doubt in our mind--maybe it is poor 
judgment on our part. But there is not a lot of doubt in our 
mind that the Environmental Protection Agency is going to come 
to that conclusion, whether you agree with it or not. We have 
to deal with the reality of that situation.
    Mr. Goodlatte. But we have to deal with the political 
reality. As Mr. Lucas said, can we go home and explain to our 
constituents why we would go to all of this complexity and all 
of this increase in utility costs, which we are told will 
increase electricity costs by close to 100 percent, will 
increase gasoline by about 75 percent, natural gas by 55 
percent. I don't know what it will increase fertilizer. But we 
do know we are going to face all these increased costs. We do 
know we are going to lose jobs. There are varying estimates of 
how many millions we will lose. But why wouldn't we go back to 
explain to our constituents that the EPA is getting ready to do 
something and the Congress is getting ready to say that is not 
the best path to go down, let us go down a different path and 
come up with a different solution? What the Congress granted 
the EPA to do, the Congress has the authority to take away or 
to delay.
    Mr. English. And if the Congress does that, obviously we 
are going to respond to that accordingly. But in the meantime, 
until a law is passed, we don't have much choice but to deal 
with the realities.
    Mr. Goodlatte. I understand you want to be in there 
negotiating for your allocation. But your fairness is not 
necessarily common sense. So my question is, if this were not 
the path that the Congress is presently taking, is there, in 
your opinion, other paths that would be better to pursue?
    Mr. English. I want to say I will stand forthrightly for 
common sense.
    Mr. Goodlatte. Well, I am going to define common sense the 
way I just defined it for you and take that as a positive 
answer. But I will suggest to you that it is fool's gold to 
simply say that if we make these necessary reallocations, that 
everything will be okay. We are still going to face those 
higher electricity costs and we are going into this without any 
idea about whether the technology is there to change that. We 
are doing nothing for nuclear power in this. If you had credits 
for nuclear power, why, we could raise the capital to build 
nuclear plants like France has done, like other countries are 
doing right now, and move away from greenhouse gas emissions 
that way. There are lots of other things that we could do, but 
this legislation doesn't get us there.
    Mr. English. I would agree all those factors need to play 
into it. It would be nice if we had a plan laid out for the 
next 10 years how we accomplish the objectives that are laid 
out in this legislation, and at the same time meeting our needs 
for electric power to keep this economy growing while at the 
same time we also kept electric bills affordable for all of our 
citizens. I would like to see such a plan laid out.
    Mr. Goodlatte. And a cost-benefit analysis for electricity 
customers, for farmers, for manufacturers.
    Mr. English. But I have seen no one who has laid out such a 
plan.
    Mr. Goodlatte. No. Absolutely none. Thank you, Mr. 
Chairman.
    Mr. Walz [presiding.] Thank you. That is our job, I guess, 
to lay that out at this point. So I am up now. And I said I got 
here the same way I became a sergeant major, by pure attrition. 
Everybody else quit before they got to that point. But I do 
really appreciate both of you being here. You are both 
incredibly important to the industry that drives my district in 
southern Minnesota. I am very proud about our diversity. I am 
also very proud and I would say to you, Mr. English, I too know 
that I have a large number of rural electric cooperatives. In 
fact, I believe Chairman Peterson and myself are in the top ten 
in those. Almost 175,000 people. And the one thing I can tell 
you--and I listened to you talk about this and trying to make 
it work. That is the attitude your people have always taken. 
You electrified rural America, you brought prosperity and 
opportunities to rural America. It hasn't always been easy. You 
have 80 percent of the land and 15 percent of the people. 
Economies of scale and those type of things just don't work out 
so well. But the fact of the matter is the quality of life for 
our citizens in rural areas is just as important as the urban 
areas. And it is because you have done that. And the thing we 
need to keep in mind here, and I keep coming back to, is that 
all of us realize there are major flaws in the legislation. But 
I also think I will keep coming back to where Secretary Vilsack 
was, there are opportunities if we get this right. And every 
time I have talked to your producers out there, we have a very 
high rural portfolio standard. And the producers out there said 
we will get to it, give us the tools, give us the tools to get 
there and don't penalize our people.
    I think it is important to keep in mind, these rural 
electric customers overall per capita make less than the 
average income. And, in fact, a large number of these people 
actually fall below the poverty line and it would be really 
felt. So this would be incredibly regressive on them. That is a 
huge concern for me. We need to get it right so that your 
producers can start benefiting from the wind that is out there, 
the biofuels that are out there.
    So I would ask maybe--and this is probably Mr. West, more 
towards Mr. English on the generation side of this, and then 
come back to you--what tool would we need to give you? What 
would look good to you as we got this, going forward? Because I 
don't hear any of your people say we don't care about carbon 
emissions, we don't care about making this country energy 
independent. They said, ``We are with you on this but you 
simply say it there, and then we are expected to carry it out 
where the rubber meets the road. We need the tools.'' What 
tools?
    Mr. English. If we had to restrict it to one tool and one 
tool only--there are many tools that would be very helpful. But 
if you are coming up to one tool that is most important, it 
would be technology. And we need it quick. So if any--from the 
Congress we need more money to speed up that technology. What a 
lot of people don't understand is we have a very narrow window 
here. We are short of capacity. All that capacity that was 
built up over the years, we have run out of that. So we are 
slap up against the wall from the standpoint of having enough 
capacity, being able to generate enough electric power to, in 
fact, meet the needs of our members, your members, your 
constituents over the next decade. So anything we can do to 
speed that up to get us that power is----
    Mr. Walz. I agree. And Mr. Stallman in the last panel 
brought up the point of don't leave us this hole, as we make 
this transition from a carbon-based energy and a carbon-based 
society, make sure that we are able to get there. And there are 
some amazing things out there and I tell you it is being done 
by private entities. And I am going to have to tell you, I am 
still a huge believer that biofuels have a way to go. People 
are acting like the biofuels--if they had asked of the Wright 
Brothers the day after they made their flight they would have 
wanted a transcontinental flight or they are going to scrap the 
whole dang industry.
    We have a plant out in Winnebago that doesn't--it is 62 
percent less in natural gas. It uses wind generation and floats 
a lava bed. They palletize the leftovers for fertilizer and 
they capture the CO2 and sell it to the local beer 
brewery. Those are things that are happening and have the 
potential. But if they are not supported--I agree with you, if 
we don't transition and help them get over that and we just say 
tomorrow it has to be there, I too--I have your sheet here of 
seeing where we fall. We would be incredibly disadvantaged and 
all of the gains you have made would be lost.
    Do you think that is fair to say?
    Mr. English. I think that is fair to say. This is not going 
to be an easy handoff. This 10 years is where the real problem 
is, and that is what I meant about the sustainability. We 
desperately need to make certain that this thing is achievable. 
We need to make certain that we get the technology. You were 
talking about on biomass, that research and development to get 
this thing online quick. The urgency thing is where we seem to 
have a problem getting across to people. It is not something we 
can just drag on and on and on. We need the commitment and we 
need it now, and it is going to have to be sustained for the 
next decade until we get over this hump and then maybe you can 
take a breather.
    Mr. Walz. Mr. West, is that true? Could we be fighting--we 
want the private sector to do this. Is there a role for land-
grant universities for research or anything to help you on 
this? Because again we need your industry.
    Mr. West. I think for us the challenge is to take the 
pressure off natural gas use to produce electricity. I mean, 
natural gas is kind of the environmental fuel of choice because 
it has the lowest carbon content. Okay? But if we are going to 
get rid of coal or put so much pressure on coal, then we are 
going to go switching to natural gas. And who knows what that 
is going to----
    Mr. Walz. Do you think Boone Pickens was right, get that 
wind up to displace--his whole point was to displace that 
natural gas. Now he wanted to shift it towards mobile----
    Mr. West. The problem is when the wind ain't blowing and 
the sun ain't shining natural gas is the backup.
    Mr. Walz. That is right. We need to get to where we are 
doing some things out there with injection of compressed gas. I 
mean, there are things out there but we are not there yet. And 
many of my colleagues share that concern.
    Mr. West. I would say that probably the thing that needs to 
be done is we need to find a way to capture and sequester 
CO2. Put the money in that so we can find a way to 
inject it, or do whatever we need to do because that will be 
the only way these coal plants will stay, if we can find a way 
to capture that CO2 and inject it into the grounds 
and leave it there.
    Mr. Walz. And I share your concern. And I oftentimes say we 
will hear a lot of people debating this and we will hear in 
these hearings people saying that we need to go off coal 
tomorrow. Well, we need to turn these lights off and the air 
conditioner in here that is being generated by coal as we 
speak.
    Mr. West. And then on the side--and make sure I get enough 
allowances to cover my direct and indirect costs over the next 
10 years.
    Mr. Walz. I thank you both. The gentleman from Kansas. 
Thank you.
    Mr. Moran. Mr. Chairman, thank you. Mr. West, part of what 
you said that was most interesting to me was your comments 
about visiting with your counterparts from Europe, Australia, 
and other places. We had this conservation with the previous 
panel and one of my concerns is about our competitiveness. I am 
not sure your issue is competitiveness. Your issue, as you say, 
is survival.
    Mr. West. Sure, 82 percent of the nitrogen we currently 
import is from countries that really are not interested in 
greenhouse gas reduction. I mean, I could talk to my European 
counterparts, my Australian counterpart, my Canadian 
counterpart, I can bring it up with my Arab Fertilizer 
Association counterpart, and he is looking at me like what the 
hell are you talking about.
    Mr. Moran. Is any of the fertilizer that we import into the 
United States today manufactured under the circumstances of 
strict regulations regarding CO2?
    Mr. West. The only one is we get about 70 percent of our 
nitrogen from Canada and about 60 percent of that is in 
Alberta. And Alberta is the only one that is really regulating 
fertilizer. And what they have done is--they do it a little bit 
different. Each facility has to have an emission intensity. But 
they took the processed gas, that CO2 that comes 
from taking nitrogen out of the air, hydrogen from natural gas 
and making CO2 and they took it and just put it off 
to the side, and said we are not going to count that in your 
emission intensity and that is the way they are doing it.
    Of course the Canadians are looking very close at what the 
United States is going to do because they want to be equal in 
North America.
    Mr. Moran. Tell us what the impact of fertilizer costs and 
increases upon agriculture, how dependent is agriculture upon 
fertilizer in the United States?
    Mr. West. Well, 40 to 60 percent of the world's food 
production is tied to the use of fertilizer. Now, the growth in 
the use of fertilizer is all outside the United States. The 
politics of fertilizer in the United States is how efficient 
can you be. And that is why we have been working with our 
protocols on trying to be as efficient as we can under the 4R 
nutrient stewardship system. But if I am going to produce 
ammonia, then I am going to produce CO2. And that 
chemical reaction, I just can't make it any more efficient.
    Now, we can capture the CO2. I can sell it to 
Pepsi. We have a plant in North Dakota that pipes it to Canada 
and they put it in the oil shale. We can do some of those 
things. But I am producing that.
    Mr. Moran. Congressman English, the conversation earlier 
was about technology. How much more efficient in reducing 
CO2 and other gases are our new electrical 
generation facilities as compared to what we have had in the 
past? Are we having quantum increases in the ability to improve 
that or is it marginal?
    Mr. English. According to the Electric Power Research 
Institute, as far as off-the-shelf technology that we can use 
to deal with withdrawing the carbon from those emissions and 
storing it in the ground or using it for some other purpose, we 
are probably a decade off, maybe 15 years. And that is assuming 
that we are willing to spend another billion dollars a year on 
research and development.
    That is how difficult it is. That is the reason I keep 
saying this next decade is going to be extremely difficult. 
What you are doing, as far as new generation is concerned, you 
are pretty much eliminating coal, which has been in your 
primary fuel of generating electric power in this country. You 
are pretty much eliminating that as an option.
    Mr. Moran. So the private sector would spend little or no 
effort in trying to figure out how to generate electricity from 
coal and a more efficient and more environmentally friendly 
way? It just wouldn't be feasible?
    Mr. English. Yes, with the technology and the development 
that is involved, it is extremely complicated and difficult to 
do. If you think about the amount, it is a huge amount of 
carbon that you are going to have to do something with. Put it 
in the ground.
    Let me just--one thing that I was always able to understand 
with this, as far as the complications, think about the 
liability issues that are going to arise from pumping that much 
carbon into the ground all across this country. Well, the 
Congress is going to have to deal with that. Can you imagine 
trying to get liability immunity in this country through the 
Congress for that kind of an issue? I mean, that will go on for 
years in itself. So you have a whole host of issues that are 
going to be involved for us to be able to bring the coal back 
online with the elimination of those emissions.
    Mr. Moran. Congressman, I want to explore just a little bit 
further your conversation about fairness. One of the things we 
did today is take a look at where--you are better to be in 
Washington State than you are in Kansas under this plan. And we 
then took a look at, for example, the income, the average mean 
income--I am sorry--the mean income in Seattle is about 
$46,000, in Seattle, Washington. The mean income in my largest 
city, Salina, Kansas is about $36,000. A typical county seat in 
Kansas, Belleville, has a mean income of about $26,000. So what 
we are doing is we are transferring wealth, income from those 
who can least afford it, at least in this example of Kansas and 
our mean income, to those who are better able to afford it.
    So when you talk about unfairness, in many instances our 
rural communities in the states that have lots of rural areas 
where coal is the primary provider of their electricity, their 
incomes are generally less than the coasts which, appears to 
me, this bill is designed to better protect. So we are taking 
income, we are increasing the cost of living, the cost of being 
in business in areas of the country that have low incomes, and 
we are protecting in this process those areas of the country 
that have high incomes--higher incomes.
    Mr. English. I don't know if that was the intention, but 
that seems to be the result, yes.
    Mr. Moran. Okay. Thank you very much.
    Mr. Walz. The gentlewoman from Illinois.
    Mrs. Halvorson. Thank you, Mr. Chairman, and thank you, 
panelists. Mr. English, I have a couple of questions for you.
    As a general matter, what I am hearing from you is that 
your group believes that the free allocation of allowances is 
preferable to auctioning off the allowances. Apparently because 
it is a better, more direct way to protect consumers from rate 
shock. Can you explain that a little further for me?
    Mr. English. Sure. If the allowances that you have, what 
you are going to provide by the Federal Government obviously if 
you are going to provide those allowances, and the way that 
most of the legislation is done is through the distribution 
system, the local distribution companies is the way to describe 
it. In the case of electrical cooperatives, it would be our 
distribution system. Those are the closest to the people. Well, 
those allowances have to be used to generate electric power. So 
if, in fact, you are using those allowances to generate the 
electric power, then you can minimize the cost to your 
consumers.
    If, on the other hand, you don't have any allowances, and 
particularly if those allowances have been auctioned off and 
what you would likely have are people who have deep pockets, 
not folks in small distribution cooperatives and small towns. 
If, in fact, you have to go to New York City to a market and 
you are going to have to compete on that market to buy the 
number of allowances to allow you to generate enough power to 
take care of your members' needs, that is going to be a very 
expensive propose.
    So that is where the real issue comes down. What do you do 
with those allowances? And there has been some debate, I know, 
within the government as to which way you go. I know some have 
suggested well, if we go out and auction off all of these 
allowances, we will raise just about enough money to pay for 
health care in this country. Well, in effect, if you are going 
to do that, that gives you some idea of the magnitude of 
increase you are going to have to have in electric bills over 
and above what they would be otherwise, otherwise being 
providing allowances for free to those consumers.
    So it is really a consumer issue and as we all know, 
whether you are talking about the taxpayers which seem to be 
the same people who are the consumers, it is a question of 
which way do you do this. So it may be an indirect, a 
politically acceptable way to raise taxes as opposed to giving 
those allowances--and I am pleased to say that the Committee 
did make a big step in that direction in giving most of the 
allowances away. They did recognize that they needed to do 
something for consumers. The only problem was that they didn't 
distribute them fairly so that the people that are going to be 
hit the hardest, hit the most are getting a proportionate 
share.
    Mrs. Halvorson. Okay. Thank you. And then the only other 
question I have is you also recommend that the bill allocate 
emission allowances to local distribution companies based upon 
the carbon content of the fuel used to provide the electricity 
sold by the LDCs. By eliminating the portion of the utility 
allowances allocations based on the sales, wouldn't this deny 
the benefits to the customers of the early adopter utilities 
because these utilities made early decisions to increase their 
emphasis on energy efficiencies and renewables and other low 
emitting technologies, which in some cases resulted in higher 
rates for their customers, me being one of them? Because don't 
these customers, many of them who live in my State of Illinois 
and my district, deserve relief from this bill just like any 
other customers?
    Mr. English. I would say no. And the reason that I would 
say that--let us just think about this a minute. I know 
electric cooperatives and municipals back in the 1930s and 
1940s when we were building all these dams in this country for 
flood control, the Federal Government is trying to pay for 
that. And we contracted to buy that power at rates that were 
above the market. But since that time, we have gotten a huge 
benefit out of that because today those electric bills, those 
electric rates out of those power marketing administrations is 
actually less, considerably less than what the market price is. 
So we have been rewarded. We got more market prices.
    Now what we are saying is due to the actions of the Federal 
Government we are going to require those people who made 
investments, and as I just explained in the case of electric 
cooperatives, \3/4\ of all the generating facilities that we 
built in this country were built because the Federal Government 
required us to use coal instead of natural gas, so we can keep 
those fertilizer prices down. That we now turn around and say, 
well, but we ought to give those allowances to those folks who 
have the cheapest power in this country to begin with, how is 
that fair?
    Mrs. Halvorson. Well, it is probably cheaper because all 
the investments that were made to make it more expensive now.
    Mr. English. Back in the 1930s and 1940s and we did it. And 
our members are recognizing and understand that. And from time 
to time, we have seen about every 10 or 15 years, the Federal 
Government makes a move. And this was last done, I believe, 
under the Clinton Administration, in which there was an effort 
saying, well, we ought to sell off those power marketing 
administrations and put this money into the Federal Treasury. 
Well, all these folks out there who were from these rural areas 
that had absolutely no low cost hydropower but were using coal-
fired generation, even though the rates of those folks up there 
in the State of Washington were less, they stood up in the 
Congress and their elected representatives did and said that 
was wrong, that is wrong, we paid for that, we made that 
investment. We made that very point.
    Now we have the reverse. We have a situation in which we 
have those folks from those areas that were required to build 
those coal-fired plants, as opposed to using natural gas, and 
now they are being told, not only are your electric bills going 
up because we are going to remove those carbon emissions and we 
are going to make it tougher and tougher, you are going to have 
to buy some extra allowances in order to generate any power at 
all, but then on top of that we are going to penalize you. We 
are going to add a penalty on top of that.
    And as I said, I am very proud at least of our co-op folks 
that are saying, hey, it is time to return the favor to our 
neighbors. And while we would get a huge windfall off of this, 
we get over 3,000 percent of any needs that we have and we 
could go sell all that on the market and get this huge 
windfall, it is going to be at the expense of our neighbors 
down the way here who stood up for us when they were trying to 
eliminate our low cost power. Now, that is what--that is what 
neighbors are about, and that is what the co-op program is all 
about, and that is the reason we stick together. And that is 
the reason we are saying this all should not be about windfalls 
for regions of the country. It is supposed to be about reducing 
carbon emissions, carbon emissions.
    If we just go back and stick to the basic thing we are 
trying to fix, the Clean Air Act, we are trying to reduce 
carbon emissions, we are trying to address climate change. Let 
us just stick to the basics. If we are going to try to give 
huge windfalls to one region of the country or the other, let 
us not do it under this bill. It is going to be difficult 
enough as it is. If we are going to try to provide a windfall 
from one region of the country to the other, let us not pile on 
the people that are going to get hurt the worst. It is not 
going to be the utilities. It is going to be the individual 
consumers. That is what I would urge.
    Mrs. Halvorson. Great. Thank you.
    The Chairman [presiding.] I thank the gentlelady. The 
gentleman from Pennsylvania, Mr. Thompson.
    Mr. Thompson. Thank you, Mr. Chairman. Mr. West, I want to 
thank you for mentioning that natural gas will be capped and 
let me add taxed under the Waxman bill because it is a fossil 
fuel, and also for pointing out all the other reasons why 
natural gas is so important. Personally, I believe natural gas 
should be a major component of any energy policy that this 
Congress endorses for a variety of reasons. Number one, as you 
mentioned, natural gas is not a rural market, meaning that we 
control the price and the supply of it here in the U.S. Number 
two, we have a tremendous amount of it right here at home, 
offshore and onshore. For example, my home district--80 percent 
of my home district in Pennsylvania rests above the recently 
discovered Marsalis shale and natural gas formations virtually 
on tap and as a net worth projected to be anywhere from $500 
billion to a trillion dollars. And finally, it is a clean 
fossil fuel.
    And my area has a significant number of dairy farmers who 
are struggling to operate because of milk prices. And while 
there are a variety of reasons why milk prices are low, I 
believe that high and unsustainable energy prices is a part of 
that reason.
    Is that an accurate statement to make in your opinion?
    Mr. West. Yes. I think energy--there is a lot of money tied 
up in this piece of legislation. I will try to give you an 
idea. Let us say the Congressional Budget Office says that the 
cost of an allowance may be anywhere from $16 in 2012 to $26 in 
2025. So we took $20. I heard anything from $15 to $20. Let us 
say we get 75 percent of our emission allowances given to us. 
We have to purchase 25 percent. That is $300 million. That is a 
lot of change laying around here. And if we didn't get any, it 
would probably be over a billion dollars. So energy is 
throughout our economy. You raise the price of energy, 
everything is going to go up.
    Mr. Thompson. And my dairy farmers--all dairy farmers are 
going to be hit hard by that during these especially tough 
times. I have been circulating a letter that the Pennsylvania 
Public Utilities Commission sent to the whole state delegation 
here in Washington. And their findings are concerning to me and 
I just reference just a few sentences from that letter.
    Pennsylvania is the fourth largest coal producer in the 
nation, distributing over 75 million tons of coal each year. 
Roughly seven percent of the nation's coal supply is in 
Pennsylvania and 58 percent of all electricity use here comes 
from coal. However, if the Waxman-Markey bill were to pass, 
Pennsylvania is looking at a bleak scenario by 2020, a net loss 
of as many as 66,000 jobs, a sizable hike in the electric bills 
of residential customers, an increase in natural gas prices, 
and significant downward pressure on our gross state product.
    And we are far from convinced that the negative impacts 
this legislation could have on our state's economy are fully 
understood and appreciated, and the cost estimates are 
staggering.
    Mr. English, are you aware of other states putting together 
studies such as this that will demonstrate how much electrical 
costs will skyrocket under the Waxman bill?
    Mr. English. Well, I certainly hope that they are. I am not 
sure how many states have picked up on this and have really 
started focusing on it that much. I know that some of the 
public utility commissions have begun doing that. I know the 
National Association of Public Utility Commissioners is looking 
at some of these costs like that and looking at the 
distribution of these allowances and how they would impact 
various entities, but mostly from the standpoint of the 
generation of electric power, not just as the economy at large, 
but there is no way that you can raise energy costs and not 
have it affect the entire economy.
    I would like to make one other point here that is good for 
us to keep in mind. You go back all the way to 1932. Franklin 
Roosevelt at that time made the observation that this country 
had arrived at the point that electricity was no longer a 
luxury, but it had become a requirement. If we are not careful 
here, we have an excellent chance that we are going to take a 
huge step back, and for many of our citizens we are going to 
find electricity once again becoming a luxury, not a necessity, 
and it is not just going to be people in rural America.
    Mr. Thompson. Thank you, Mr. English. Mr. Chairman, I ask, 
if I could, permission to just submit that letter from the 
Pennsylvania Public Utilities Commission just for the record.
    The Chairman. Without objection, so ordered.
    [The document referred to is located on p. 228.]
    The Chairman. I thank the gentleman. The gentlelady from 
Wyoming.
    Mrs. Lummis. Thank you, Mr. Chairman. And it is amazing to 
have even the Pennsylvania Public Utility Commission coming out 
against this bill. You would think that there would be 
deference to states that already regulate these industries.
    Mr. English, it is nice to meet you and I want you to know 
that there are 11 rural electrics in Wyoming, that they cover 
66 percent of the area, and 40 percent of the their residential 
customers in Wyoming are served by rural electric co-ops. So I 
am really grateful that you are here this evening.
    Mr. English. The President of our association is from 
Wyoming.
    Mrs. Lummis. And a dear wonderful constituent of mine. So 
thank you for that.
    Mr. West. We have a nitrogen plant in Wyoming.
    Mrs. Lummis. Now you are just buttering me up.
    I did want to mention that here is an example of the kind 
of costs they estimate they are going to incur. One of our 
rural co-ops that serves my state estimated that under this 
legislation it will cost its customers alone $17\1/2\ million 
by 2012 more, $31 million by 2022, and $59 million by 2030. 
Now, that is with less than 168,000 rural cooperative customers 
total in Wyoming, and this is just the estimate of one of those 
11 co-ops that serve Wyoming.
    Would you say those estimates are the exception or the rule 
for the kind of rural co-op customers that you are talking to?
    Mr. English. Obviously it is going to vary from state to 
state and region to region, and even within the state it will 
vary. But, you are going to find an awful lot of numbers 
similar to that all across the country, to be honest about it.
    Mrs. Lummis. I am hearing that from other rural electric 
co-ops as well. So you confirmed what I suspected.
    You also mentioned that the emission levels that are in 
this bill that would have to be reached by 2020 is extremely 
ambitious. How would we get there? Have you talked to some of 
your providers about if they had to meet that standard, how can 
they get there?
    Mr. English. It is not going to be easy. I did mention 
natural gas. I think a lot of our members would have to 
convert. Natural gas doesn't contain carbon. It wouldn't be 
that we would necessarily want to go down that road because it 
becomes more volatile as far as price is concerned, it is less 
dependable. Obviously it is very disruptive to folks in the 
fertilizer business and a lot of other businesses around this 
country. That is not something we choose to do. I don't think 
most people understand that for baseload generation or even for 
peaking, if you start using a lot of--using natural gas, you 
will have a huge amount of consumption. We found some new 
natural gas fields since 1970, and I am very pleased to say 
that those predictions by the government back in 1978 were 
wrong. But at this particular point, if you start using it for 
baseload generation for electric power, and that is probably 
what we are going to be driven to in the short term over the 
next 10 year, then it is going to have a huge impact. It will 
be a massive amount of gas that will be required for that. I 
don't think it has been calculated by anybody yet.
    Mrs. Lummis. We have some studies that show that as you 
have to ramp down wind energy when it quits blowing and then 
ramp up natural gas power to meet that change in load, that it 
actually emits more carbon than if you had run that natural gas 
plant flat out, because of the inefficiencies of having to ramp 
up so quickly to get a replacement baseload for that wind 
source. So it has got some bugs in it.
    Mr. English. It is challenging.
    Mrs. Lummis. It is challenging. Thanks.
    Mr. West, a question for you as well. You testified that 
this cap-and-trade proposal would likely force the domestic 
fertilizer industry overseas to countries that have no carbon 
reduction policies in place. So they will be producing 
fertilizer. So will the American farmer quit using fertilizer 
or will they just buy fertilizer that is produced overseas?
    Mr. West. No, they are buying it now. We import about 55 
percent of the nitrogen that we consume here in the United 
States.
    Mrs. Lummis. So we are going to send the jobs overseas, we 
are going to send the plants overseas, we are going to send the 
tax revenue oversees and then send dollars oversees to buy 
product that we are producing in the United States now, at 
least to the tune of 45 percent of our production?
    Mr. West. And we are going to probably buy that from areas 
of the country with lower gas prices, and that is the Middle 
East, Russia, Venezuela. That is where we are bringing it in 
now. I have members, I have producers, importers that do that. 
They go on the world market and buy it. And, last year when we 
saw that run-up of fertilizer prices, it was because of the 
demand in the world and the struggle that those guys were 
having bringing product to the United States.
    Mrs. Lummis. I can tell you I also serve on the Natural 
Resources Committee, and we had a gentleman come in and testify 
that if the United States cut its carbon emissions to zero and 
Europe did, Japan did, and China, Russia, and India go on as 
planned, that we will have no impact on global climate anyway.
    Mr. West. That is true.
    Mrs. Lummis. Thank you. I appreciate your testimony.
    The Chairman. I thank the gentlelady.
    Does any Member have a closing statement? I guess the 
witnesses--I can probably excuse you. You have probably been 
here long enough.
    I think Mr. Moran has a very gripping and edifying closing 
statement if you want to remain for that. But otherwise, you 
are excused. We appreciate very much you being with us and your 
testimony and----
    Mr. Moran. Mr. Chairman, I listened to Mr. English and Mr. 
West.
    Mr. West. I would love to hear it.
    The Chairman. Mr. Moran is recognized for 5 minutes.
    Mr. Moran. Mr. Chairman, thank you very much. I appreciate 
this hearing. I think it is very useful. This hearing is one of 
those things that happened in this Agriculture Committee that I 
think means a lot to us, and I am appreciative of you hosting 
this hearing.
    I do believe that this is one of the pieces of legislation 
that may be the most detrimental, damaging things that we could 
do to agriculture, to farmers and ranchers, to small businesses 
across the country. From its inception in the House Energy and 
Commerce Committee less than 1 month ago, this is--a 1,000 page 
document has been forced upon Members of Congress with little 
time to consider the real consequences. One of the problems we 
have encountered here today is that there is no solid economic 
analysis on how this ill-conceived legislation will really 
affect the economy.
    Preliminary evidence, and again it seemed to me that people 
were a little more than guessing, shows that it will increase 
the cost of energy and with it the cost of everything we 
utilize every day in our lives. And in its current form, 
agriculture will have little, if any, ability to recover those 
additional costs. This will not only lead to decreased 
profitability in agriculture, but increased food prices for all 
Americans.
    What we do know is that the Congressional Budget Office has 
said that this bill will raise government revenues by $846 
billion in the first 10 years of this legislation's life. In 
layman's terms what that means to folks back home is this is a 
huge tax increase. It is a tax increase so large that it could 
pay for the commodity title of the 2008 Farm Bill 24 times 
over. According to the 2007 Agricultural Census, $846 billion 
is over 15 times the total U.S. agricultural sales for 2007.
    And this is only the beginning. The legislation we 
discussed today is permanent. And after the 10 year period 
analyzed by CBO, free carbon allowances are phased out while 
auction carbon allowances are phased in. This means future 
generations will be forced to pay even more than the initial 10 
year budget, analysts concluded. Although billed as cap-and-
trade, in reality H.R. 2454 is cap-and-tax. It is a tax bill 
that will be forced not only on agriculture in rural America 
but our entire country.
    Instead of government levying a tax directly on the 
American people, this legislation disguises the tax as a carbon 
allowance auction that subsequently requires electrical 
generation companies, refiners, manufacturers, and others to 
collect that tax imposed through increased costs.
    What is worse, due to the way this legislation is written, 
midwestern states like my own of Kansas will bear the brunt of 
the economic blow because of the inequality in the way that 
carbon allowances are allocated, giving excess carbon 
allowances to East and West Coast power plants while 
shortchanging allowances given to Midwest electric 
cooperatives. I have seen preliminary estimates that indicate 
that rural electric cooperative customers in Kansas would have 
their utility bills increased some place between $200 and 
$1,000 per year, and the consequences go beyond our ability to 
turn on our lights in rural America. Our rural communities are 
the places where we must travel greater distances for work, 
school, and medical care, and we will pay a disproportionate 
share compared to our urban cousins who have shorter distances 
to drive and have access to public transportation.
    I am particularly concerned that many in agriculture 
believe that agriculture will somehow be made whole under this 
legislation. We had a lot of conversation about offsets today. 
But under the Waxman-Markey bill we know that this is not the 
case. The word agriculture is mentioned seven times in this 
bill and it is not mentioned once in the section that defines 
offsets.
    Instead, H.R. 2454 directs the EPA to define the world of 
carbon offsets. This is a mistake that will lead to few 
benefits for agriculture and increase the ability of EPA to 
further intrude upon our farms and ranches. We know that EPA is 
not farmer friendly or even farmer neutral. It has consistently 
made determinations that harm producers and fail the common 
sense test. This includes EPA's recent finding that agriculture 
will sequester significantly less carbon than determined under 
the 2005 EPA study, and includes the proposed rule to take 
indirect land costs into consideration when determining a 
carbon footprint, as well as EPA's recent decision to regulate 
farmers with a sprayer as a point source that impose costs and 
a permit system. EPA cannot be trusted with agricultural carbon 
offsets.
    Even if the offsets are defined and USDA is given authority 
over them, on the macro-scale it is difficult for me to see 
that agriculture will even get close to mitigating the 
increased costs of inputs caused by the cap-and-tax system. 
Some sources disclose that agriculture can sequester nearly a 
half a ton of carbon through practices like no-till. If carbon 
trades between $15 and $40 per ton and the cost per acre of 
corn production is increased by $40 to $80, the numbers won't 
add up. In a best case scenario, a farmer could mitigate half 
the cost of this legislation. In a worst case scenario, a 
farmer could mitigate perhaps ten percent of the cost of this 
legislation. Either way, it does not bode well for our farmers.
    This analysis does not even take into account the livestock 
sector, which will be equally disadvantaged. And unlike crop 
farmers, operations like cow/calf operations and feed yards 
have few opportunities to accumulate carbon credits.
    This Committee must act responsibly and continue to hold 
hearings. Further examination of this legislation is a 
necessity. The current pace set by the Speaker of the House 
must be abandoned until a better, objective research can be 
conducted. Regardless of the legislative pace, we must act to 
correct the irresponsible decisions that have been made and 
included now in this legislation.
    Mr. Chairman, I would ask, if we were in a business meeting 
I would move, that either we have a markup of this legislation 
or would move that the Committee report this bill unfavorably, 
with a recommendation that it be reported unfavorably to the 
House of Representatives. I am sorry that is not an option 
tonight. I hope we have further opportunities to continue to 
pursue this legislation. But I can tell you that if we can't 
get there, common sense demands that we defeat this bill on the 
House floor.
    Congress infrequently gets things right when we take a lot 
of time and have ample opportunity to study and research. We 
certainly never make good decisions when we are rushed by 
arbitrary deadlines.
    So, Mr. Chairman, agriculture demands something different 
than this bill. Rural America demands it, and the American 
public demands it as well. Anything less is an abdication of 
our responsibility as elected officials and the constituents 
that we care so much about.
    Thank you, Mr. Chairman.
    The Chairman. I thank the gentleman, and I guess the 
gentleman from Minnesota has a closing statement as well.
    Mr. Walz. Thank you. And I thank the Members who are still 
here and the witnesses and those that are sticking around. This 
is a very important hearing, a very important issue.
    First of all, I want to be very clear. Climate change is 
real and it is a serious problem. Concentrations of carbon 
dioxide in the atmosphere are up 30 percent in the Industrial 
Age and at the highest concentration in 650,000 years, causing 
massive changes to the climate, affecting hundreds of millions 
of people.
    Nearly all national and international scientific bodies 
agree that human activities are affecting climate change. In 
fact, 97.4 percent of all climatologists who deal specifically 
with the science of climate agree on a consensus that it is a 
concern. There is only one, not an individual voice, but only 
one national or international scientific agency that will not 
agree with that, and that is the American Association of 
Petroleum Geologists.
    With that being said, we have an obligation to our children 
to address this problem, to set an example for the world, to 
strengthen our economic security, and gain energy independence. 
However, it must be done wisely. It must make sense, and it 
must do no harm.
    Mr. Chairman, I thank you for the opportunity to bring 
together these experts. And I, along with my fellow Members of 
this Committee, have serious concerns with this legislation, 
particularly as it pertains to rural America and the 
agricultural community.
    We all know we must do our part to reduce our carbon 
footprint and that our agricultural producers have been leaders 
in this area. I am proud to say that southern Minnesota is a 
leader in renewable energy technology. We are the fourth 
leading producer of wind energy in the nation and we are 
leading in biofuels. We have moved to a level now where we have 
entrepreneurs creating small, mobile ethanol plants of 1 
million gallons that are using very little energy and are being 
bought with--the Indian Trade Minister was in my office to buy 
these and use the remains of tapioca in the developing world. 
This has a great potential to reduce the carbon footprint in 
the developing world, create jobs in southern Minnesota, and 
move us to the next level we need to get to.
    We are all part of that solution, but I have serious 
concerns as it stands today. My colleagues have time and time 
again pointed those out. I think many of us on this Committee 
have heard, and quite disappointedly, I may add, that experts 
in this area like yourselves sitting here and the previous 
panels were not consulted to the degree they needed to.
    I think Mr. Moran made a very good point. I believe in this 
organization and this body and the people that are here to 
bring up good points and counterpoints to craft a piece of 
legislation that will do all the things we want to see it do. 
But at this point many of us have yet to see this legislation. 
We will continue to work on it. I know good, common sense 
solutions come out of this Committee as often as any other, and 
it is a pleasure for me to be here, and I would share Mr. 
Moran's wish that if we could mark this up and have a chance at 
this, you would end up with a better product.
    So, Mr. Chairman, I thank you for this opportunity. We have 
our work cut out, but I am optimistic that we can create a 
positive if we do it right. I yield back.
    The Chairman. I thank the gentleman. The gentleman from 
Oklahoma.
    Mr. Lucas. Just simply to note, Mr. Chairman, we in the 
minority appreciate this hearing. This has been 7 hours well 
spent on a critically important topic, and thank you.
    The Chairman. I thank the gentleman for hanging in there 
until the end. So, with that, does anybody else have anything 
else for the good of the order here?
    Under the rules of the Committee, the record of today's 
hearing will remain open for 10 days to receive additional 
material and supplementary written responses from witnesses, 
any questions posed by a Member to the panel.
    This hearing of the Committee on Agriculture is adjourned.
    [Whereupon, at 9:05 p.m., the Committee was adjourned.]
    [Material submitted for inclusion in the record follows:]
      
Submitted Statement by Hon. Collin C. Peterson; on Behalf of United Egg 
                               Producers
    This statement represents the views of United Egg Producers (UEP) 
on the American Clean Energy and Security Act (H.R. 2454), as reported 
on May 21 by the Committee on Energy and Commerce. Because this 
legislation will have significant--and in many cases detrimental--
effects on American farmers, UEP appreciates the leadership of the 
Committee on Agriculture in scheduling a hearing to learn the concerns 
of our nation's food producers.
Egg Farms: Good Environmental Stewards
    Egg farmers are good stewards of the environment. We produce an 
abundance of safe, nutritious, affordable high-protein eggs in ways 
that make responsible use of our natural resources. We comply with 
complex regulations under the Clean Water Act to ensure that we do not 
discharge nutrients into the waters of the United States. Our industry 
is cooperating with the Environmental Protection Agency in a multi-year 
study of air emissions from egg farms, in order that regulation can be 
based on robust scientific data. UEP itself is the recipient of a 
Conservation Innovation Grant from the U.S. Department of Agriculture 
to introduce producers to new technologies for mitigating air emissions 
from our operations.
    Egg farms are not a significant source of greenhouse gases (GHGs). 
The primary gaseous emission from egg farms, ammonia, is not a GHG, 
although our industry is focused on mitigating ammonia emissions as 
well. However, egg farms do routinely contribute to a reduction in the 
demand for fossil fuels because manure from our henhouses is applied as 
fertilizer on nearby farms. When these farms use this organic 
fertilizer, their need to use synthetic, fossil-fuel-derived fertilizer 
is eliminated or reduced.
Production Costs: Already Going Up
    Like other livestock and poultry industries, egg farmers have seen 
major secular increases in their cost structure during recent years. 
More than half of our production cost is feed, and prices for both corn 
and soybean meal--the primary constituents of poultry rations--have 
moved to significantly higher levels. Last summer, crop prices hit all-
time highs, as did the price of crude oil. These prices have declined, 
but not to traditional levels. It seems likely that our feed costs will 
be permanently higher than the levels of the last few decades.
    Rising energy prices have also affected us. In addition to their 
impact on feed prices, higher energy costs also raise our cost of 
transporting eggs in trucks, refrigerating eggs in storage and transit, 
and providing ventilation to our henhouses.
    With this backdrop of rising costs, it should not be surprising 
that egg producers--like many other farmers and ranchers--are concerned 
about the possibility that climate change legislation will increase our 
costs still more. As far as we can tell, H.R. 2454 contains no 
provisions to compensate our farms for these higher costs.
Carbon Offsets
    Supporters of H.R. 2454 often say that agriculture will benefit 
from selling carbon credits to businesses that need to buy them. It is 
true that U.S. agriculture is sequestering carbon every day through a 
variety of practices. However, the potential for additional 
sequestration may be less than earlier believed, according to a study 
by the EPA cited in the Des Moines Register on June 7. Because carbon-
sequestering practices like reduced tillage are now widely adopted 
across American agriculture--in contrast to outdated data used by EPA 
in making earlier estimates--the total amount of additional 
sequestration that can be achieved is necessarily less. In other words, 
because agriculture is doing a better job of safeguarding our natural 
resources than EPA thought, farmers will be compensated much less! And 
the EPA study also found that most additional sequestration potential 
lies in the forestry sector, not in crop or livestock production.
    Egg producers' potential for carbon sequestration is limited in any 
event, simply because we are not a significant emitter of carbon or 
other GHGs. We do feel strongly, however, that proper land-application 
of manure should be a practice eligible for credits because of the 
reduction in fossil fuel demand achieved.
International Competitiveness and Consolidation
    We are also concerned about how higher fuel costs will affect our 
industry's international competitiveness. The vast majority of eggs are 
produced and consumed domestically, but our industry relies on export 
markets for some sales of both shell eggs and (to a greater extent) 
processed egg products. As our costs go up and those of offshore 
producers do not, we can expect both increased imports and reduced 
exports. Both trends will be detrimental to U.S. egg farms.
    Our industry, dominated by multi-generational family-owned 
businesses, does not have the power to simply pass along cost increases 
to our customers. As agricultural producers, we are unfortunately 
price-takers, not price-makers. As production costs rise, the inability 
to automatically pass them along means it is likely that some producers 
will fail and be acquired by larger competitors. Thus, one predictable 
result of H.R. 2454 in the egg industry may be further consolidation in 
the industry and the demise of some farms that have been in business 
for many decades.
A Need for Better Analysis
    We agree with several Members of Congress who have expressed the 
view that we need a better understanding of H.R. 2454's real impact on 
our economy before proceeding. It would be a mistake for the House of 
Representatives to rush passage of this bill to meet an arbitrary 
deadline before receiving economic analyses from a variety of 
independent sources. The bill's effects are likely to be large, and 
raise complex analytical questions. It is sensible for Congress to make 
an informed decision before putting into place policies that will 
profoundly reshape the U.S. economy.
    This is not an argument in favor of delay for delay's sake. Rather, 
it is an argument that if Congress acts immediately on a bill that has 
been available to the public in its final form for little more than 2 
weeks, lawmakers' decision cannot possibly be a fully informed one. We 
believe legislation of this magnitude should be passed only after full, 
objective expert analysis from multiple independent sources.
Priorities for Legislation
    When and if Congress does proceed with legislation, we believe it 
is critical that the U.S. Department of Agriculture administer any 
agricultural offset program. USDA's knowledge of agricultural science, 
industry practices and farm structure--as well as the Department's long 
experience in running programs for the farm sector--makes it rather 
than EPA the logical choice to administer an offset program.
    In addition, we believe legislation should seriously address the 
issue of how to mitigate cost increases for agricultural producers, in 
order to avoid reducing the number of family farms and also prevent the 
migration of production capacity offshore, where GHG regulations will 
not apply. Finally, we urge Congress to instruct Federal agencies that 
some priority practices, such as proper and responsible land-
application of manure, should be eligible for offset credits.
    UEP appreciates the chance to provide these comments for the 
record, and urges that Congress act on H.R. 2454 only after gaining a 
better understanding of how the legislation will affect the economic 
viability of the U.S. agricultural sector.
                                 ______
                                 
Submitted Statement by Hon. Collin C. Peterson; on Behalf of Robert J. 
         Looney, Vice President, Government Affairs, CHS, Inc.
June 10, 2009

U.S. House of Representatives,
Committee on Agriculture,
ATTN: Anne Simmons,
Washington, D.C.

Subject: Written comments for The House Committee on Agriculture that 
will hold a hearing June 11, 2009, entitled ``Climate Change''
Comments
    General: CHS, Inc.\1\ is our nation's largest farmer-owned 
cooperative, and we appreciate the opportunity to provide comments on 
this extremely important topic to rural America. Among our business 
units that support rural communities and production agriculture, we own 
small petroleum refineries--one in Montana and majority owner of one in 
Kansas. We in association with 36 other small business refiners (SBRs) 
are the predominant providers of fuel to rural communities and 
agriculture.
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    \1\ CHS, Inc. (www.chsinc.com) is a diversified energy, grains and 
foods company committed to providing the essential resources that 
enrich lives around the world. A Fortune 200 company, CHS is owned by 
350,000 farmers, ranchers and cooperatives, along with thousands of 
preferred stockholders across the United States. CHS supplies energy, 
crop nutrients, grain, livestock feed, food and food ingredients, along 
with business solutions including insurance, financial and risk 
management services. The company operates petroleum refineries/
pipelines and manufactures, markets and distributes Cenex' 
brand refined fuels, lubricants, propane and renewable energy products. 
CHS is listed on the NASDAQ at CHSCP.
---------------------------------------------------------------------------
    Whereas many in Congress and agriculture look at the opportunities 
for farmers to gain some value under the cap-and-trade programs 
proposed in various greenhouse gas (GHG) legislation, the costs of GHG 
legislation to farmers and rural America have been virtually ignored. 
In fact, many believe that farmers could only be net winners under 
`cap-and-trade'. We do not. And that is the focus of these comments.
    Specifics: Under any cap-and-trade program, the manufacturers of 
agronomic and energy inputs needed for farmers to raise their crops and 
for agribusinesses to process farm commodities into food will have to 
pay for the added GHG costs they incur. Facilities which provide those 
inputs, such as petroleum refiners, fertilizer manufacturers and 
electricity generators, will have to buy GHG allowances and carbon 
credits to offset their own GHGs. Many of these type facilities are 
owned by large businesses. However, many, particularly those that are 
located in (and therefore provide local jobs for) rural areas and/or 
serve rural areas, are small business entities and/or are owned by 
farmers. Our comments highlight issues for SBRs and farmers.
    Take petroleum refiners for example. There are many GHG issues for 
SBRs because of: (1) their location, (2) their ownership, (3) the GHG 
they are responsible for, (4) their role in the nation, (5) the costs 
to a SBR, and (6) the negative impact on farmers.
    Location: Of the 149 refineries in the United States, 37 are small 
business refiners (SBR).\2\ They provide about 13% of our nation's 
petroleum need, but most of the Midwest's needs. However, whereas the 
large refiners are along the coasts and near Chicago, almost all of the 
Midwest, Plains and Rocky Mountain states--the United States bread 
basket--are serviced almost exclusively by SBRs. This means that rural 
America and production agriculture are dependent on the continued 
profitable existence of those 37 SBRs for not only local fuel products, 
but also for local jobs. A review of the attached map, with the 
locations of small and large U.S. refiners, shows how SBRs predominate 
mid-America
---------------------------------------------------------------------------
    \2\ Small business refiners are those defined under the American 
Jobs Creation Act of 2004 (found in the conference report 108-755 to 
the bill H.R. 4520, page 527).
---------------------------------------------------------------------------
    Ownership: Mid America is dependent on the petroleum products 
provided by SBRs. Of the 37 SBRs, three refineries (located in Montana, 
Kansas and Indiana) are owned by farmers themselves. These three 
refineries are called refiner co-ops and together they provide about 
60% of the fuel used by farmers and cooperatives in the United States. 
CHS is a refiner co-op. Any GHG costs it incurs must be passed on to 
its owners--its 350,000 farmers and ranchers. Any GHG cost not passed 
on is a direct loss to farmer patronage. Either way, these farmers 
lose. In addition, many SBRs are almost single-business focused and 
lack business breadth and diversity to mitigate high GHG costs. Many of 
the SBRs have only their refining platforms and none have crude oil 
reserves. Thus for many SBRs their income is derived mostly, if not 
only, from the profitable sale of petroleum products and not from crude 
oil which is often very high value. This makes SBRs very vulnerable to 
onerous GHG legislative and regulatory costs.
    SBR GHG responsibilities: Unlike any of the other industrial sector 
facilities that will be covered under cap-and-trade legislation, 
petroleum refiners will have to account not only for their smokestack 
emissions, but also for the carbon dioxide equivalents in their 
products.\3\ (This is the most critical aspect of the legislation for 
SBRs.) Thus, refiners must account for the GHGs they emit from their 
smokestacks and the GHG within their gasoline, diesel, jet fuel, 
asphalt and pitch (used in shingles). Those petroleum products account 
for nearly 90% of all their GHGs for which refiners are responsible and 
under the current proposed House climate change legislation will not 
count towards the calculation of free allowances. Such a high 
percentage of GHGs in fuels means they must pass the costs along to the 
consumers. Since SBRs are almost the sole providers of fuel to 
agriculture and rural communities that means those customers will see 
significant cost increases. Those cost increases come not only from 
increased fuel costs, but also from within other inputs they use--
electricity and fertilizer to name two obvious ones.
---------------------------------------------------------------------------
    \3\ Of the GHGs a refinery would be responsible for under a cap-
and-trade system, about 10% would be from its smokestack emissions and 
about 90% from its petroleum products.
---------------------------------------------------------------------------
    Role of Small Business Refiners (SBR). Given this Committee hearing 
focused on agriculture and rural America, it is important that the 
House Committee on Agriculture direct its attention to the SBRs 
themselves from an oversight responsibility. SBRs occupy a unique niche 
not only in the petroleum industry but also geographically. In repeated 
legislation and Federal regulations, refiners in the Midwest have been 
given special recognition and help for the critical role they serve in 
geographic regions and because they are key players in the overall 
supply and distribution of petroleum products to rural areas. As major 
providers of off-road diesel for farmers, jet fuel for commercial and 
military aircraft, asphalt for road construction and pitch for 
shingles, they provide key elements to many sectors of the economy. Any 
increased GHG costs for these products must and will be passed on to 
the consumers. GHG costs that cannot be passed on threaten their 
operation, maybe even their existence, and negatively impact rural 
areas by creating fuel shortages in areas where large refiners do not 
tend to operate--that is the 22 states of Mid America.
    Cost of GHGs in Fuels: Although CHS would urge the Committee to 
look at other input costs to farmers such as from rural electric 
cooperatives and fertilizer production, we want to provide an example 
of only the GHG costs of fuel to a farmer-owned, refiner co-op, whose 
majority customers are farmers themselves. Although we would incur 
costs for the GHGs in both emissions and in fuels we produce, we looked 
at the costs of buying GHG allowances and carbon credits only for our 
fuel production.
    In early July 2008, when carbon credits were trading in the 
European Union (EU) at $40/ton we did some analysis on the impact on 
CHS. Although the jet fuel, asphalt and pitch we make have GHGs, we 
ignored them in calculating our GHG costs. Instead, we determined GHG 
costs for gasoline and diesel only and calculated that it would cost 
CHS $683 million in year one under a cap-and-trade program! Although 
the actual EU trading cost was $40/ton this $40/ton was also the 
midrange figure that EPA used in its calculations of four pricing/cost 
scenarios of cap-and-trade. That $683 million to us translates into a 
38 cents per gallon increase to consumers. Add to that the GHGs in 
other petroleum products like asphalt, jet fuel and pitch, and the 
smokestack emissions, and it would be closer to 50 cents per gallon. We 
would have to pass that on to the customer. If we included all 
petroleum products and smokestack emissions the GHG costs are higher 
than 50 cents. So as we pass along the $40/ton costs, what do those few 
farmers who decide to sell carbon sequestration credits get as income 
from selling credits to help offset those costs? Not as much as some 
people believe. The reasons follow next.
    Value of carbon sequestration credits for farmers. Although only a 
few U.S. companies have been paying for credits, some farmers have been 
selling carbon sequestration credits and earning income. Many of those 
farmers have been selling their credits through 57 credit aggregators. 
Two, the North Dakota Farmer's Union [i] (NDFU) and Iowa 
Farm Bureau [ii] (IFB) have been active. How do their 
programs work? Although there are many details in contracting, in 
general they have certain commonalities. They buy credits by contract, 
most of which are for 5 years. They pay farmers not based on daily 
fluctuations but across a range and then fix the price as an average. 
Payments to farmers are not lump sums but every 6 months. In 2008 the 
NDFU and IFB both averaged near $4.50 a credit. That $4.50 would have 
been the income to a participating farmer. But what would have been his 
costs?
    Net back to farmers. What could be the financial impact on farmers? 
It is difficult to calculate, but let's continue the example using the 
following data. Assume it takes just 2 acres to constitute a 
CO2 ton; carbon credits trade at $40/ton; four gallons of 
diesel are used per acre at a GHG cost of 50 cents a gallon; and 
operations are counted twice annually--for planting and then harvesting 
in 1 year. A farmer would get some credit for each ton of 
CO2 equivalent he agrees to sequester. That could mean he 
would have to put several acres under a GHG contract for each carbon 
ton for a few years or longer. He will get so many dollars per ton--
based on our example of $40/ton final market price, it would be safe to 
assume that the farmer would get a lot less than $40/ ton per year. But 
we do not know for sure. From the results of the 2008 trading by the 
Iowa Farm Bureau and North Dakota Farmers Union, it appears farmers 
received payments in the June/July timeframe of about $4.50 average per 
credit.
    As to costs, there are several to a farmer. Take just fuel costs, 
for example. We use our GHG cost of 50 cents per gallon; with a average 
of 4 gallons used per acre on many farms (The Dept. of Energy's EIA 
shows this varies tremendously); it takes 2 acres of land to equate to 
a ton of sequestered carbon ton (USDA data shows this varies a lot); 
and this is done in two operations, during planting and harvesting. 
Using these realistic numbers--(50 cents/gal)  (4 gal/acre)  (2 
acres/GHG ton per operation)  (two operations annually) ^ the cost per 
year just for fuel to a farmer is $8.
    But there are more GHG costs per acre. There are the costs of an 
agronomist to certify CO2 soil content and a middle-man for 
aggregating the credits. Then add the GHG costs of the fertilizer plant 
which had to buy credits and the rural electric cooperative which had 
to buy GHG credits for making electricity which they pass along to the 
refiners, fertilizer producers, and farmers directly. Also, add the GHG 
costs of seed and crop protection inputs. Given the lag time between 
the time a farmer might buy a low-value carbon credit and when a 
refiner, fertilizer plant or electric co-op might buy a higher GHG 
allowance or carbon offset, the cost to the farmer might exceed the 
value of his sequestered carbon credit sold over the multi-year time 
frame of the carbon credit contract.

    So in July 2008 when we did our company analysis of GHG costs, 
companies were paying $40/ton while farmers were getting $4.50/ton. 
Unless there are changes in how the allowance/credit buying and selling 
occurs it appears that it is far from assured that most farmers will be 
net winners.

    SBR compliance cost. Farmers may not be net winners due to these 
high GHG costs from refiners. What about the SBRs themselves? Cap-and-
trade proposals would have a significant negative impact on SBRs. SBRs 
would have to come up with the financing to participate in the 
mandatory allowance auctions and carbon credit trading requirements by 
the end of each year. Many of the SBRs are not in a financial position 
to get large enough `lines of credit' to participate in these auctions/
trading without significant help. The costs are too high. For example, 
the estimated costs of $683 million in the first year for CHS to comply 
equal all of our record profits in 1999-2003 combined. CHS would try to 
recoup those costs by passing them on to the consumer--in our case, 
mostly farmers and local cooperatives. If we and other SBRs tried to 
absorb some of the costs, that may put some SBR operations in 
jeopardy--not unlikely given the extremely slim margins refiners are 
experiencing today. With rural America depending almost solely on the 
SBR for fuel any decrease in fuel production or SBR closure would have 
significant negative impact on agriculture. Clearly help is needed for 
the SBRs.
    Help for small business refiners. Since SBRs must address both 
smokestack emissions and fuel, we advocate several options: (1) 
eliminate the requirement that refiners account for the GHG in every 
fuel gallon each produces; (2) if that is rejected, replace the credit 
auction system for fuels under cap-and-trade with a `carbon tax;' (3) 
provide financial incentives, free allowances and/or other assistance 
to small business refiners, especially refiner co-ops, to move towards 
compliance of smokestack emissions; and, (4) permit small business 
refiners the unlimited use of carbon sequestration credits.
    Thank you.

Robert J. Looney,
Vice President, Government Affairs,
CHS, Inc.
Endnotes
    [i] As we are only slightly knowledgeable about the Iowa 
Farm Bureau (IFB) and North Dakota Farmer's Union (NDFU) programs the 
below information should be verified with them. But as we understand 
it, the IFB has developed a relationship with Agragate Climate Credits 
Corporation and they do all their trading on the Chicago Climate 
Exchange (CCX). This particular entity, Agragate, holds 20% reserve 
until the carbon is sold. They pay out twice a year, every 6 months in 
July and December. The carbon credit is traded daily on the CCX; 
however their payout is an average of the total sales of their group. 
Also there is a 10% service fee accessed. The last pay out was done in 
July 08, that was for carbon that traded from Dec. 07 ranging from 
$1.65 to $7.50 in June 08 for a net average result of $4.63.
    [ii] NDFU's Carbon Credit Program. They are the largest 
ag, soil, biomass, and carbon aggregator; Agragate, associated with 
IFB, is the second largest out of a total of approximately 57 in the 
U.S. Contracts run 5 future years, (currently their contracts are for 
2009-2013). Each aggregator is required by CCX to hold 20% reserve, so 
NDFU registers 100% of the credits, but can only trade 80% until the 
end when verification is complete that all farmers completed their 
contracts correctly.
    NDFU pays out annually once all credits in their selling pool have 
been sold. That can easily be a payment that farmers won't receive 
until well into the summer, so, therefore, they do receive the interest 
that the profit has made in the meantime as part of their net result 
after NDFU takes out the verification and registration costs to CCX 
that they front for all their participants at the beginning of each 
year. They also have a 10% service fee that is charged. They make no 
promise of a deadline to their farmers as to when they their payment 
will come since it is based on the selling of their entire pool. 
Currently they have about eight that they trade out of right now.
    Their payout is an average of the total sales and they don't have a 
limit on how many people can be in a pool; it is based instead on 
signing up within the deadline at the prior to the beginning of each 
year (Jan. 1). It appears that the 2007 payout was $3.75. It also 
appears that the 2008 payout was in mid $4 range
                               Attachment

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


        The refineries in the oval are mostly small refiners and are 
        the predominate refiners in those states which have significant 
        agricultural presence. Any negative impact from climate change 
        legislation on small refiners to include the three farmer-owned 
        refiner co-ops will have significant consequences to production 
        agriculture and rural communities.
                                 ______
                                 
 Submitted Statement by Hon. Collin C. Peterson; on Behalf of James S. 
      Loving, President, National Cooperative Refinery Association
June 10, 2009--by e-mail


 Hon. Collin C. Peterson,             Hon. Frank D. Lucas,
Chairman,                            Ranking Minority Member,
Committee on Agriculture,            Committee on Agriculture,
Washington, D.C.;                    Washington, D.C..
RE: Comments on Pending Climate Change Legislation, June 11, 2009 
Hearing Before the House Committee on Agriculture

    Mr. Chairman and Ranking Member Lucas:

    The National Cooperative Refinery Association (NCRA) would like to 
submit these comments for the record of the June 11 Committee on 
Agriculture hearing on pending climate change legislation.
    In brief, NCRA is deeply concerned that the climate change 
legislation (H.R. 2454) as reported by the Committee on Energy and 
Commerce unfairly places the burden of downstream emissions from 
petroleum products in the cap-and-trade approach. NCRA believes H.R. 
2454 would put our farmer-owned cooperative refinery at serious 
financial risk and jeopardize our refinery's ability to continue its 66 
year job of providing the farmer-members and communities in rural 
America with refined petroleum products. This is an issue with major 
implications for both NCRA and the cooperatives and farmer-members who 
have invested in our refinery.
    NCRA urges the Committee on Agriculture to work for modifications 
to the legislation that either eliminate this unfair burden on NCRA and 
other farmer cooperative refineries or alternatively provide financial 
assistance or relief, such as an increased allocation of allowances to 
cope with the major cash flow requirements and major risks and 
uncertainties.
    Impact of Climate Change Legislation on NCRA. The 743 page 
Committee Print on H.R. 2454 is highly complex. As we understand it, 
the purpose of the climate change legislation is to reduce emissions of 
CO2 and other Greenhouse Gases (GHG) by encouraging 
conservation and substation to renewable and other alternative forms of 
energy. A major component of this policy would be to sharply increase 
the price of petroleum products and other fossil fuels.
    Rather than adopting a straightforward carbon tax as a way of 
accomplishing this, H.R. 2454 instead uses a cap-and-trade approach on 
emissions allowances, with the price for auctions of reduced 
allocations of emissions translating into higher fuel costs. While H.R. 
2454 appears to create revenue opportunities for production agriculture 
through the production marketable carbon credits, it is vitally 
important to understand that farmers and ranchers and rural communities 
will also be paying much higher prices for their energy inputs.
    The bill's treatment of NCRA and other refineries is addressed in a 
few short provisions. NCRA and other petroleum refineries are held 
accountable not only for our own smokestack emissions, but also for all 
downstream emissions of the refined petroleum products we produce--in 
our case, the emissions from petroleum products when consumed by our 
farmer members and in rural communities to power farm equipment, 
trucks, etc. Essentially NCRA and other refineries become carbon tax 
collectors.
    We are talking about a huge change in the way we do business and 
the pricing of petroleum products. According to a Congressional Budget 
Office (CBO) analysis of H.R. 2454 dated, June 5, 2009, carbon 
allowances are predicted to auction at $16 per ton in 2012 (first year 
in which refineries would be required to submit allowances), and 
steadily increase to over $26 per ton in 2016. It is interesting to 
note that Environmental Protection Agency models during last year's 
climate change debate predicted considerably higher prices--more than 
two-fold. If the system works as intended, the $16 per ton rate in the 
CBO analysis translates into $.16-$.20 per gallon in increased prices 
to our farm and rural community customers in 2012, and nearly double 
that level in 2016. The auction price for carbon credits and resulting 
downstream product price increases would of course continue to increase 
beyond 2016 as the number of allowances is ratcheted down.
    Based on the CBO analysis, for NCRA to participate in the auction 
process and buy the allowances we need to continue operating, it means 
we will need to have to spend $160-$180 million in 2012 on allowances, 
increasing to $260-$280 million in 2016. This represents a major 
increase in cash outlays and is comparable to the net savings to our 
farmer-members that we project for 2012. Will banks provide us with the 
additional operating capital? Will we be able to recover the costs 
through downstream sales? What are the time lags between auctions and 
product price sales? These and a host of other issues about how the 
program would operate give NCRA major concerns about our ability to 
remain in business under this proposal.
    If the auction system works as intended, NCRA will pass all of the 
costs associated with the cap-and-trade system auction through to 
agriculture and rural America in the form of sharply higher prices for 
refined petroleum products. That impact on our farmer-members in and of 
itself is cause for concern. However, if the process doesn't work as 
intended, NCRA could quickly go out of business, the farmer-members who 
rely on our refinery the ultimate losers.
    NCRA is deeply concerned, as any shortcomings or flaws in the cap-
and-trade and auction system will translate into greatly increased 
transaction costs for NCRA at best and at worst mean that NCRA is 
unable to recover the costs, which means we would soon be out of 
business. Based on the experience of a similar approach in Europe, 
which was buffeted by speculation and other problems, we can reasonably 
expect volatility and flaws in the implementation of such an approach 
in the U.S. While major oil companies have the capacity and earnings 
from other sources to cope with these problems, NCRA, other cooperative 
refiners and other Small Business Refiners generally do not have other 
sources of income. We are entirely dependent on our narrow margins in 
refining crude oil into petroleum products. There is little margin for 
error.
    Requested Remedy. NCRA urges the Committee on Agriculture to work 
for modifications to the legislation that either eliminate this unfair 
burden on NCRA and other farmer cooperative refineries, or 
alternatively provide financial assistance or relief, such as an 
increased allocation of allowances to cope with the major cash flow 
requirements and major risks and uncertainties.
    While NCRA believes that the credit auction system under cap-and-
trade should be replaced with a `carbon tax' as the more efficient 
approach given the objectives of the legislation, if a cap-and-trade 
approach is the course taken, NCRA urges that the following changes be 
considered:

   Eliminate the requirement of refiners--or at a minimum 
        SBR's--to be responsible for the GHG emissions in every gallon 
        of refined fuel produced for downstream consumption.

   If the requirement is retained, provide financial incentives 
        and/or assistance to NCRA and other cooperative refiners, as 
        well as other SBR's, many of whom also supply fuel to rural 
        areas. For example, one approach would be to permit NCRA and 
        other small business refiners the unlimited use of carbon 
        sequestration offsets, if a trading system is established that 
        must include small refiners, to meet their compliance goals.

   In H.R. 2454 anyone can buy or sell allowances. To reduce 
        speculation, NCRA recommends that only obligated parties be 
        allowed to participate.

    Interest of NCRA as a Farmer-Owned Cooperative. NCRA was 
established in 1943 and is an energy company that purchases crude oil 
and makes it into finished fuels for farm equipment, trucks and 
automobiles. As a fuel producer, NCRA's roots and purpose are to 
provide fuel for the farms of Mid-America through our member-owners.
    NCRA is the largest farmer-owned refinery in the United States and 
has three farmer member-owners--CHS, Inc., GROWMARK, Inc. and MFA Oil 
Company--which in turn serve the needs of several hundred thousand 
farmer member-owners throughout the Midwest, Northwest and Great 
Plains. CHS, Inc. owns and operates a refinery in Laurel, Montana, and 
Countrymark Cooperative owns and operates a refinery in Mt. Vernon, 
Indiana.
    Our refinery in McPherson, Kansas has a capacity of 85,000 barrels 
per day of Crude Oil and 15,000 barrels per day of Natural Gasoline 
Liquids. Refinery crude runs in Fiscal Year 2008 totaled 29 million 
barrels. Net sales in 2008 of nearly 31 million barrels of refined 
petroleum products totaled $3.6 billion. Sales to member-owners 
represented 98.0% of our total sales the past 2 years.
    Unlike major oil companies, NCRA does not own any crude oil 
production or downstream marketing capacity as potential sources of 
revenue. NCRA is entirely dependent on revenues from its refined 
product sales to operate and invest in the refinery, including any and 
all costs associated with climate change legislation and regulatory 
implementation.
    NCRA continues to reinvest in our refinery. For example, through an 
investment of more than $400 million in our ongoing Clean Fuels project 
and other environmental upgrades, NCRA now produces ultra-low sulfur 
diesel fuel and gasoline. NCRA is in the process of investing $82 
million to complete a gasoline benzene reduction project. NCRA's 
management and Board are evaluating a significant investment in a Heavy 
Crude Expansion Project. These investments will help produce cleaner 
fuel and provide significant environmental benefits, both at the 
refinery and during downstream consumption.
    Given that NCRA has limited access to capital, it is important to 
have climate change provisions affecting our refinery work in a way 
that will not place our refinery at economic risk and will minimize 
unnecessary diversion of funds that could be invested in upgrading the 
refinery, including in technologies and practices that will reduce GHG 
emissions.
    Interest of NCRA's Farmer-Members. The feasibility and costs of 
implementing the climate change requirements affecting NCRA are 
important not only to NCRA, but to the several hundred thousand farm 
families who ultimately own NCRA and depend on us to provide them with 
refined petroleum products. NCRA and the other two remaining farmer 
cooperative refiners are unique--what impacts our refinery impacts the 
farmer-owners of the system. While NCRA and other farmer cooperative 
refiners represent less than one percent of U.S. refining capacity, 
together we refine nearly 40 percent of the fuel needs of American 
farmers, and provide fuel to many rural communities.
    Farmers benefit economically through their ownership participation 
in NCRA and our regional cooperative owners. As a cooperative, savings 
are passed through the system to our member-owners and ultimately 
farmer-members. Patronage refunds to NCRA's member cooperatives in 2008 
totaled more than $267 million.
    Similarly, the farmers who purchase our fuel, and who are owners in 
this cooperative system, are directly impacted by the costs of climate 
change legislation as it affects our refinery. Farmers ultimately bear 
the costs of regulatory compliance, through a combination of increased 
costs for their petroleum fuels and/or reduced patronage. Any burdens 
that threaten the continued economic viability of NCRA could compromise 
our mission to provide reliable and high quality petroleum products to 
our farmer-owners that they need in turn to produce food and natural 
fiber for the nation and the world.
    While actions to address climate change may be necessary, it is 
important to allow NCRA and other regulated entities flexibility and 
opportunities for cost efficiencies in producing the desired outcomes. 
Funds committed to regulatory compliance are not available for other 
purposes, including patronage refunds to farmer members and investments 
in the refinery for environmental and economic viability purposes.
    Thus, NCRA's recommendations to minimize the costs of the climate 
change cap-and-trade approach on our refinery are motivated by both the 
direct impact on our business and compliance, the downstream impacts on 
our farmer-owners and our ability to continue serving their fuel needs.
    In closing, NCRA urges the Committee on Agriculture to work for 
modifications to the legislation that either eliminate this unfair 
burden on NCRA and other farmer cooperative refineries or alternatively 
provide financial assistance or relief, such as an increased allocation 
of allowances to cope with the major cash flow requirements and major 
risks and uncertainties.
            Respectfully Submitted,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
James S. Loving, President.

CC: Members, House Committee on Agriculture.
                                 ______
                                 
Submitted Statement by Hon. Brad Ellsworth; on Behalf of Charlie Smith, 
           President and CEO, Countrymark Cooperative, LLP *
Part I: Carbon Reduction Program Design
---------------------------------------------------------------------------
    * This document is the submission by Countrymark Cooperative, LLP 
for the Agriculture Committee's climate change questionnaire. However, 
it was submitted after the printing deadline, and as such does not 
appear in the Compilation of Responses to Climate Change Questionnaire 
Committee print.
---------------------------------------------------------------------------
    (1) Members of Congress have introduced numerous bills to address 
        the wide spectrum of climate change issues. Do you think 
        Congress should enact a program that uses carbon taxes/fees, a 
        cap-and-trade program, or a hybrid of these two approaches? 
        Why?
    Please respond in 600 words or less.

    CountryMark is a regional farmer owned cooperative and small 
business refiner. Our 16 member cooperatives serve the agricultural 
industry in Indiana. CountryMark supplies over 75% of the fuel needed 
to run Indiana's agricultural industry. We also supply over 50% of the 
fuel needs for the state's school districts. CountryMark will address 
the questions from the perspective of a farmer owned cooperative/small 
business refiner and on behalf of our member farmer cooperatives.
    Greenhouse gas (GHG) legislation that would address climate change 
through mandatory reductions in GHG should have as much flexibility as 
possible to ensure no harm is done to the United States economy. 
Increased fuel costs can quickly lead to unrecoverable loss of 
agricultural business and jobs. CountryMark and the farmers that we 
serve will play an important role in the development and production of 
future renewable fuels through the agricultural business we operate. 
Renewable fuels will be regional in nature with less centralization. We 
believe our regional agricultural business is well positioned to be a 
key participant in the future renewable fuels regime. Therefore, it is 
imperative that any GHG legislation is structured so regional farmer 
owned refining cooperatives and their members remain economically 
viable. Otherwise, a key contributor to the present and future 
renewable fuels industry will be quickly and permanently lost.
    Legislation that is formulated as a ``one size fits all'' program 
will be too inflexible to recognize key components. Any GHG program 
should recognize:

    (1) the differences between industrial sectors;

    (2) regional impacts;

    (3) influence of world economic competition;

    (4) the additional burden to the agricultural industry; and

    (5) unique requirements within different industries.

    Legislation is being proposed that would address both GHG emissions 
from facilities and fuels. A cap-and-trade program with baseline 
reduction targets may be an effective method for reducing facility GHG 
emissions. This type of program should incent individual facilities to 
improve efficiency, develop new technologies, and foster ingenuity to 
reduce GHG emissions. However, using a cap-and-trade program to control 
GHG for fuels presents a great risk to the economy with the greatest 
risk to the agricultural industry and rural America. For CountryMark 
fuels the estimated costs for carbon allowances would have a negative 
impact in excess of $100 million per year. This adverse effect would 
take place immediately under current proposed legislation.
    Impacts of a cap-and-trade program on petroleum fuels, their 
refiners, and agriculture are unclear. Petroleum fuels especially those 
that are refined by farmer owned cooperatives that serve the 
agricultural industry should be addressed differently than a refining 
industry-wide mandatory requirement to comply with cap-and-trade. 
Consideration should be given to the use of the fuel. When fuels are 
used primarily for agricultural needs, such activities reduce the 
overall impact of GHG on the environment.
    Since the risks are unsure, some form of hybrid system should be 
considered: cap-and-trade to regulate facility GHG emissions with an 
alternate method to treat fuel. Fuel could be: (1) totally exempt (2) 
temporarily exempt or (3) taxed, temporarily or permanently.
    The risk to CountryMark's member farmer cooperatives is 
significant. Under an inflexible, heavy handed cap-and-trade program 
their conditions would be more `fragile' with potential fuel 
disruptions. Adverse effects from such a program could result in 
unrecoverable losses to our farmer member cooperatives.
    Handling fuels separately will provide adequate transitional time 
to develop the necessary technology to allow industry to provide 
adequate supplies of renewable fuels. It will also provide time for 
small farmers which comprise our member cooperatives to retool their 
equipment to function in the new fuel regime.

    (2) Should the agriculture and forestry sectors be covered under a 
        carbon reduction program? Why or why not?
    Please respond in 300 words or less.

    No. Farms or farmer owned local cooperatives should not be directly 
covered. Typically, these entities do not have manufacturing and 
estimating their non-fuel related GHG emissions would be difficult, 
expensive, and likely inaccurate. Adding the uncertainty of carbon 
credit values would place additional burden on an industry that has 
traditionally operated on thin margins and is responsible for feeding 
the world.
    However, agriculture, particularly farming, should have the 
potential to provide offsets or credits. The crops that farmers' plant 
should be eligible as offsets for the fuel that was used to power their 
equipment and transport their crops to market. The majority of 
CountryMark fuels go into such agricultural uses. When taking into 
account the use of CountryMark fuels, the overall carbon footprint of 
the entire life cycle is lower than traditional fuels.

    (3) If a cap-and-trade program is chosen, how should emission 
        allowances be distributed? For example, should they be at no 
        cost, auctioned, or a combination of both? How should Congress 
        prioritize the distribution of available allowances? Should 
        allowances for the agricultural and forestry sectors be 
        allocated at no cost, if so, should there be a limit on the 
        number of no-cost allowances?
    Please respond in 600 words or less.

    It is imperative that any allowance distribution system recognize 
the need to transition from current petroleum based fuels to future 
renewable fuels without adverse economic impacts on farmer owned small 
business refiner cooperatives such as CountryMark. As stated above, 
CountryMark and our member farmer cooperatives will play a key role in 
moving toward renewable fuels from both a production and distribution 
standpoint. During this transitional period, no cost allowances should 
be available to ensure the economic viability of small regional 
entities.
    The agriculture industry includes not only farms but farmer owned 
energy cooperatives and other agribusiness--all three are intertwined 
and dependent on each other. An allowance program should recognize this 
relationship and provide for advanced borrowing of allowances, more no 
cost allowances, and a reserve of low cost allowances which would 
complement other flexibility mechanisms such as financial incentives, 
phase in periods, fuel exemptions, tax rebates, hardship petitions, 
etc. The distribution system of allowances should treat agriculture and 
those supporting entities uniquely to ensure that this critical 
industry is not rendered incapable of fulfilling its role in 
transitioning to alternative fuels.
    CountryMark and other small business refiners have a competitive 
disadvantage in a 100% auction system. Small regional refiners do not 
have the economies of scale to compete with large independent refiners 
or multi-national integrated oil companies. CountryMark's member farmer 
cooperatives would be significantly impacted with higher fuel costs 
especially if a 100% auction system was immediately put into place. 
This added cost may provide the tipping point where regional farmer 
owned cooperatives such as CountryMark and their members can no longer 
stay in business. Therefore, even though an auction based distribution 
system may be the long term goal, there should be enough no cost 
allowances provided in the transitional period to ensure the economic 
viability of farmer owned cooperatives, the agriculture industry, and 
other small business refiners--especially, if these entities will be a 
major contributor to the renewable fuels regime.
    In previous proposed legislation, distribution of allowances was 
disproportionate between major industries--electricity generation, 
manufacturing, and transportation including petroleum refining. All of 
these major industries impact agriculture to some extent. However, 
transportation fuels are a large portion of costs for CountryMark's 
member cooperatives. Any allowance distribution system should take this 
into consideration to ensure that agriculture and farmer owned refining 
cooperatives that supply them do not pay a disproportionate amount for 
allowances.
    Lastly, if a 100% auction system is eventually implemented in the 
future, there should be adequate controls to prevent speculation in the 
market. Speculation can increase the cost of allowances above market 
fundamentals. This could preclude small business refiners such as 
CountryMark and small farmers with limited resources the ability to 
participate in the market. Allowances should only be available to those 
entities that are obligated to have them.

    (4) Should a cap-and-trade program or a carbon tax/fee program be 
        linked to existing or emerging U.S. regional or other carbon 
        reduction programs (i.e., RGGI or individual state programs)? 
        If so, which programs and why?
    Please respond in 600 words or less.

    Even though the success of the other programs may provide a blue 
print of how a national program should be structured, a Federal program 
should supersede state or regional programs. GHG emissions are a global 
issue, so state lines and regional boundaries should be irrelevant. 
Including regional or state programs into a Federal program would 
complicate the system and make compliance management very difficult due 
to differing rules, goals, etc. The program should be Federal with 
preemption of state or regional regimes.

    (5) If a cap-and-trade program is established, should an existing 
        government agency regulate it or should a new agency be 
        created? Please explain.
    Please respond in 300 words or less.

    There are existing agencies that would be qualified to administer 
the program. The majority of GHG legislation deals with energy 
production and consumption. Therefore, DOE (maybe FERC) should be 
involved. USDA should be the regulator for the carbon reduction program 
for the agricultural industry and those entities that supply this 
industry such as CountryMark. USDA should be involved in renewable 
fuels development and carbon sequestration because these issues can 
directly affect the agricultural industry.

    (6) If a derivatives or futures market in carbon reduction arises 
        in the wake of the creation of a cap-and-trade program, should 
        the Commodity Futures Trading Commission (CFTC) continue its 
        role as the regulator of this derivative carbon market, or 
        should there be a different regulator? Please explain.
    Please respond in 300 words or less.

    The CFTC should be the regulatory agency. Their experience in 
dealing with price discovery, transparency and convergence would be 
critical to the market. Adequate oversight and regulation is needed to 
ensure that speculation does not inflate the cost of allowances above 
market fundamentals. Non-market based pricing can preclude small 
business refiners like CountryMark and their farmer member cooperatives 
from participating in the market.

    (7) Currently, derivatives of energy-based commodities can be 
        traded through: (a) highly structured instruments on regulated, 
        transparent futures markets accessible to anybody and anyone; 
        (b) flexible instruments on lightly regulated, transparent 
        derivative markets accessible to only major market 
        participants, or; (c) flexible instruments on unregulated, 
        opaque over-the-counter markets accessible only to major market 
        participants.
    Should derivatives markets in carbon reduction arising in the wake 
        of the creation of a cap-and-trade program also be permitted to 
        develop under similar options as for energy-based commodities?
    Please respond in 600 words or less.

    Energy-based derivatives are in place and provide one example of 
how a carbon-based derivative market could function. The ability to 
trade carbon-based derivatives is one piece of an efficiently operated 
market. However, adequate oversight and regulation is needed to ensure 
that speculation does not inflate the cost of the derivatives above 
market fundamentals. This market should have some limitations on 
participation to ensure speculation does not occur. High prices could 
preclude small entities from participating in the market.

    (8) Will enactment of a carbon reduction program have negative 
        impacts for regions or populations whose welfare is of special 
        interest to the agriculture community? Such groups could 
        include: residents of rural areas; populations served by USDA 
        nutrition programs; agricultural producers and forest 
        landowners; or input, transportation, and processing sectors of 
        agriculture and forest products.
    Please respond in 600 words or less.

    A carbon reduction program will adversely affect the State of 
Indiana. Electricity costs to all consumers will increase upwards of 
40-50% by some estimates since the majority of power generating plants 
that serve Indiana are coal based. This will also adversely affect coal 
companies in the region who are primarily based in rural areas.
    Higher electricity costs will adversely affect CountryMark, our 
member farmer cooperatives, and other small business refiners. 
CountryMark is not large enough (as are other small business refiners) 
to support co-generation facilities at our refinery. We are dependent 
on the local utility to supply electricity which is vital in the 
production of both petroleum based fuels and renewable liquid fuels. 
Increased power costs will increase operating costs significantly 
reducing profitability and sustainability of the refinery. Since 
CountryMark supplies over 75% of Indiana's agricultural market and over 
50% of school districts, higher production costs will have a ripple 
effect throughout the state.
    All levels of agriculture will be affected. From the producer that 
has to utilize energy for home heating, planting, harvesting and 
handling their output to the processor that transforms the raw 
commodities to consumer products. Rural communities, which have been in 
decline for years, will continue to decline if the increased cost to 
agriculture reduces demand for U.S. commodities. With the globalization 
of agriculture the U.S. producer's competitive advantage could be 
compromised.
    Indiana's agricultural industry, like other agricultural areas, is 
dependent on the most vulnerable entities that proposed GHG legislation 
would regulate. Those entities are regional farmer owned cooperatives/
small business refiners, coal-based electricity generators, and 
fertilizer manufacturers. The GHG costs on those production facilities 
from both cap-and-trade, carbon taxes or any hybrid program would 
significantly raise the input costs to farmers in turn raising food 
prices--certainly an unintended consequence.
    Agriculture and rural communities run substantially higher risks 
under GHG legislation if there are not special considerations or 
assistance. Small business refiners like CountryMark service almost 
100% of rural communities and farmer owned refining cooperatives 
service about 60% of all farms nation-wide. Any GHG program that does 
not have significant no cost allowances would put farming and rural 
communities at a disadvantage due to significant cost and fuel supply 
problems.
    Proposed legislation appears to put an added burden to the 
petroleum industry as a whole. Not only will this industry have to 
reduce facility GHG emissions similar to other industries, the refining 
industry has been singled out to have to bear the burden of GHG in its 
products--the GHG in every gallon of fuel will be counted against 
refiners. That means that although refiners may eventually be able to 
reduce facility GHG emissions, they will never be in full compliance 
until they stop making fuel. Severe reductions in fuel production will 
send fuel prices soaring--this has been experienced in the upper plains 
and Midwest in recent years especially during planting and harvest 
time. It could even force closure of the small business refiners like 
CountryMark which serve those agricultural and rural areas. Not only 
will CountryMark's member cooperatives lose their secure fuel supply 
but also their investment in the cooperative itself.
    Care should be taken to ensure that small business refiners that 
serve agricultural and rural areas remain viable as the fuel industry 
migrates to renewable fuels. Farmer owned refining cooperatives like 
CountryMark and the agricultural markets they serve will be key 
contributors to the future renewable liquid fuels industry. If these 
regionally based groups are not economically viable due to the proposed 
GHG program, a vital resource will be lost.

    (9) How might revenue generated under a carbon reduction program be 
        best used to offset any negative impacts?
    Please respond in 300 words or less.

    A significant portion of the revenue should be put toward 
developing new technologies to mitigate the effects green house gases 
have on climate change. Renewable liquid fuels technology development 
and those companies that are involved in their production and 
distribution should receive incentives.
    CountryMark is a regional small business refiner and a farmer owned 
energy cooperative that serves Indiana. CountryMark processes 100% 
American crude oil and our refined product is critical to the success 
of the agricultural industry in Indiana. We are a member of an ad-hoc 
Small Business Refiners group that represents 35 small refiners in the 
United States that almost exclusively provide fuels to agricultural and 
rural areas in the Midwest, Rockies, and Plains states. These regional 
refiners like CountryMark are important to the economic viability of 
many areas of the country. These small businesses will be hit the 
hardest by a carbon reduction program especially if costs are not 
mitigated in the initial period.
    For example, CountryMark has calculated the cost impact for both 
our facility GHG emissions and those of our fuel. Using the EPA's 
midpoint cost for GHG emissions of $40 per metric ton (which was 
consistent with the European Union carbon exchange at the time), we 
calculate the carbon cost for our facility and fuels to be in excess of 
$140 million in the first year of the program. This amount exceeds the 
total annual profits of our company for the years 2002-2006 combined.
    Unless some mechanism to provide support to CountryMark and other 
small business refiners is available, many will go out of business. 
This would adversely affect those sectors that we supply such as the 
agricultural industry. If this is allowed to happen, many regional 
refiners and farmers who will contribute to the future renewable liquid 
fuels regime will be lost.

    (10) Should businesses that are affected (either indirectly or 
        directly) by higher overall costs due to a carbon reduction 
        program receive transitional assistance?
    Please respond in 300 words or less.

    Yes. As stated above, it is imperative that regional small business 
refiners and farmer owned cooperatives receive transitional assistance. 
These constituents are vital to the economy, food supply chain, and 
will be key contributors to the production and distribution of 
renewable liquid fuels in the future.
    One of the biggest fears for farmer owned cooperatives and small 
business refiners is financing. To be allowed to produce fuel and serve 
the agricultural industry, allowances or credits must be obtained to 
cover fuels. As an example, using the EPA's midrange allowance cost of 
$40/ton it would cost CountryMark $128 million in the first year for 
allowances just for fuel. This is a significant additional operating 
cost that exceeds CountryMark's current credit facility.
    This situation would be similar for many small business refiners 
and CountryMark's farmer owned cooperative members. Therefore, 
transitional assistance would be imperative to these small businesses 
to ensure economic viability of this important part of the energy and 
agricultural sectors. If CountryMark cannot survive the transition, our 
farmer member cooperatives will not only lose their secure fuel supply 
but their significant investment in the company.

    (11) What role should public lands play in helping to sequester 
        carbon and/or reduce greenhouse gas emissions?
    Please respond in 300 words or less.

    No comments.

    (12) Should carbon prices be determined exclusively by market 
        forces or should limits on carbon prices be established? Please 
        explain.
    Please respond in 600 words or less.

    In the long run, market forces should be allowed to set the carbon 
price. However, it is important that carbon price reflect industry 
fundamentals and speculation is not allowed to drive the price higher 
than those fundamentals support.
    However, as the industry transitions to future renewable fuels, it 
is important that there be enough flexibility in the program to ensure 
that small business refiners such as CountryMark and the agricultural 
industry remain economically viable. Therefore, some sort of price 
control or reserve no cost allowances should be established during the 
transitional period. Small business refiners should also have access to 
allowances based on financial hardship. In addition, banking and 
borrowing of credits should be allowed to help alleviate market 
volatility.

    (13) What, if any, lessons can be learned from the European Union's 
        Emission Trading System (ETS) or any other carbon reduction 
        program already underway or being developed? Do any 
        international carbon reduction programs currently exist for 
        agriculture and forestry?
    Please respond in 600 words or less.

    No comments.
Part II: Carbon Reduction Program Administration and Implementation
    The administration and implementation of an offset or allowance 
program will be a major topic during any potential climate change 
discussion. Please answer the following questions regarding the scale, 
scope, and limitations of any program as part of the larger carbon 
reduction debate.

    (14) What options or combination of options would be most effective 
        for agriculture and forestry sectors in a carbon reduction 
        program: a voluntary offset program, bonus allowances for 
        selected agriculture and forestry activities, or agreed upon 
        performance standards for segments of the agriculture and 
        forestry sectors?
    Please respond in 600 words or less.

    There are many options that can be applied to the agricultural 
sector to provide offsets for GHG emissions. One option would be to 
include agricultural activities in an offset program. These offsets 
should be applied to the fuels and other inputs that are critical to 
farming activities. When these are included, the life cycle carbon 
footprint for the fuels that are used in agriculture should be lower 
than those fuels used for other purposes. Another option would be to 
allow credit generation for carbon sequestration.

    (15) Should the total number of offsets issued annually by the 
        government be limited? If so, how much?
    Please respond in 300 words or less.

    No, they should not be limited. The true goal of any legislation 
should be to reduce the net global green house gases. Limiting offsets 
could stifle engineering and technical ingenuity. Small business 
refiners like CountryMark supply the agricultural industry and rural 
communities. Unlimited offsets should be allowed to ensure that these 
vital areas do not have a disproportionate burden on reducing GHG 
gases.

    (16) How should Congress prioritize the distribution of available 
        offsets (who gets them and how much)?
    Please respond in 600 words or less.

    In the long run, offsets should be a tradable commodity. However, 
consideration should be given to those entities that are actively 
participating in converting to renewable liquid fuels. Small business 
refiners like CountryMark that supply agriculture and rural areas could 
be allowed a higher percentage (if they are limited) of offsets or 
allowances to ensure economic viability. This will prevent adverse 
hardship to these areas.

    (17) What should the criteria be for measuring (quantification, 
        verification, and monitoring) and accounting for the legitimacy 
        of offsets under the program?
    Please respond in 600 words or less.

    Criteria should be flexible enough to ensure that offsets are 
quantifiable and can be measured with third party verification. There 
should be enough flexibility to ensure that agricultural and renewable 
fuel activities have the potential to generate offsets.

    (18) What should be the criteria for assessing offset projects?
    Please respond in 300 words or less.

    Criteria should be consistent and use the best methodologies of 
measuring or modeling GHG mitigation. Development of such criteria 
should be transparent and allow all stakeholders input into its 
development. Criteria should not be rigidly set or it will stifle 
ingenuity and preclude some sectors from participation.

    (19) How should Congress design a system for verifying offset 
        projects?
    Please respond in 300 words or less.

    Design of a verification system for offset projects should be 
transparent and include input from all stakeholders. The system should 
be consistent across all sectors and verification should be audited to 
ensure that criteria are met. Private industry should be allowed to 
train and license verifiers.

    (20) Should Congress establish a standards-based approach with pre-
        calculated values or a project-based approach that measures 
        field results for establishing eligible offsets under the 
        program?
    Please respond in 600 words or less.

    No comments.

    (21) What should be the relationship between offsets and 
        allowances?
    Please respond in 600 words or less.

    Offsets and allowances should both be included in any GHG reduction 
approach. They should be equal weight so the overall net GHG reduction 
goals can be economically achieved. In the long run, both should be 
fungible commodities for price discovery and market convergence.

    (22) Describe the most important factors in establishing the 
        permanence and duration of offsets under the program, including 
        contract length and flexibility?
    Please respond in 300 words or less.

    No comment.

    (23) How should Congress address existing offset projects or 
        credits established through a voluntary market or system (e.g., 
        the Chicago Climate Exchange or an emission registry)?
    Please respond in 600 words or less.

    Existing offset projects or credits should be counted even if 
completed before the determined baseline period. If offsets or credits 
are retroactively applied to an entity's baseline emissions, the 
methodology should be consistent and verified.

    (24) The terms ``additionality'' and ``stackability'' are often 
        used when discussing the details of an offset program. How 
        should producers and forest landowners who may have been early-
        actors and already undertaken activities that sequester carbon 
        or reduce greenhouse gas emissions be treated? Should 
        activities undertaken to reduce carbon emissions also be 
        allowed to count towards other environmental market activities, 
        such as water quality or wildlife habitat creation, therefore 
        allowing landowners to ``stack'' credits?
    Please respond in 600 words or less.

    As long as the methodology is consistent, early-actors should be 
recognized for their efforts as long as GHG emission reductions can be 
verified. Many GHG emission reduction activities will have benefits in 
other areas and vice versa. Therefore, ``stacking'' credits should be 
allowed as long as the carbon reduction effect is not double counted.

    (25) How should activities that may have been paid for in part by 
        assistance from Federal or state government programs (i.e., 
        cost share, technical assistance) be treated? How should those 
        activities be treated if the practice was not specifically 
        implemented to address carbon sequestration or greenhouse gas 
        emission reduction?
    Please respond in 300 words or less.

    Programs that were designed for purposes not related to GHG 
emissions or carbon sequestration should be eligible to earn offset 
credits. Future programs should also be taken into account even if 
there is Federal or state government assistance. Small business 
refiners like CountryMark and the agricultural industry that they serve 
will need potential assistance in the future to remain viable. These 
entities that are active in generating offsets or producing and 
distributing renewable fuels should be able to take credit for these 
activities due to their ``sweat equity'' regardless of funding. To 
reach the aggressive GHG reduction goals laid out in proposed 
legislation, industry and government will need to work together. 
Moreover, if the activity reduces carbon, it must be contemplated by 
any genuine GHG reduction program.

    (26) Should a producer be required to return revenue or be held 
        liable if an offset project does not sequester carbon or reduce 
        greenhouse gas emissions? How about in the event of a natural 
        disaster or another event uncontrolled by the producer and/or 
        landowner?
    Please respond in 300 words or less.

    The methodology (either direct measurement or modeling) for 
verifying offset projects or GHG reductions should ensure that those 
activities are real. Natural disasters or other uncontrolled events 
should not penalize an offset project. There should be some flexibility 
or time period allowed for reinitiating those projects so they can be 
permanent.

    (27) Should the protocols and procedures for the offset program be 
        detailed in legislation, or should authority be delegated to 
        the appropriate government agency to develop regulations? If 
        so, which agency or agencies should be responsible for devising 
        protocols and procedures?
    Please respond in 300 words or less.

    Any offset program should be designed with input from all 
stakeholders and should not preclude any one sector's participation. 
Current regulatory process provides this approach. Legislation should 
provide the framework for an offset program and the details should be 
worked out using current regulatory process. DOE should be involved for 
those regulations related to the energy sector. DOE is well positioned 
to ensure that there is a balance between maintaining energy security 
while reducing GHG emissions. For potential offsets inherent in 
agriculture the USDA needs to be involved.

    (28) What are the obstacles faced by agricultural producers and 
        landowners to implement practices and technologies?
    Please respond in 600 words or less.

    There needs to be a consistent protocol that ensures that practices 
and technologies are adequately applied. In addition, a method for 
generating capital to apply those practices and technologies needs to 
be available.

    (29) Do existing conservation and forestry programs provide 
        sufficient incentives to encourage the adoption and 
        implementation of practices that mitigate climate change 
        impacts, sequester carbon and/or reduce greenhouse gas 
        emissions? If not, what might Congress consider offering as 
        additional financial incentives and technical assistance to 
        speed up adoption/implementation?
    Please respond in 300 words or less.

    No comments.
Part III: Carbon Reduction Program Additional Thoughts
    Please use the next 1,000 words to provide additional comments on 
subjects which may not be have covered by the questionnaire, such as a 
low-carbon fuel standard, life-cycle analysis, leakage, or biofuel 
incentives.

    1. Renewable fuels. Since it is the goal of the Congress to 
        increase the amount of renewable fuels and displace the amount 
        of greenhouse gases and petroleum products, the use of 
        renewable fuel should not be counted in facility emissions. In 
        addition, consideration should be given to exempting GHG 
        emissions from those facilities that produce renewable liquid 
        fuels. Fuels will be considered renewable as measured by their 
        life cycle carbon footprint. Production activities should be 
        part of this life cycle calculation therefore should be exempt 
        from requiring allowances.

    2. Clean Fuels. The goal of reducing GHG emissions will require 
        migrating to the cleanest fuels available to be used in the 
        production process. One example of a clean fuel is natural gas. 
        Natural gas is the cleanest hydrocarbon based fuel because its 
        combustion emits the least amount of carbon dioxide 
        (CO2). Consideration should be given to those 
        entities that convert from higher emitting hydrocarbon fuels 
        (such as oil or coal) to natural gas. If natural gas is used as 
        a fuel or in the production process, consideration should be 
        given to exempting the emissions from its use.

    3. Consideration for Fuel Use. If petroleum based fuels require 
        allowances, consideration should be given for providing no cost 
        allowances for those fuels based on their use. Fuel that is 
        used for agricultural purposes (farming and transportation of 
        grains) should receive no cost allowances because the crops 
        that were planted should provide an offset to its emissions. 
        This would reduce the financial burden to the agricultural 
        industry and those entities that supply them. Consideration 
        should also be given to providing no cost allowances for fuels 
        that are purchased by governmental entities. If the cost of a 
        carbon reduction program is passed on to the fuels that are 
        purchased by government entities, the flow of money will end up 
        being circular in nature.

    4. Low Carbon Fuel Standard (LCFS). The methodology for LCFS and 
        life-cycle calculations should be consistent and be developed 
        with input from all stakeholders. Life-cycle calculations 
        should consider the use of the fuel. For example, fuel that is 
        used for agricultural purposes (farming and transportation of 
        grains) should have a lower carbon footprint than fuels used 
        for other purposes because the crops that were planted should 
        provide GHG offsets.

    5. Refiners Engaged in Renewable Fuel Production. Consideration for 
        additional allowances should be considered for those small 
        business refiners like CountryMark who are actively engaged in 
        the production and/or distribution of renewable liquid fuels. 
        Availability of renewable liquid fuels is very regional in 
        nature. It will take time for small regional refineries to 
        migrate toward producing and distributing additional renewable 
        fuels. The challenge is great due to limited resources; 
        however, it can be accomplished. Implementation of any GHG 
        legislation should protect the economic viability of those 
        entities that migrate toward the production of renewable fuels. 
        If regional small business refiners like CountryMark are not 
        supported during transition, a valuable contributor to the 
        future renewable fuel regime will be lost.

    6. Diesel Fuel. Diesel fuel is critical to the agricultural 
        industry. Increasing costs on diesel fuel manufacturing via 
        climate legislation will negatively impact the local family 
        farms that the government is counting on to supply renewable 
        bio-based feed stocks for the renewable fuel industry. Nearly 
        all of the Federal Renewable Fuel Standard is focused on 
        ethanol as a replacement for gasoline. However, the commercial 
        viability of a suitable diesel fuel replacement is years behind 
        the ethanol curve. GHG legislation should promote the 
        development of an economically viable renewable diesel fuel 
        replacement. Special consideration such as no cost allowances 
        or distribution of carbon reduction program revenues should be 
        provided to those companies that develop and implement new 
        technologies for the renewable diesel production.

    Respondent did not complete the chart at the end of the 
questionnaire.
                                 ______
                                 
Submitted Letter by Hon. Robert E. Latta; on Behalf of John C. Fisher, 
         Executive Vice President, Ohio Farm Bureau Federation

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Submitted Letter by Hon. Robert E. Latta; on Behalf of James H. 
      Chakeres, Executive Vice President, Ohio Poultry Association

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


 Submitted Letter by Hon. Robert E. Latta; on Behalf of Mark Wachtman, 
               President, Ohio Wheat Growers Association

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  Submitted Letter by Hon. Robert E. Latta; on Behalf of John Davis, 
                President, Ohio Corn Growers Association

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    Submitted Statement by Hon. David P. Roe; on Behalf of W. Lacy 
         Upchurch, President, Tennessee Farm Bureau Federation
    I am W. Lacy Upchurch, President of the Tennessee Farm Bureau 
Federation (TFBF) and livestock producer from the Cumberland Plateau 
area of Tennessee. I gratefully acknowledge the efforts of Chairman 
Colin Peterson for holding this hearing and allowing comments to be 
submitted.
    Tennessee agriculture's sector generates more than $2.7 billion. 
Forestry has added as much as an additional $500,000,000 in recent 
years. Forestry and agricultural related industries, value-added 
manufacturing, marketing and distribution, equine and other related 
products also add significantly to the state's economy.
    Farming continues to dominate Tennessee's landscape with 79,000 
farms producing and selling crops, livestock and/or forest products. 
Although nearly \3/4\ of Tennessee farms had sales of less than $10,000 
during 2007, the state is still a major producer in the U.S. of number 
of commodities. The state ranks second in equine and meat goat numbers. 
Livestock production contributes greatly to the rural and farm makeup 
and dots the landscape which contributes greatly to the character and 
attractiveness to tourist.
    The Tennessee Farm Bureau Federation has concerns of the impacts, 
both negative and positive, as a result of this proposed legislation. 
It is apparent that the many agricultural input costs will sustain 
significant costs increases (i.e., higher fuel, fertilizer and energy 
costs). Tennessee agriculture is an energy intensive industry that 
relies to a large extent on international markets.
    Tennessee farmers are highly dependent on international trade to 
provide markets for the commodities we produce. If agriculture is 
included, measures to level the playing field for international markets 
should take into consideration agriculture's concerns. The TFBF has 
concerns that the negative impacts of this legislation will impact 
certain areas of the country in favor of other areas of the country. 
Leveling the playing field because of competitive advantages that could 
be created should be thoroughly be understood.
    The TFBF calls to the attention of the Committee to the point that 
the European Union did not include agriculture in their cap-and-trade 
legislation. We strongly urge the House Agricultural Committee to study 
the impacts of including U.S. agriculture and the competitive advantage 
or disadvantage that would likely be created.
    Costs increases incurred by utilities and other providers resulting 
from climate change/energy legislation will ultimately be borne by 
consumers, including farmers. Electricity costs are expected to be \1/
3\ higher than would otherwise be the case by 2040. EPA's own estimates 
suggest coal costs could rise by more than 100 percent by 2020. Unlike 
other manufacturers in the economy, agricultural producers have a 
limited ability to pass along increased costs of production to 
consumers. The Tennessee Valley Authority, the main producer of 
electricity for Tennessee farmers, is heavily oriented to coal 
electricity plants for production. TVA had no idea that these kinds of 
costs would be forthcoming when they made the fuel choices for their 
electrical plants. Yet, under this proposal, Tennessee farmers could be 
placed at a competitive disadvantage because of the choice of fuel of 
TVA electrical power. Thus, it is extremely important that those costs 
shifts be minimized to the greatest extent possible.
    Mr. Chairman, the TFBF is concerned about the broad potential 
adverse impacts of cap-and-trade on agriculture. Even though some say 
agriculture will benefit, that will depend to a great degree on where 
the producer is located, what he or she grows, and how his or her 
business model can take advantage of any provisions of the legislation. 
Not every dairy farmer (especially our smaller Tennessee dairy farmers) 
can afford to capture methane--it is a capital intensive endeavor. Not 
every farmer lives in a region where wind turbines are an option. Not 
every farmer can take advantage of no-till. Not every farmer has the 
land to set aside to plant trees.
    Yet, every farmer has production costs to meet. Nearly all farmers 
rely on fertilizer. All farmers drive tractors. We know our costs will 
rise. And frankly, we are very concerned about the impact of this 
legislation on our livelihood.
    I urge you to thoroughly study the impacts on agriculture and do 
not be stampeded into passing this legislation.
    Thank you for the opportunity to express our views.
                                 ______
                                 
  Submitted Letter by Hon. Jean Schmidt; on Behalf of Kraig R. Naasz, 
           President and CEO, American Frozen Food Institute
 Hon. Collin C. Peterson,             Hon. Frank D. Lucas,
Chairman,                            Ranking Minority Member,
Committee on Agriculture,            Committee on Agriculture,
Washington, D.C.;                    Washington, D.C..
Re: American Clean Energy and Security Act, H.R. 2454

    Dear Chairman Peterson and Ranking Member Lucas:

    The American Frozen Food Institute (``AFFI'' is the national trade 
association that promotes and represents the interests of all segments 
of the frozen food industry. AFFI represents a large number of small- 
and medium-sized facilities nationwide that have serious concerns about 
H.R. 2454, the American Clean Energy and Security Act. We believe that 
H.R. 2454 imposes potentially significant yet poorly understood costs 
on the food processing industrial sector as a consequence of having 
failed to distinguish properly between significant and insignificant 
sources of greenhouse gas emissions.
    In particular, the bill would impose significant direct and 
indirect costs on the frozen food industry and, consequentially, on the 
cost of frozen foods. The bill would impose significant direct costs by 
requiring certain frozen food processing facilities \1\ to participate 
in the cap-and-trade program by purchasing emission allowances from the 
Environmental Protection Agency or through the secondary market. 
According to the Congressional Budget Office's most recent cost 
estimate, emission allowances purchased at auction would result in a 
minimum of $4.45 million ($2009) per covered facility being deposited 
from 2011 to 2019 in the U.S. Treasury as a direct tax on food 
production.\2\
---------------------------------------------------------------------------
    \1\ See H.R. 2454,  312 (definition of ``Covered Entities'' at 
proposed 42 U.S.C.  700(13)(H)).
    \2\ Congressional Budget Office, Cost Estimate: H.R. 2454 American 
Clean Energy and Security Act of 2009 13 (June 5, 2009) (estimating 
emission allowance prices of $15/MTCO2e to $26/
MTCO2e in 2011 and 2019, respectively).
---------------------------------------------------------------------------
    The bill would also impose significant indirect costs by increasing 
the cost of natural gas and electricity used to operate frozen food 
facilities, the cost of fuel used to transport raw materials and 
finished products, and the cost of raw materials. The impact of higher 
energy prices just last year on food costs is experience enough to 
warrant a cautious approach to imposing additional energy-related costs 
on the food production sector. These higher costs will undoubtedly put 
American businesses at an international competitive disadvantage, and 
reduce our ability to export.
    In light of these impacts, any climate change legislation must 
carefully distinguish between significant and small sources of 
greenhouse gas emissions. EPA has estimated that the food processing 
industry contributes less than 0.2 percent \3\ to nationwide greenhouse 
gas emissions, yet the bill imposes significant burdens on this 
industrial sector. AFFI respectfully urges the Committee to focus the 
bill's attention on significant sources of greenhouse gas emissions 
that may be more efficiently controlled.
---------------------------------------------------------------------------
    \3\ See Technical Support Document for Food Processing Facilities: 
Proposed Rule for Mandatory Reporting of Greenhouse Gases 3 (EPA Feb. 
4, 2009) and Inventory of U.S. Greenhouse Gas Emissions and Sinks: 
1990-2007 ES-6 (EPA 430-R-09-004, Apr. 15, 2009) (reporting total 2007 
CO2e emissions of 7,150.1 MMTCO2e).
---------------------------------------------------------------------------
    Any climate change legislation must also carefully and accurately 
estimate in advance the economic impact of the legislation on food 
prices. It is imperative that no climate change law be enacted without 
understanding the economic impact of the bill on the food processing 
sector. AFFI respectfully urges the Committee to call for an economic 
impact analysis of H.R. 2454 on the food processing industrial sector.
    In sum, until this legislation focuses properly on significant 
sources of greenhouse gas emissions, and the Congress fully assesses 
the economic impacts of the bill on the food processing industrial 
sector, AFFI cannot support the legislation.
            Respectfully submitted,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
Kraig R. Naasz,
President & CEO,
American Frozen Food Institute.
                                 ______
                                 
 Submitted Letter by Hon. Jean Schmidt; on Behalf of Robert Garfield, 
             Chairman, Food Industry Environmental Council
June 10, 2009

Hon. Collin C. Peterson,
Chairman, House Agriculture Committee,
U.S. House of Representatives,
Washington, D.C.;

Hon. Frank D. Lucas,
Ranking Minority Member, House Agriculture Committee,
U.S. House of Representatives
Washington, D.C.

Re: American Clean Energy and Security Act, H.R. 2454

    Dear Chairman Peterson and Ranking Member Lucas:

    The Food Industry Environmental Council (``FIEC'') is a coalition 
of more than 50 food processors and food trade associations that 
together represent more than 15,000 facilities across the nation, 
contribute hundreds of billions of dollars in sales to the economy and 
employ approximately 1.5 million people. According to the Environmental 
Protection Agency (EPA), the food processing sector contributes less 
than 0.2 percent to nationwide greenhouse gas emissions. We believe 
that H.R. 2454 imposes potentially significant yet poorly understood 
costs on the food processing industrial sector as a consequence of 
having failed to distinguish properly between significant and 
insignificant sources of greenhouse gas emissions.
    In particular, the bill would impose significant direct and 
indirect costs on the food and beverage industry and, consequentially, 
on the cost of food and beverages. The bill would impose significant 
direct costs by requiring certain food and beverage processing 
facilities to participate in the cap-and-trade program by purchasing 
emission allowances from the EPA or through the secondary market. The 
bill would also impose significant indirect costs by increasing the 
cost of natural gas and electricity used to operate food and beverage 
facilities, the cost of fuel used to transport raw materials and 
finished products, and the cost of raw materials.
    Until this legislation focuses properly on significant sources of 
greenhouse gas emissions, and the Congress fully assesses the economic 
impacts of the bill on the food processing industrial sector, FIEC 
cannot support the legislation.
            Respectfully submitted,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
Robert Garfield,
Chairman,
Food Industry Environmental Council.
                                 ______
                                 
 Submitted Letter by Hon. Glenn Thompson, a Representative in Congress 
                           from Pennsylvania
Pennsylvania Public Utility Commission, Commonwealth of Pennsylvania, 
        Harrisburg, Pennsylvania
Date: May 7, 2009

To: PA Congressional Delegation

Fr: Vice Chairman Tyrone J. Christy; Commissioner Kim Pizzingrilli; 
Commissioner Robert F. Powelson

Re: Cap & Trade Legislation Analysis

    We have been giving much thought to the President's request to pass 
meaningful carbon legislation in the 111th Congress. Although it is a 
noble goal and a major initiative by any standard, we believe it has 
much deeper significance to our state than many of us realize. Left 
unexamined and unchecked, this policy will have a profound adverse 
impact on the Commonwealth of Pennsylvania.
    Please allow us to explain.
    Pennsylvania is the 4th largest coal producer in the nation, 
distributing over 75 million tons of coal each year. Roughly 7% of the 
nation's coal supply is in Pennsylvania, and 58% of all electricity 
used here comes from coal. However, if the Waxman-Markey bill were to 
pass, Pennsylvania is looking at a bleak scenario by 2020: a net loss 
of as many as 66,000 jobs, a sizeable hike in the electric bills of 
residential customers, an increase in natural gas prices, and 
significant downward pressure on our gross state product.
    We are far from convinced that the negative impacts this 
legislation could have on our state's economy are fully understood and 
appreciated. The cost estimates are staggering.
    Take, for example, a recent study conducted for PJM--the Regional 
Transmission Organization (RTO) to which Pennsylvania belongs--that 
provides an assumed cost of $60 per short ton of CO2 
emission allowances.\1\ By 2013, this would result in an annual PJM-
wide market impact of nearly $36 billion in higher energy prices and 
rate increases of over $400 annually for residential ratepayers. 
Whether we reach the $60 per short ton figure or not, the impact will 
likely be a nightmare for regulators.
---------------------------------------------------------------------------
    \1\ ``Potential Effects of Proposed Climate Change Policies on 
PJM's Energy Market.'' http://www.state.nj.us/dep/cleanair/pdf/
09_potential_effects.pdf.
---------------------------------------------------------------------------
    If we adhere to the energy efficiency provisions of Act 129 of 
2008, however, load reduction could reduce annual market costs by 
billions. According to PJM, a 2% load reduction could cut annual market 
costs by $4 billion and reduce CO2 emissions by 14 million 
short tons, while a 10% load reduction could reduce such costs by as 
much as $18 billion and CO2 emissions by 60 million short 
tons.
    Additionally, realizing that Pennsylvania already has an 18% 
Renewable Portfolio Standard (RPS) to reach by 2020 as a result of the 
Alternative Energy Portfolio Standards (AEPS) Act, we should not 
discount the impact that increased renewable resources will have on 
carbon emissions. According to PJM, the addition of 15,000 mw of wind 
energy could reduce CO2 emissions by as much as 37 million 
short tons.
    We must also seek to better understand and commit ourselves to new 
nuclear and waste coal generation, as we believe Pennsylvania has a 
competitive edge on this front, as well as cost-effective renewables.
    Congress has a responsibility to ensure that legislation enacted on 
this important topic is in the best interests of every state and region 
in the United States. With that being said, it is clear that 
Pennsylvania holds a unique position in this debate due to its huge 
reliance on coal.
    Residents of Pennsylvania and other coal-reliant states will be 
severely and disproportionately harmed by carbon legislation. It will 
be impossible for these states to rapidly or immediately stop using 
power generated at existing coal-fired or natural gas-fired power 
plants without causing severe and protracted reliability problems. 
Therefore, legislators should recognize the different competitive 
environments of states and regions across the country and seek to 
harmonize national-scale carbon legislation with pre-existing state 
policies and major resources.
    In essence, it comes down to ``common sense.'' Is Pennsylvania 
ready to acquiesce behind Federal legislation that will choke off our 
economy by displacing thousands of jobs and increasing utility bills 
for residential ratepayers? We hope not.
    We must take the time to understand the full meaning of cap-and-
trade legislation, bearing in mind the effects it will have on the 
Commonwealth of Pennsylvania.
            Sincerely,

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            
 Tyrone J. Christy,       Kim Pizzingrilli,        Robert F. Powelson,
Vice Chairman;           Commissioner;            Commissioner.
                               Attachment

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


            Submitted Letter by Agriculture Energy Alliance
June 11, 2009

Hon. Nancy Pelosi,
Speaker of the House,
United States House of Representatives,
Washington, D.C.

    Dear Madam Speaker:

    We are writing you today on behalf of American farmers and 
producers of farm inputs to express our concern with aspects of the 
American Clean Energy and Security Act of 2009 (H.R. 2454) approved by 
the House Energy and Commerce Committee on May 21, 2009. As it is 
currently formulated, this legislation would burden U.S. farmers with 
significantly higher production costs. It would also put U.S. producers 
of key agricultural inputs such as fertilizer and petroleum products at 
a serious competitive disadvantage and would force even more production 
of these critical farm inputs overseas to countries with no carbon 
reduction policies. Contrary to the hopes of many in the agricultural 
community, the bill does not provide farmers with the ability to 
recover any of these cost increases through the sale of carbon offset 
credits. These cost increases will be prohibitive if an international 
greenhouse gas reduction agreement is signed after U.S. production of 
fertilizer and petroleum products has been forced overseas. We believe 
that the American Clean Energy and Security Act of 2009 must address 
these concerns.
    The agricultural sector is highly energy intensive and relies on 
natural gas, refined petroleum products and other energy inputs for 
food processing, irrigation, crop drying, heating farm buildings and 
homes, crop protection chemicals, and nitrogen fertilizer production. 
Even though the bill does not include agriculture under the cap, the 
net result of this legislation would be to increase dramatically 
farmers' energy costs.
    The result of this bill will be to force production of key inputs 
such as fertilizer and petroleum products to countries that do not 
regulate carbon emissions. For example, the U.S. fertilizer industry 
competes in a global marketplace that includes many producers from 
countries with no carbon reduction policies, like Russian, Chinese and 
Middle Eastern producers. U.S. fertilizer production also competes with 
producers in the European Union and Australia whose governments have 
adopted or drafted policies that aim to fully protect their energy-
intensive/trade-intensive industries including fertilizer. U.S. farmers 
are already dependent on imports for about 55 percent of their nitrogen 
fertilizer needs. As H.R. 2454 is currently drafted it would place U.S. 
fertilizer producers at a competitive disadvantage and force them to 
make a stark choice between losing market share to imports or moving 
production overseas.
    The current version of H.R. 2454 also fails to recognize and 
support the benefits that agriculture can provide to the reduction of 
carbon emissions. Agricultural best management practices can play an 
important role in reducing carbon emissions. In addition, these 
reductions are low-cost and can be generated rapidly during the early 
years of a cap-and-trade program when a quick start is most urgent. We 
feel strongly that any cap-and-trade legislation must recognize and 
account for the benefits that agriculture can provide and should also 
allow farmers to earn the potential revenue from carbon sequestration 
trading to help offset increased input costs.
    As currently drafted, H.R. 2454 fails to address the most important 
concerns of the U.S. agricultural sector. We believe this legislation 
must directly address increased input costs, the potential to force 
fertilizer production and petroleum refining overseas, and the 
tremendous offset capability of American farm production. To be viable, 
any climate change legislation must recognize the critical role that 
agriculture can play in protecting and restoring our environment. At 
the same time, it must not and cannot place the unbearable burden of 
increased prices for petroleum products, fertilizer, electricity and 
other agricultural inputs on the backs of American farmers. 
Particularly in this difficult economic period, we must ensure that our 
environmental goals are met in a way that does not endanger jobs, 
investment or food security provided by our agricultural sector. Put 
another way, this legislation should be supportive of, not in 
opposition to, our collective mission of feeding America and the world.
            Sincerely,
 Agribusiness Association of Iowa     NCRA
Agricultural Retailers Association   National Grange
Agrium Inc.                          Nebraska Agri-Business Association
American Agri-Women                  North Dakota Agricultural
                                      Association
American Plant Food Corporation      Oklahoma Ag Retailers Association
Associated Industries of Florida     Oklahoma Grain & Feed Association
Brandt Consolidated                  Oklahoma Seed Trade Association
CF Industries                        Peace River Valley Citrus Growers
                                      Association
CHS Inc.                             Polk County Farm Bureau (FL)
Chemical Industry Council of         PotashCorp
 Illinois
D.B. Western, Inc.                   Rocky Mountain Agribusiness
                                      Association
Far West Agribusiness Association    Sarasota County Farm Bureau (FL)
Florida Chamber of Commerce          Society of American Florists
Florida Farm Bureau Federation       South Carolina Fertilizer &
Florida Fertilizer & Agrichemical     Agrichemicals
 Association                           Association
Florida Strawberry Growers           South Dakota Agri-Business
 Association                          Association
GROWMARK                             South Dakota Grain & Feed
Hardee County Farm Bureau (FL)        Association
Hillsborough County Farm Bureau      Southern Crop Production
 (FL)                                 Association
Illinois Fertilizer & Chemical       Terra Industries Inc.
 Association                         Texas Agricultural Cooperative
Indiana Grain & Feed Association      Council
Indiana Plant Food & Ag Chemicals    Texas Grain & Feed Association
  Association                        The Andersons, Inc.
                                     The Fertilizer Institute
International Raw Materials, Ltd.    The McGregor Company
W.B. Johnston Grain Co.              Western Plant Health Association
                                      (CA)
J.R. Simplot Company
Kansas Agribusiness Retailers
 Association
Kansas Grain and Feed Association
Minnesota Crop Production Retailers
Minnesota Agri-Growth Council
Missouri Agribusiness Association
Montana Agricultural Business
 Association
                                 ______
                                 
         Submitted Letter by American Bird Conservancy, et al.
June 10, 2009

 Hon. Collin C. Peterson,             Hon. Nick J. Rahall,
Chairman,                            Chairman,
Committee on Agriculture,            Committee on Natural Resources,
United States House of               United States House of
 Representatives;                     Representatives;
Washington, D.C.;                    Washington, D.C.;Hon. Frank D. Lucas,                 Hon. Doc Hastings,
Ranking Minority Member,             Ranking Minority Member,
Committee on Agriculture,            Committee on Natural Resources,
United States House of               United States House of
 Representatives;                     Representatives;
Washington, D.C.;                    Washington, D.C.
    Dear Chairman Peterson, Chairman Rahall, Ranking Member Lucas and 
Ranking Member Hastings:

    Climate change threatens the nation's 750 million acres of 
forests--the same forests that provide clean air and water, carbon 
sequestration, renewable energy and numerous other ecosystem services 
at little cost to the public. Changes in precipitation, temperature, 
fire patterns, increased CO2 concentrations, pest outbreaks 
and other influences associated with climate change have the potential 
to transform forest ecosystems by altering their composition and 
shifting their distribution.\1\ In some cases, forest migration rates 
may not match the rate at which the climate is changing leaving open 
the possibility of losing important forest types and forest 
biodiversity.\1\
---------------------------------------------------------------------------
    \1\ Malmsheimer, R.W. et al. 2008. Potential Effects of Climate 
Change on Forests. Journal of Forestry 106(3): 129-131.
---------------------------------------------------------------------------
    Impacts associated with climate change also expose forested 
habitats that are home to countless numbers of birds, amphibians, 
reptiles and mammals. Temperature increases are expected to shift 
habitat to higher elevations and to northern climates and--in some 
cases--may eliminate components of a species' habitat, which can 
threaten its long-term survival. Warming trends also impact timing of 
bud burst, insect breeding cycles and peak food demand by migratory 
birds that depend on forests.
    Many authorities exist to conduct forest management activities, 
which can help the nation's non-Federal forests adapt to climate change 
and continue to provide wildlife habitat and other essential ecosystems 
services. Conducting adaptation activities will be particularly 
important in priority areas identified in the State Forest Resource 
Assessments and Strategies required by the 2008 Farm Bill. Active 
forest management can help forests adapt through such activities as:

   Replanting and seeding new forests with drought resistant 
        and other trees selected for adaptation resiliency--
        particularly in areas of high forest fragmentation;

   Conducting fuels treatments in areas experiencing prolonged 
        drought and at risk of catastrophic wildfire;

   Installing measures that facilitate adaptation of wildlife 
        to climate-induced change in forest habitat including 
        establishment of migration corridors;

   Conducting activities that minimize or prevent insect, 
        disease or invasive infestations that are anticipated to 
        accelerate by changes in climate; and

   Employing measures across contiguous forest landscapes that 
        collectively achieve diverse age classes, species mix, stand 
        structure and other characteristics that assist in forest 
        adaptation.

    Funding adaptation activities on Federal forests is essential, but 
only addresses needs on \1/3\ of the nation's forests. Adaptation 
activities will need to be coordinated among Federal, state and private 
forest ownerships as wildlife adapt to new habitats that span across 
political boundaries. Funding adaptation activities will help ensure 
non-Federal forest lands can respond to new climates and continue to 
provide a broad array of ecosystem services. The undersigned 
organizations urge Congress to broaden the scope of Section 480 of H.R. 
2454 to fund adaptation activities on the nation's 495 million acres of 
forests held in state and private ownership by including the following 
(new language in bold):

        (4) Forest service.--Of the amounts made available each fiscal 
            year to carry out this subpart, five percent shall be 
            available to the Secretary of Agriculture for use in 
            funding natural resource adaptation activities carried out 
            on national forests and national grasslands under the 
            jurisdiction of the Forest Service and for natural resource 
            adaptation activities on state and private forest lands 
            carried out under the Cooperative Forestry Assistance Act 
            of 1978 and consistent with adaptation activities 
            identified in the State-Wide Assessments and Strategies 
            found in Section 8002 of the Food, Conservation and Energy 
            Act of 2008 or in accordance with other forest adaptation 
            plans developed by the state forester through a public 
            consultation processes.

    We greatly applaud Congress for taking on the immense challenge of 
addressing climate change and hope you will consider making these 
changes as the House Agriculture Committee and House Natural Resources 
Committee address H.R. 2454.
            Sincerely,
American Bird Conservancy;
American Forest & Paper Association;
American Forest Foundation;
American Forests;
Association of Fish and Wildlife Agencies;
C21, LLC;
California Forestry Association;
Council of Western State Foresters;
Defenders of Wildlife;
Environmental Defense Fund;
Forest Guild;
Hardwood Federation;
Maine Forest Service;
Manomet Center for Conservation Sciences;
National Alliance of Forest Owners;
National Association of Conservation Districts;
National Association of Gateway Communities;
National Association of State Foresters;
National Association of University Forest Resource Programs;
National Hardwood Lumber Association;
National Wildlife Federation;
National Woodland Owners Association;
New Forests;
Pinchot Institute for Conservation;
Plum Creek;
Society of American Foresters;
The Nature Conservancy;
The Trust for Public Land;
The Wilderness Society;
Western Pennsylvania Conservancy;
Weyerhaeuser Company;
Wildlife Mississippi.
                                 ______
                                 
       Submitted Statement by American Forest & Paper Association
    On behalf of the American Forest & Paper Association (AF&PA), I am 
pleased to submit the following statement regarding H.R. 2454, the 
American Clean Energy & Security (ACES) Act of 2009. AF&PA is the 
national trade association of the forest products industry, 
representing forest landowners, pulp, paper, paperboard, and wood 
products manufacturers. Our companies are in the business of producing 
products essential for everyday life from renewable & recyclable 
resources that sustain the environment.
    The forest products industry accounts for approximately six percent 
of the total U.S. manufacturing output and employs approximately a 
million people with an estimated annual payroll exceeding $50 billion. 
We are leaders in efforts to reduce carbon emissions and to increase 
the use of renewable energy. Between 2000 and 2006, AF&PA member 
companies reduced their greenhouse gas emissions intensity by 14 
percent. Our recycling efforts help prevent the emission of 21.1 
million metric tons of CO2 from landfills, and managed 
forests and forest products store enough carbon each year to offset 
approximately ten percent of U.S. CO2 emissions.
     We are also the leading producer and user of renewable biomass 
energy. We produce 28.5 million megawatt hours annually, enough to 
power 2.7 million homes. In fact, the energy we produce from biomass 
exceeds the total energy produced from solar, wind, and geothermal 
sources combined. Sixty-five percent of the energy used at AF&PA member 
paper and wood products facilities is generated from carbon-neutral 
renewable biomass.
    As a leader in sequestration of greenhouse gases and renewable 
energy use, we are concerned about two key issues in the American 
Climate and Energy Security Act of 2009 that could have a major impact 
on our businesses. First, we strongly urge you to adopt a simpler 
definition of renewable biomass that includes clear sustainability 
requirements and that explicitly includes residues for wood, pulp, and 
paper product facilities. Second, we strongly urge you to include well 
designed domestic forestry projects as eligible offset under the 
offsets provisions (Title VII, Subpart D).
Definition of Renewable Biomass:
    This Committee is well aware of our industry's concerns regarding 
the definition of renewable biomass. We share the concerns voiced by 
many Committee Members regarding the overly narrow definition of 
renewable biomass that was adopted as part of the Renewable Fuel 
Standard in 2007. We are pleased to see that the Energy & Commerce 
Committee's bill includes an expanded, but still insufficient and 
overly complex definition of renewable biomass for the RFS, as well as 
the for the emissions reduction and renewable energy provisions of 
ACES.
    The definition of renewable biomass in the current version of ACES 
includes five different categories of woody biomass removed from 
various types of private lands (including anything removed from within 
600 feet of a building, various categories of woods-based biomass from 
both managed natural forests and actively managed tree plantations, 
non-plantation forests, and then from yet to be planted forests which 
were planted for the sole purpose or restoring native forest types), 
and puts in place unnecessary restrictions on renewable biomass from 
Federal public lands. The definition also uses new, ambiguous language 
regarding ``residues from and byproducts of milled logs,'' which may or 
may not result in residues from our facilities meeting the definition.
    We believe a preferable approach would be to adopt a simpler 
definition of renewable biomass, such as the one used in the 2008 Farm 
Bill, with the addition of reasonable sustainability requirements such 
as a written harvest or forest management plan developed by a 
credentialed forestry professional, or adherence to a forest management 
or wood procurement certification system. A more inclusive definition 
of renewable biomass would ensure that, in the climate title of ACES, 
the biomass used in forest products facilities properly would qualify 
as carbon-neutral biomass and not require the remittance of allowances. 
This would accord with the bill's provision of allowances based solely 
on our mills' fossil fuel usage. It is also consistent with the views 
of the U.S. EPA, the Canadian Government, the European Union, and the 
UN Intergovernmental Panel on Climate Change regarding the carbon 
neutrality of emissions from the combustion of biomass. This would 
avoid a potential perverse and unintended consequence of creating an 
incentive for forest products facilities to use fossil fuels in lieu of 
carbon neutral biomass.
    Further, it is critical that the final legislation explicitly 
recognize that residue or byproducts from wood, pulp, or paper product 
facilities qualify as renewable biomass. Doing so is the only way that 
the legislation can ensure that our forest, wood, and paper sectors can 
contribute to our renewable energy portfolio while remaining 
competitive with other potential sources of renewable energy. If the 
legislation fails to include this definition, thousands of additional 
jobs could be lost in our country.
    We continue to believe that promoting the development of renewable 
energy must be accomplished while providing adequate safeguards to 
ensure that new mandates do not create undue economic or environmental 
harm. With that in mind, we recommend that the Committee include a 
comprehensive study of the impact of renewable energy mandates on both 
economic and environmental factors, with a provision allowing a waiver 
from all or part of the renewable electricity standard if it is 
necessary to prevent economic or environmental harm. We have attached 
specific language which we believe would accomplish these objectives.
    We are concerned that the current legislation unnecessarily 
restricts the use of wood biomass from Federal public lands. As this 
Committee has heard recently from the Administration, between 60 to 80 
million acres of National Forests are densely stocked and at risk of 
catastrophic fire. The current version of ACES restricts harvesting of 
renewable biomass from a number of categories of Federal lands, most of 
which are not open to commercial activities under most circumstances. 
While we believe these restrictions to be mostly redundant, the 
provision prohibiting the removal of biomass from ``old growth or 
mature forest stands'' is particularly damaging.
    This provision basically undercuts the other portions of the 
definition pertaining to Federal public lands, including the provision 
allowing fiber to qualify if it is removed ``as part of a federally 
recognized timber sale.'' Many forest types, including Aspen, Lodgepole 
Pine, and many mixed hardwood stands in the eastern U.S. are not 
harvested until the stand has reached biological maturity. The term 
``old growth'' is highly controversial and many forest plans adopt 
differing definitions, and differing goals regarding the development 
and retention of old growth. In our view, all byproducts of legitimate 
hazardous fuels reduction projects or any Forest Service timber sale 
which complies with the extensive projections required under existing 
law should qualify as renewable biomass.
Forestry Offsets
    The legislation as reported by the Energy & Commerce Committee 
leaves too many details about acceptable emissions offsets projects up 
to Federal agencies. AF&PA believes the legislation should list what 
types of projects qualify as legitimate offsets, and that USDA should 
play a prominent role in administering this portion of the program.
    More than half the forestland in the U.S. is privately owned--
roughly 424 million acres. Of that, 354 million acres are actively 
managed for timber. Private landowners in the U.S. plant about four 
million trees each day.\1\ Domestic forestry projects should be 
included in legislation as eligible offset project types. These include 
afforestation, reforestation, and forest management.
---------------------------------------------------------------------------
    \1\ Forest Resources of the United States, 2007; Draft RPA Review 
Tables: U.S. Dept. of Agriculture, http://www.fia.fs.fed.us/documents/
pdfs/2007_RPA_REVIEW_TABLESv2c.pdf; Tree planting in the United 
States--1999.
---------------------------------------------------------------------------
    We strongly suggest that the development and implementation of 
domestic forestry project protocols be delegated to the U.S. Department 
of Agriculture. EPA already relies on the Forest Service to develop the 
land use and forestry related portions of the National Emissions 
Inventory reported to the UN Framework Convention on Climate Change 
(UNFCCC) annually. USDA clearly has the expertise necessary to develop 
forest related offsets that balance both environmental integrity and 
administrative burden.
    In developing measurement protocols, the USDA should consider 
voluntary consensus standards developed pursuant to the National 
Technology Transfer and Advancement Act of 2005, OMB Circular A-119, 
developed under procedures accredited by the American National 
Standards Institute.
    While we agree that additionality and baseline criteria should be 
determined by forest project type, we are opposed to the use of 
``business as usual'' (BAU) criteria for determining baselines. There 
are two fundamentally flawed assumptions inherent in a BAU baseline 
approach. The first is the assumption that BAU actually exists in 
dynamic markets and the second is the assumption that BAU baseline 
carbon levels will be maintained in a market system that does not 
recognize their value. For forestry projects, we support a baseline 
year approach in which incremental increases in carbon are measured 
from the carbon inventory level calculated at the start of the project. 
Carbon stocks in U.S. forests continue to grow at a rate of over 800 
million metric tons of CO2 equivalents per year.\2\ On U.S. 
timberland which supplies wood to the forest products industry, carbon 
stocks are stable or increasing.\3\
---------------------------------------------------------------------------
    \2\ U.S. Environmental Protection Agency, Inventory of U.S. 
greenhouse gas emissions and sinks: 1990-2007.
    \3\ National Council for Air and Stream Improvement, Inc. (NCASI). 
2008. Special Report No. 08-05. The greenhouse gas and carbon profile 
of the U.S. Forest Products Sector.
---------------------------------------------------------------------------
    Business as usual and additionality criteria, as defined in current 
legislation, effectively excludes project types that are responsible 
for the levels of carbon sequestration and storage in forests and 
products that the U.S. enjoys today, essentially taking it for granted. 
It is important that policymakers create incentives for maintaining 
these sequestration levels. It is important that incentives exist to 
help forestland owners maintain their forests when more lucrative 
options exist.
    Adequate offset credits should be available for purchase in the 
first year of the program (2012). It is imperative that an initial set 
of eligible offset projects types be listed in the legislation to 
ensure that measurement methods and protocols are developed well in 
advance of implementation of the rule. Furthermore, for certain classes 
of offset project types that are straightforward in nature, EPA should 
develop streamlined approval or pre-approval processes to insure the 
timely availability of offset credits at a large enough scale in order 
to perform their cost containment function. Significant delays in the 
availability of offsets will increase costs of the program for 
regulated entities.
Early Offset Supply
    Offset credit should be accepted from voluntary programs in 
addition to those ``established by state or tribal law or regulation''. 
For example, offset projects registered by the Chicago Climate Exchange 
undergo rigorous approval processes and third party verification and 
should be eligible to be part of the early offsets program. Further, 
the date of eligibility should be the same as the date of the offset 
project inception (back to January 2001), rather than January 1, 2009.
Environmental Considerations
    While forest offset projects can provide valuable co-benefits, 
these benefits should be encouraged but not required. Offsets should be 
focused on impacts to atmospheric concentrations of carbon. 
Environmental co-benefits may be beneficial, but are not necessarily 
relevant to whether additional carbon is being sequestered. 
Biodiversity can be measured in many ways across many forest types. 
Depending on how EPA assesses biodiversity (and native species), these 
requirements could potentially run counter to the goal of climate 
mitigation if too narrowly considered. Given that forestry practices 
are not even listed in the proposal as eligible offset project types, 
it is premature and inappropriate to single out and dictate 
environmental considerations for one specific project type. There are 
no doubt environmental considerations associated with all project 
types. They are understandable considerations, but should not be 
required in protocol requirements for offset projects unless they 
directly impact the enhanced sequestration or emission reduction of 
carbon dioxide or other greenhouse gases.
Conclusion:
    AF&PA appreciates the opportunity to provide input on these key 
items in the American Clean Energy & Security Act of 2009. We share the 
Committee's concerns about the potential impact of this legislation on 
the competitiveness of American businesses, and hope that the above 
suggestions can go some distance to ensuring that these concerns are 
addressed.
    For more information please contact:

Elizabeth VanDersarl,
Vice President, Government Affairs,
American Forest & Paper Association.
    Attachment A: Farm Bill Definition of Biomass, with additional 
                        sustainability measures:
        (1) Biomass.--The term `biomass' means the following types of 
            organic materials:

                  (A) materials, pre-commercial thinnings, or removed 
                exotic species that--

                          (i) are byproducts of preventive treatments 
                        (such as trees, wood, brush, thinnings, chips, 
                        and slash), that are removed--

                                  (I) to reduce hazardous fuels;
                                  (II) to reduce or contain disease or 
                                insect infestation; or
                                  (III) to restore ecosystem health;

                          (ii) would not otherwise be used for higher-
                        value products; and
                          (iii) are harvested from National Forest 
                        System land or public lands (as defined in 
                        section 103 of the Federal Land Policy and 
                        Management Act of 1976 (43 U.S.C. 1702)), in 
                        accordance with--

                                  (I) Federal and State law;
                                  (II) applicable land management 
                                plans; and
                                  (III) the requirements for old-growth 
                                maintenance, restoration, and 
                                management direction of paragraphs (2), 
                                (3), and (4) of subsection (e) of 
                                section 102 of the Healthy Forests 
                                Restoration Act of 2003 (16 U.S.C. 
                                6512) and the requirements for large-
                                tree retention of subsection (f) of 
                                that section;

                  (B) any organic matter that is available on a 
                renewable or recurring basis from non-Federal land or 
                land belonging to an Indian or Indian tribe that is 
                held in trust by the United States or subject to a 
                restriction against alienation imposed by the United 
                States, including--

                          (i) renewable plant material, including

                                  (I) feed grains;
                                  (II) other agricultural commodities;
                                  (III) other plants and trees 
                                harvested in accordance with state 
                                water quality best management practices 
                                and consistent with sustainable 
                                management practices; and
                                  (IV) algae; and

                          (ii) waste material, including--

                                  (I) crop residue;
                                  (II) other vegetative waste material 
                                (including wood waste, wood residues);
                                  (III) animal waste and byproducts 
                                (including fats, oils, greases, and 
                                manure);
                                  (IV) construction, demolition, and 
                                disaster waste and debris; and
                                  (V) food waste and yard waste; or

                  (C) residues or byproducts from wood, pulp or paper 
                products facilities.

    Add new definition:

        Sustainable management practices: the term sustainable 
            management practices means any of the following:

                  (I) a written harvest plan, that provides for forest 
                regeneration, developed by a credentialed forestry 
                professional;
                  (II) a written forest management plan, that is 
                equivalent to a forest stewardship plan (as defined 
                under the Cooperative Forestry Assistance Act of 1978 
                (16 U.S.C. 2103));
                  (III) state wood biomass harvesting guidelines that 
                address water, soil, wildlife and other on-site 
                resources, if such guidelines exist;
                  (IV) a third-party audited forest certification 
                program or similar land management protocol, including 
                a wood fiber procurement system that is third-party 
                certified to a standard specifying responsible 
                procurement practices;
                  (V) Other programs and services as determined by the 
                state forester that achieve sustainable management of 
                biomass using such regulatory or voluntary policies as 
                may be appropriate; or
                  (VI) in the case of conservation forest land, 
                additional practices, determined by the state forester, 
                that help maintain or enhance ecological conditions of 
                such forests over time.

        Conservation forest land.--The term `conservation forest land' 
            means a forested ecological community that is not Federal 
            land and is identified by a state forester or equivalent 
            state official through a public process as having unique 
            ecological value.

    Add the following provision:
          (_) The provisions of sections (insert relevant sections) 
        shall be administered by the Secretary of Agriculture in 
        partnership with the state forester or equivalent state 
        official in each state.

        Inter-agency biomass sustainability study.--

                  (A) In general.--The Secretary of Agriculture, in 
                consultation with the Secretary of the Interior shall 
                conduct a study that assesses the impacts of biomass 
                harvesting for energy production on--

                          (i) landscape-level water quality, soil 
                        productivity, wildlife habitat, and 
                        biodiversity; and
                          (ii) conservation forest land.

                  (B) Timing.--The Secretary shall--

                          (i) complete the study required under this 
                        paragraph not later than 5 years after the date 
                        of enactment of this subsection; and
                          (ii) update the study not later than every 5 
                        years thereafter.

                  (C) Basis.--The Secretary shall base the study on the 
                best available data and science.
                  (D) Recommendations.--The Secretary shall include in 
                the study such recommendations as are appropriate to 
                reduce the impacts described in subparagraph (A).
                  (E) Public participation and availability.--In 
                carrying out this paragraph, the Secretary shall--

                          (i) consult with States, Indian tribes, and 
                        other interested stakeholders;
                          (ii) make available, and seek public comment 
                        on, a draft version of the study results; and
                          (iii) make the final study results available 
                        to the public.
                                 ______
                                 
         Submitted Letter by American Sugar Cane League, et al.
June 11, 2009
 Hon. Collin C. Peterson,             Hon. Frank D. Lucas,
Chairman,                            Ranking Minority Member,
Committee on Agriculture,            Committee on Agriculture,
Washington, D.C.;                    Washington, D.C.
    Dear Chairman Peterson and Ranking Member Lucas:

    Thank you for holding a hearing on climate change legislation as it 
relates to agriculture. It is vitally important that any climate change 
legislation passed by Congress takes the future of domestic agriculture 
production into account. Any domestic regulation that does not equally 
affect foreign food imports could put U.S. producers at a major 
disadvantage. We appreciate your strong leadership on behalf of 
agriculture and your deep understanding of how climate change 
legislation could adversely affect producers and rural communities. 
Agricultural producers and private land owners control much of the land 
in the United States that grows the plants, grasses and trees that 
sequester carbon. Incentives to keep this land in plant production 
should be considered.
    Sugarcane is a C4 perennial plant capable of sequestering large 
amounts of carbon each year. Because the cane root systems remain in 
the ground for years and the growing season is virtually uninterrupted, 
this photosynthesis/carbon sequestration machine has more in common 
with timber and other perennials for the purposes of this bill than it 
does with annual crops such as corn, wheat, beets and beans.
    With respect to the sugarcane farming and climate change 
regulation, close prior consultation with Committee Members and staff 
will be necessary to achieve a fair result for the industry as a whole. 
This stems from the unique nature of the sugarcane crop, the large 
CO2 sequestration effects achieved when the crop is grown, 
and the renewable energy source (residual bagasse) used to process the 
crop into raw sugar.
    As a general matter we would recommend that the agricultural 
aspects of growing the sugarcane crop be separated from industrial side 
where cane stalks are processed into raw sugar. However, growers of the 
crop should be free to contract with mills processing the crop to 
realize any further offsets that should accrue from using renewable 
energy on the industrial side of the business. In some cases these 
relationships can be governed by contract, in other cases the 
relationship will be determined by state laws applicable to the grower/
processor relationship.
    There is good chance that the bill as drafted would not only 
squeeze sugar producers up front because of increased input costs but 
also on the back end because end users could claim that they need to 
pay less because they will have to offset food processing costs related 
to the bill. Agricultural producers are price takers not price makers.
    Finally, the Department of Agriculture has many people on the 
ground and the appropriate infrastructure around the country to be the 
best possible administrator of any agricultural climate change 
provisions.
    Thank you for your consideration.
            Sincerely,

American Sugar Cane League;
Florida Sugar Cane League;
Hawaiian Sugar Farmers;
Rio Grande Valley Sugar Growers.
          Submitted Letter by Minnesota Farm Bureau Federation

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       Submitted Statement by National Alliance of Forest Owners
I. Introduction
    The National Alliance of Forest Owners (NAFO) is pleased to submit 
comments to the House Committee on Agriculture as it considers climate 
change legislation and the role of offsets in climate change policy. 
NAFO is an organization of private forest owners committed to promoting 
Federal policies that protect the economic and environmental values of 
privately-owned forests at the national level. NAFO membership 
encompasses more than 74 million acres of private forestland in 47 
states. NAFO members are well positioned to help our nation in the 
development of approaches that utilize private working forests, and the 
products they produce, as a critical tool in fashioning solutions to 
climate change.
    To provide some context, forests in the United States, nearly 60 
percent of which are privately owned, sequester almost 200 million 
metric tons of carbon (CO2) each year,\1\ offsetting about 
ten percent of annual U.S. emissions from burning fossil fuels.\2\ 
According to the Environmental Protection Agency (EPA), this amount 
represents 84 percent of the carbon sequestered by all land uses.\3\ An 
appropriately crafted offset system that accounts for the sequestration 
and storage capabilities of responsibly managed working forests and 
harvested wood products in an industrial emissions offset marketplace 
can play a significant role in helping the nation address greenhouse 
gas (GHG) emissions, and do so in a way that reduces the overall cost 
of achieving mandatory emissions reduction targets.
---------------------------------------------------------------------------
    \1\ U.S. Environmental Protection Agency. 2007. Inventory of U.S. 
greenhouse gas emissions and sinks: 1990-2005. EPA 430-R-07-002.
    \2\ Birdsey, R., K. Pregitzer, and A. Lucier. 2006. Forest carbon 
management in the United States: 1600-2100. J. Environmental Quality 
35: 1461-1469.
    \3\ U.S. Environmental Protection Agency. 2007. Inventory of U.S. 
greenhouse gas emissions and sinks: 1990-2005. EPA 430-R-07-002.
---------------------------------------------------------------------------
    In regards to the pending climate change legislation, H.R. 2454, 
NAFO has four specific, priority recommendations outlined in detail in 
Section V:

   The U.S. Department of Agriculture should serve the key role 
        with respect to agricultural and forestry offset projects.

   Climate change legislation must identify eligible offset 
        projects at the outset.

   Offset provisions should ensure early offset availability.

   Environmental considerations should focus first on overall 
        reductions of atmospheric carbon and not create unique 
        requirements for specific sectors, like forestry.
I. Responsibly managed private forests play a key role in sequestering 
        carbon.
    The basic proposition that responsibly managed forests play a 
critical role in sequestering carbon is beyond dispute. The EPA, in 
considering approaches toward addressing climate change, has recognized 
that responsibly managed forests are considered one of five key 
``groups of strategies that could substantially reduce emissions 
between now and 2030.'' \4\ Similarly, the Intergovernmental Panel on 
Climate Change (IPCC) report on mitigation technologies highlights 
forest management as a primary tool to reduce GHG emissions.\5\ Indeed, 
the IPCC contends that, ``[i]n the long term, a sustainable forest 
management strategy aimed at maintaining or increasing forest stocks, 
while producing an annual sustained yield of timber, fibre or energy 
from the forest, will generate the greatest mitigation benefit.'' \6\ 
The following graphic illustrates this work (the ``IPCC Managed Forest 
Graph''): \7\
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    \4\ Regulating Greenhouse Gas Emissions Under the CAA, 73 Fed. Reg. 
44354, 44405 (July 30, 2008).
    \5\ Id. at 44405-06.
    \6\ Climate Change 2007: Mitigation. Contribution of Working Group 
III to the Fourth Assessment Report of the Intergovernmental Panel on 
Climate Change [B. Metz, O.R. Davidson, P.R. Bosch, R. Dave, L.A. Meyer 
(eds.)], Cambridge University Press, Cambridge, United Kingdom and New 
York, NY, USA, page 543.
    \7\ Climate Change 2001: Mitigation. Contribution of Working Group 
III to the Third Assessment Report of the Intergovernmental Panel on 
Climate Change, Technical Summary, Section 4.1, Figure TS-6 (2001).

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Private forests in the United States are already a valuable and 
multifaceted tool in the effort to reduce U.S. greenhouse gas emissions 
and remove carbon dioxide from the atmosphere. As the following EPA 
chart demonstrates, managed forests and harvested wood products in the 
United States provide a significant carbon sink:

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


EPA Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990-2006.\8\
---------------------------------------------------------------------------
    \8\ Available at USEPA #430-R-08-005, http://www/epa.gov/
climatechange/emissions/usgginventory.html.

    As EPA has explained, ``[o]verall, forestry, land use and land-use 
change activities are considered `sinks,' absorbing carbon dioxide from 
the atmosphere through a process known as carbon sequestration. In 2006 
these activities resulted in removing 883.7 MMTCO2e (240.8 
MMT Carbon) from the atmosphere.'' \9\ Despite these impressive 
figures, as described below there are significant further opportunities 
for forests to contribute to an offset system through the sequestration 
and storage of greater amounts of carbon.
---------------------------------------------------------------------------
    \9\ EPA Technical Support Document for Stationary Sources at 39 
(June 2008).
---------------------------------------------------------------------------
II. A successful market based mechanism for controlling GHGs must 
        consider the opportunities provided by responsibly managed 
        forests.
    A climate change program focused on reducing GHG emissions through 
market mechanisms that generate credits should allow offsets from 
responsibly managed domestic forests and harvested wood products.
    Private forests long have been recognized as a source of real, 
verifiable reductions in GHGs. Most established GHG trading regimes 
credit forestry activities. For example, trading platforms and 
registries that recognize forest management include the Chicago Climate 
Exchange (``CCX'') and the Voluntary Carbon Standard (``VCS''). The 
Regional Greenhouse Gas Initiative (``RGGI'') and the Western Climate 
Initiative (``WCI'') both intend to consider forest management offsets 
in the very near future.\10\ NAFO is cautiously encouraged that the 
California Air Resources Board has initiated work by the Climate Action 
Reserve (CAR) to revise its forest project protocol to encourage 
greater participation by managed forest owners. NAFO is also 
participating with a broad array of U.S. and Canadian stakeholders to 
develop an international forest project standard for measuring carbon 
from forest projects that will be compliant with the requirements of 
the American National Standards Institute (ANSI) and its Canadian 
counterpart.
---------------------------------------------------------------------------
    \10\ In contrast, the United Nation's Clean Development Mechanism 
(``CDM''), does not allow credits for forest management but limits 
credits to afforestation or reforestation. This approach has produced 
very few projects in the forestry area due to unnecessary restrictions 
in the program. By comparison, the Voluntary Carbon Standard, a global 
consortium dedicated to improving standards and programs for offsets, 
has proposed potential standards for forestry management.
---------------------------------------------------------------------------
    Given the scope of emissions reductions that can result from 
improved forest management in developing countries, it is important 
that managed forests and harvested wood products play a role in future 
national and international offset programs. Generating credits from 
responsibly managed forests and harvested wood products, and allowing 
the trading of such credits, affords both regulators and industry 
significantly greater flexibility in determining how to achieve overall 
net GHG reductions.
    For example, while it may not be economically or technologically 
feasible for a utility to reduce its GHG emissions for several years, 
acquiring forest offset credits could have the dual benefit of 
achieving an economically efficient way to both bring the utility into 
compliance until it can enact its own GHG controls and encourage strong 
long-term forest management practices that lead to further GHG 
reductions in the future. In this way, forests provide an extraordinary 
opportunity for regulators to create a multi-faceted national program 
that promotes both immediate and sustainable long-term GHG reductions.
    Importantly, under appropriately constructed policy, the forest 
sector could be in a position to immediately participate in an offset 
program, thus helping ensure the successful start-up of a market 
oriented mechanism. Promoting policies that encourage regulated 
entities to work voluntarily with the private forest sector to offset 
their GHG emissions will enable the nation to attain emission goals in 
a cost-effective manner and at the earliest opportunity.
    NAFO recognizes that no protocol or registry is perfect. However, 
that should not distract from the role that responsible forest 
management and harvested wood products can play in reducing GHG levels 
and the greater flexibility they offer to achieve net GHG reductions in 
a cost-effective manner. Policies should seek to encourage and credit 
such benefits when seeking to achieve GHG reductions economy wide.
III. A broad range of forest management activities are available for 
        inclusion in an offset system.
    Managed forests in the United States present a clear opportunity to 
reduce atmospheric CO2 and mitigate GHG emissions. Available 
forest management activities that can aid in reducing greenhouse gas 
emissions include afforestation, reforestation, conservation and 
production of harvested wood products. Research on private forestlands 
has also shown that more intensively managed forests and the products 
they produce can sequester and store as much as 150 percent more tons 
of carbon per acre than less intensively managed forests.\11\
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    \11\ Carbon Sequestration in Californian Forests; Two Case Studies 
in Managed Watersheds by Dr. Cajun James, Dr. Bruce Krumland, and Dr. 
Penelope Jennings Eckert, December 12, 2007. http://www.spi-ind.com/
html/forests_research.cfm.
---------------------------------------------------------------------------
    Products like building materials, furniture and other consumer 
goods made of wood harvested from working forests also are an important 
means of storing carbon over long periods. The EPA estimates that the 
amount of carbon stored annually in forest products in the United 
States is equivalent to removing more than 100 million tons of 
CO2 from the atmosphere every year.\12\ Independent studies 
show that wood products used in building construction store more carbon 
and use less fossil fuels than other materials, such as steel and 
concrete. Wood framing in a home produces 26 percent less net 
CO2 emissions than steel and 31 percent less than 
concrete.\13\
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    \12\ U.S. Environmental Protection Agency. 2007. Inventory of U.S. 
greenhouse gas emissions and sinks: 1990-2005. EPA 430-R-07-002.
    \13\ Perez-Garcia et al. The environmental performance of renewable 
building materials in the context of residential construction. Wood and 
Fiber Science CORRIM Special Issue 37:3-17.
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IV. A sound offset system that promotes forest markets will enhance the 
        carbon benefits of private forests over time.
    NAFO's members represent more than 74 million acres of private 
forest lands covering every region of the country. These forests are 
managed according to state-based water quality best management 
practices, state forestry regulations and standards, third party 
certification programs and contracts and agreements that ensure long-
term forest renewal and strong environmental protection. At the same 
time, forest owners depend on economically viable product markets to 
continue making investments in good stewardship and to maintain working 
forests on the landscape over the long term.
    An offset policy that supports existing markets and promotes new 
and emerging markets for forest carbon will help maintain the forest 
land base over time, thereby continuing its contributions toward 
reducing nationwide GHG levels. This includes the development of new 
sources of domestic renewable energy, such as electricity from forest 
biomass and cellulosic biofuels that take advantage of the carbon 
mitigation benefits of forests to help maintain a low carbon economy.
V. NAFO has four specific suggestions to improve H.R. 2454, the 
        American Clean Energy and Security Act of 2009.
    Comprehensive climate change legislation should integrate the key 
role forests and forest products serve in sequestering and storing 
carbon as necessary to the ultimate success of any national approach 
toward reducing greenhouse gases. Offsets generated from forest 
management activities are critical to the successful implementation of 
a cap-and-trade system, such as the one in H.R. 2454. EPA recently 
estimated that without an international offsets program that includes 
forestry, the cost of allowances under the Waxman-Markey discussion 
draft would increase 96 percent. NAFO maintains that a vigorous 
domestic offset system incorporating forests and harvested wood 
products is equally important to achieving the dual goals of reducing 
greenhouse gases and realizing cost containment for industry and 
consumers.
    NAFO has serious concerns that the implementation of the offset 
provisions as drafted in H.R. 2454 will not realize the intended goals 
of encouraging further sequestration of GHGs while achieving cost 
containment. NAFO makes the following four recommendations regarding 
H.R. 2454:

   The U.S. Department of Agriculture should serve the key role 
        with respect to agricultural and forestry offset projects. The 
        USDA has critical expertise to bring to the development of 
        methodologies and processes for crediting offset projects in 
        the agriculture and forestry sectors. Indeed, Congress already 
        recognized such a role for the USDA in last year's farm bill. 
        Like Section 2709 of the Food, Conservation, and Energy Act of 
        2008, H.R. 2454 should place primary responsibility on USDA to 
        establish technical guidelines and regulations to assess 
        offsets from forest projects, including approving eligible 
        project types, establishing project protocols, and certifying 
        specific projects.

   Climate change legislation must identify eligible offset 
        projects at the outset. The initial years of a cap-and-trade 
        system will be critical to the long term success, and a 
        vigorous and vibrant source of offsets is necessary to 
        implementation during these critical early years. H.R. 2454, 
        however, does not identify any eligible offset projects in the 
        legislation, but defers such determinations to a complex and 
        lengthy ``advisory board'' process. Most forest offset project 
        types are well established and should be identified in H.R. 
        2454 as eligible project types immediately upon enactment. 
        These include forest management that increases carbon stocks, 
        harvested wood products, afforestation and reforestation, and 
        avoided deforestation. These projects should be identified in 
        the legislation.

   Offset provisions should ensure early offset availability. 
        To ensure that offsets are available during the outset of the 
        cap-and-trade program, any climate legislation must give offset 
        project developers as much early guidance and certainty as 
        possible so they can attract investment and develop projects in 
        time for the first compliance periods. To ensure a prompt 
        start, H.R. 2454 must streamline procedures for approving 
        projects and certifying offsets. As the bill is currently 
        drafted, numerous layers of rulemakings and agency actions 
        spread over multiple years may bar offsets from coming 
        available for as long as a decade. Congress should direct 
        relevant agencies to begin developing regulatory frameworks 
        immediately, should significantly shorten the deadlines for 
        action for developing such regulations and should streamline 
        various other procedures to make offsets available as soon 
        after enactment as possible. Legislation also should fully 
        encompass offsets generated by well-established programs.

   Environmental considerations should focus first on overall 
        reductions of atmospheric carbon and not create unique 
        requirements for specific sectors, like forestry. Section 741 
        of H.R. 2454 establishes broad and ambiguous environmental 
        compliance requirements for forest offset projects that are 
        unique among all project types. The bill does so while failing 
        to enumerate the specific project types to which such 
        requirement would apply. Such an approach is confusing, unfair 
        and unnecessary. Section 741 should either apply general 
        environmental requirements for all project types, instruct USDA 
        to develop appropriate requirements for offset projects based 
        on project type, or it should be removed altogether. This would 
        remove the disparate treatment of forestry projects through 
        measures that are difficult to administer and, if applied only 
        to forestry, will at once serve as a barrier to participation 
        in an offset program while also jeopardizing the significant 
        benefits forest offset projects can provide to overall 
        greenhouse gas mitigation.
VI. Conclusion
    NAFO appreciates this opportunity to provide input on the important 
opportunities private working forests provide to reduce atmospheric 
concentrations of GHGs. Working forests work to sequester carbon and 
are undisputed in serving as a critical carbon sink. In order to be 
effective, any market based mechanisms for controlling GHGs must 
incorporate working forests and the broad array of management 
activities associated with them. This will further enhance the carbon 
benefits of working forests.
    H.R. 2454 must be improved in order to effectively utilize private 
working forests to reduce GHGs. It should: task the U.S. Department of 
Agriculture to serve the key role with respect to agricultural and 
forestry offset projects; identify eligible offset projects at the 
outset; make offset provisions available early-on; and, ensure that 
environmental considerations focus first on overall reductions of 
atmospheric carbon and not create unique requirements for specific 
sectors, like forestry.
    NAFO looks forward to further discussions with this Committee and 
other policy makers in Congress as climate change legislation is 
developed and debated.
                                 ______
                                 
  Submitted Statement by National Association of REALTORS'
Introduction
    On behalf of the 1.2 million members of the National Association of 
REALTORS' (NAR), who are involved in residential and 
commercial real estate as brokers, sales people, property managers, 
appraisers, counselors, and others engaged in all aspects of the real 
estate industry, thank you for holding this important hearing on the 
American Clean Energy and Security Act.
    NAR policy is committed to efforts to advance consumer 
understanding of the need for energy efficiency and reduce energy use. 
For several years, NAR's membership and the association itself have 
taken a number of actions to address this commitment, including:

   Building the first LEED Silver-certified office building in 
        Washington, D.C.;

   Developing extensive member training and education programs 
        including a Green certification for real estate professionals;

   Partnering with the U.S. Department of Energy to promote the 
        value of building efficiency to our members and their clients; 
        and

   Sponsoring significant research on building related energy 
        issues.

    Given the importance of this issue, we appreciate the opportunity 
to share the views of the REALTOR' community. NAR urges the 
Committee to evaluate H.R. 2454's building efficiency provisions and 
their impact on farm/ranch property values and rural development. 
Specifically, we oppose section 204 that establishes an energy labeling 
program and section 201 that establishes national building standards 
that will supersede state and local codes.
REALTOR' Opposed Building Efficiency Provisions
Real Estate Energy Labels (Section 204)
    H.R. 2454 will create a system of energy labels and scores for 
homes and buildings and suggested triggers for state implementation of 
a labeling program. Again, NAR's members are committed to advancing 
consumer understanding of energy efficiency, but these provisions will 
impose burdens on consumers and an already troubled housing market--
without improving the energy efficiency of our nation's building stock 
in a timely manner.
    Labeling every home in America will not improve building 
efficiency. The label will stigmatize older properties and further 
reduce property values in many areas around the country. At a time when 
retirement savings and property values have plummeted, many families 
and commercial property owners do not have the financial resources or 
equity to make needed energy-related improvements such as replacing 
aging heating and cooling systems, appliances or windows. Adding to the 
cost of homeownership and selling a home will complicate the economic 
concerns that homeowners are already facing.
    Of particular concern is the distributional effect of energy 
labeling on older properties. The first national energy codes were 
established in 1978, and thus before that, there were no codes to which 
housing could be built. More than 60% of U.S. home were built prior to 
1980, and will face a loss in value due to building labels. These 
properties will require significantly more improvements than newer 
properties to raise labeling scores and maintain property values. The 
following table \1\ shows that a disproportionate share of these older 
properties are owned by those populations--including 73% of the elderly 
owners and 69% of those living below poverty--that live on a fixed 
income or farm bill program, and are least able to afford the 
improvements without significant financial assistance. Also, 64% of 
Hispanic and black owners reside in pre-1980 homes. We are concerned 
that the labels will not only stigmatize older homes but also the 
communities where they are located and which are struggling to maintain 
and continue to attract investment. Rural communities could be 
especially hard hit. As second table shows, many rural homes were built 
prior to 1980.
---------------------------------------------------------------------------
    \1\ Source: American Housing Survey, 2007.

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    We are especially concerned with provisions which could encourage 
state governments to require disclosure of labels at the time of sale. 
The Energy Committee added a provision that specifies that the actual, 
physical labeling of a building could not occur after a contract has 
been executed--but that does not address the issue of a mandated 
disclosure and comes far too late in the sales process to avoid the 
disruption of a sale. As a practical matter, states will read this as a 
requirement to receive Federal funding. Labeling and disclosure will be 
implemented at the time of sale--one of several optional trigger points 
in bill.
    Our members' experiences with sales transactions indicate that 
labels will become a bargaining chip at closing to negotiate down 
selling prices without any assurance that energy-related improvements 
are made. In addition, with less than a very small percentage of homes 
changing hands each year even in a robust market, such an approach will 
prove ineffective at meeting the stated goals of the legislation in a 
timely manner.
    Before prescribing new requirements for branding homes/buildings 
with labels, consumers require a better understanding of energy 
efficiency and, just as importantly, must be given the financial 
resources and incentives to make needed energy improvements. The bill 
already includes section 202 that achieves those goals, and NAR would 
support those provisions that will provide the financial incentives 
needed by consumers to improve homes and buildings and result in 
significant energy savings in the very near term. But labels will not 
achieve either goal.

    We respectfully urge the Committee to strike this labeling section 
in favor of retaining retrofit incentive programs in section 202 
(discussed below), as the most effective means to improve energy 
efficiency in America's homes and buildings.
National Building Codes (Section 201)
    The International Code Council (ICC) and American Society of 
Heating, Refrigerating and Air-Conditioning Engineers (ASHRAE) 
periodically update model codes and standards for residential and 
commercial construction, and the vast majority of states have chosen to 
adopt the later models. The U.S. Department of Energy (DOE) already 
participates in the process, which is voluntary and consensus driven.
    Under the bill, the DOE will establish national building codes that 
achieve a 30% reduction in energy consumption over current models. In 
2016, the energy reduction target increases to 50% and by 2030, 75%. 
States must adopt the national codes or ones that meet the target or 
else have their local codes overwritten automatically and lose use of 
Federal funding from a ``cap-and-trade'' program. DOE could enforce the 
code itself, and property owners could be held liable for non-
compliance and subject to civil fines. States must show compliance in 
at least 90 percent of new and substantially renovated building space.
    We have several concerns with these provisions:

    1. We question the economic achievability of targets to reduce 
        building energy use by 50% or more. Both the ICC and ASHRAE 
        believe that more than 30% reduction within such a short 
        timeframe is not practical--particularly given the diversity of 
        building types covered by the IECC and Standard 90.1.

    2. We are deeply troubled by the new DOE code-setting and 
        enforcement authority as it would infringe on state and local 
        jurisdictions and detract from the consensus driven process 
        that has resulted in significant energy savings over the last 
        several years.

    3. New construction standards would apply to ``substantial 
        renovations''--a term that is not defined in the legislation. 
        Depending on jurisdiction, a building permit may be required 
        for even minor projects. Examples include:

      a. Replacing a garbage disposal (Fairfax County), dishwasher 
            (Charlotte), garage door (Minneapolis), or interior wall 
            covering (Washington, D.C.);

      b. Repairing siding/stucco (San Francisco) or dry rot/termites 
            (Culver City, CA); and

      c. Apply fire-retardant paint (D.C.) or adding a patio trellis 
            (Culver City).

    NAR strongly opposes the building codes provisions of H.R. 2454 as 
currently written, and urges the Committee to join us in our 
opposition. These provisions should not apply to building renovations. 
We also encourage reconsideration of the 50% reduction target and new 
standard setting and enforcement authority for DOE.
REALTOR' Supported Provisions
Regulatory Preemptions (Section 331)
    There are also provisions in H.R. 2454 we support. We applaud bill 
provisions to preempt the EPA regulation of carbon emissions under the 
Hazardous Air Pollutant, Prevention of Significant Deterioration (PSD) 
and Title V programs of the Clean Air Act. Without these critical 
preemptions, EPA must regulate multi-family and commercial buildings 
exceeding emissions equivalent to a 10 to 20 unit building. The law 
would prohibit construction or modification of these buildings without 
first obtaining EPA permits prescribing the best available control 
technology, which according to EPA, could include solar panels or high 
efficiency boilers. Table 1 presents the potential paperwork impacts of 
PSD and Title V permits based on EPA data which are considerable. We 
strongly support the regulatory preemptions, and urge the Committee to 
do the same.

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Retrofit Incentives Program (Section 202)
    This section provides state funding to incentivize home and 
building energy efficiency improvements. Provisions of this section are 
virtually identical to H.R. 1778 (the Retrofit for Energy and 
Environmental Performance Program Act) sponsored by Rep. Welch (D-VT) 
which NAR supports. We believe that providing families and building 
owners with financial incentives that they need to retrofit their homes 
and buildings is critical if substantial energy savings are to be 
achieved in the near term. We urge the Committee to support this in 
lieu of the section 204 energy labeling provisions (discussed above).
Conclusion
    Thank you for the opportunity to share the views of our 
REALTOR' members on H.R. 2454. We appreciate the Committee's 
efforts to examine and improve legislation which encourages and 
promotes energy efficiency in our nation's homes and buildings. We look 
forward to working with the Committee on this important piece of 
legislation.
                                 ______
                                 
      Submitted Statement by National Cattlemen's Beef Association
    The National Cattlemen's Beef Association (``NCBA'') is the 
national trade association representing U.S. cattle producers with 
nearly 32,000 individual members and sixty-four state affiliate, breed 
and industry organization members. Together NCBA represents more than 
230,000 cattle breeders, producers and feeders, and is the marketing 
organization for the largest segment of the nation's food and fiber 
industry.
    NCBA members are responsible environmental stewards who love and 
respect the land, air and water that are fundamental to sustaining our 
way of life. We recognize an environmental stewardship code and have 
adopted policy that states that the Association ``shall not be 
compelled to defend anyone in the beef cattle industry who has clearly 
acted to abuse grazing, water, or air resources.'' 2005 Policy, 
National Cattlemen's Beef Association, Property Rights and 
Environmental Management Policy 1.1. In addition, we comply with 
stringent regulations under the Clean Water Act, Clean Air Act, 
Emergency Planning and Community Right-to-Know Act, and others designed 
to ensure environmental protection. Cattle producers will continue to 
work every day to protect and improve the environment so that they and 
future generations will be able to continue to live off the land.
    The Agriculture Sector of the Economy is a Minor Source of 
Greenhouse Gas Emissions and Should Be Exempt From Regulation. 
Unfortunately, while the Waxman-Markey discussion draft included 
language specifically stating that agriculture is not a capped sector, 
the Chairman's mark deleted this language. Therefore, there are no 
assurances that agriculture will not be regulated under the bill. The 
exemption language should be added back in to the bill.
    An exemption makes sense for a number of reasons including the fact 
that agriculture is a minor source of greenhouse gas emissions. 
According to the U.S. Environmental Protection Agency, in 2007 the 
entire agriculture industry emitted only 5.77% of all greenhouse gas 
(GHG) emissions in the United States, and manure management activities 
from all livestock operations represent less than one percent 
(specifically .82%) of all U.S. GHG emissions. Compare these emissions 
with emissions from fuel combustion which accounted for 94% of all 
CO2 emissions in the same year.
    In the agriculture sector, enteric fermentation is the largest 
source of methane emissions in the U.S., followed by manure management 
in anaerobic digesters. In 2007, methane emissions from enteric 
fermentation were only 2.3 percent of total U.S. GHGs and methane from 
manure was only .7 percent. The largest factors affecting methane 
emissions from ruminant animals are the type of diet and digestive 
efficiency of the animals. Studies show that a grain based diet 
produces less methane than a forage-based diet. According to a 2006 Pew 
Center on Climate Change report entitled ``Agriculture's Role in 
Greenhouse Gas Mitigation,'' ``for most confined livestock, feed 
quality and digestibility are already at a relatively high level, and 
further improvements from conventional changes in feed rations are 
likely to be modest.''
    Nitrous oxide is produced by biological processes that occur in 
soil, water, fertilization, land application of livestock manure, 
retention of crop residues, irrigation, tillage practices, etc. 
According to the EPA, nitrous oxide emissions from agriculture soil 
management on croplands and grasslands accounted for 3.4 percent of 
total GHG emissions in the U.S. in 2007. Nitrous oxide emissions that 
resulted from manure management accounted for only .2 percent. 
According to the Pew Center's report cited above, ``opportunities for 
mitigating N2O emissions from stockpiled or composted manure 
are relatively limited.''
    In addition, the EPA has identified GHG benefits associated with 
the use of manure as agricultural nutrients. In 2008, The EPA released 
the ``National Water Program Strategy: Response to Climate Change.'' In 
Chapter III, entitled National Water Program: Climate Change Response 
Actions, EPA describes the contribution agriculture makes to nitrous 
oxide emissions and states ``Agriculture producers have the potential 
to reduce nitrous oxide releases by expanding the use of manure, 
biosolids or other organic residuals.'' The availability of manure is 
only possible because of the existence of animal feeding operations 
which generate manure.
    Similarly, according to the U.S. EPA's annual ``Emissions and 
Sinks'' report, in 2006, land use, land use change, and forestry 
activities resulted in the significant benefit of a net carbon 
sequestration offset of approximately 14.8% of total U.S. 
CO2 emissions, or 12.5% of total U.S. GHG emissions. The EPA 
attributes mineral soil carbon sequestration ``to the conversion of 
cropland to permanent pastures and hay production, a reduction in 
summer fallow areas in semi-arid areas, an increase in the adoption of 
conservation tillage practices, and an increase in the amount of 
organic fertilizers (i.e., manure and sewage sludge) applied to 
agricultural lands. Again, the application of manure as an organic 
fertilizer is only possible because of the existence of animal feeding 
operations which generate manure.''
    The Process Must be Slowed Down so that the Bill's Effects on the 
Price of Energy and other Costs of doing Business can be Fully Studied 
and Understood. NCBA does not believe there has been adequate time to 
sift through the voluminous bill and understand all the effects it 
could have on the cattle industry. When Congress considers a bill of 
this magnitude and economic importance, we believe careful analysis and 
deliberation are essential. Our members are very concerned, for 
example, about the effects H.R. 2454 could have on the costs of fuel, 
electricity, feed, fertilizer, equipment, and other inputs necessary to 
maintain a cattle operation. Economists have estimated that H.R. 2454 
would cause farm income to drop anywhere from $6 billion in the short 
term to $50 billion long term. The cattle industry has suffered 
significant economic setbacks lately and, if these estimates are 
anywhere close to being accurate, this bill would very likely push many 
operations over the edge.
    Offsets Provisions Must be Strengthened. The agriculture sector has 
been told all along that agriculture's ability to generate offsets to 
sell to the regulated industries will help all sectors of the economy 
mitigate increased costs associated with the bill. Unfortunately, the 
Waxman-Markey bill does little to assure us that agriculture offsets 
will be made available for this purpose.
    The agriculture sector drafted key principles that we believe are 
important in any cap-and-trade bill, and gave them to Chairman Waxman 
for consideration. Those principles include:

   The agriculture sector must not be subject to an 
        emission cap.

   Any cap-and-trade program must fully recognize the wide 
        range of carbon mitigation or sequestration benefits that 
        agriculture can provide.

   Any cap-and-trade legislation must make economic sense 
        for agriculture.

   The USDA should promulgate the rules and administer an 
        agricultural offset program.

   The use of domestic offsets must not be artificially 
        limited.

   Establish carbon sequestration and greenhouse gas 
        mitigation rates based on science.

   Any cap-and-trade program must provide an initial list 
        of project types that are eligible agricultural offsets.

   Early actors must be recognized so that producers who 
        have done good things in the past for the environment will not 
        be penalized by not being able to participate in offset 
        creation.

    Unfortunately, these principles were not included in the Waxman-
Markey bill: Agriculture offsets were not fully recognized in the bill; 
the legislation does not appear to make economic sense for agriculture; 
the USDA was not given authority over ag offsets; the level of offsets 
were limited under the bill; there was no list of, per se, eligible 
offset project types in the bill; and, early actors were not 
recognized.
    It is for these reasons that NCBA remains concerned about this 
bill, and is hopeful that they will be addressed in any compromise 
package.
                                 ______
                                 
     Submitted Statement by National Council of Farmer Cooperatives
    Mr. Chairman and Members of the Committee, on behalf of the more 
than two million farmers and ranchers who belong to one or more farmer 
cooperative(s), the National Council of Farmer Cooperatives (NCFC) 
applauds your efforts to examine both the positive and negative impacts 
that the American Clean Energy and Security Act (H.R. 2454) may have on 
farms, small businesses, farmer cooperatives and families across rural 
America.
    Since 1929, NCFC has been the voice of America's farmer 
cooperatives. Our members are regional and national farmer 
cooperatives, which are in turn composed of nearly 3,000 local farmer 
cooperatives across the country. NCFC members also include 26 state and 
regional councils of cooperatives. NCFC is unique in Washington as the 
only national organization devoted solely to promoting, protecting and 
advancing the interests of farmer cooperatives and their owner-members.
    NCFC values farmer ownership and control in the production and 
distribution chain; the economic viability of farmers and the 
businesses they own; stewardship of natural resources; and vibrant 
rural communities. We have an extremely diverse membership, which we 
view as one of our sources of strength--our members span the country, 
supply nearly any agricultural input imaginable, provide credit and 
related financial services (including export financing), and market a 
wide range of commodities and value added products. Earnings from these 
activities are returned to their farmer members on a patronage basis, 
helping to improve their income from the marketplace. These earnings 
are then recycled through rural communities as farmers and ranchers 
purchase goods and services from local businesses, thereby sustaining 
rural America.
    We appreciate the Committees' attention to this incredibly 
important issue and urge the Committee to continue to push for 
agriculture's interest as this debate moves forward. Agriculture needs 
to be a more active participant in this process so that the end result 
is legislation that makes economic sense for all of agriculture.
    All sectors of the agricultural economy, but especially producers, 
must be involved in this process to ensure that any incentives are 
aligned with the economic interests of farmers and ranchers. Scientists 
and policy makers are viewing issues from the strategic, 30,000 foot 
view. Involvement by producers and producer organizations can guide the 
process to develop a system that can be implemented on the farm level, 
and can answer basic questions that a producer might have, such as, 
``What happens to a carbon credit when I sell my land?''
    In addition, involvement will be important to ensure that any costs 
associated with increased carbon reduction are offset by benefits in 
the marketplace. We have to take a real look at the additional costs 
that the legislation could impose on farm and household budgets across 
rural America. Most importantly, any legislation has to work for both 
individual producers and the cooperatives that they own.
    NCFC's membership is as broad and diverse, geographically and by 
commodity, as any agricultural trade association; the difficulty in 
reconciling the basic structure of what a cap-and-trade program would 
look like, even within our membership, reflects the enormity of trying 
to find a system that will work for American agriculture as a whole.
    For example, there are several farmer-owned cooperatives that 
refine petroleum. These cooperatives service 60 percent of the 
producers in the U.S. with petroleum products. Any approach to reducing 
greenhouse gas emissions must prevent significant problems to the rural 
based small business refiners fueling rural communities and 
agriculture. To avoid potential harm to small refiners, a straight cap-
and-trade approach may not work best and our members are exploring 
their options in this regard.
    Our membership also includes a number of cooperatives that market 
various specialty crops, both fresh and processed. To date, there is 
very little data on the potential gains or impacts this diverse 
industry may face. Production of many specialty crops is resource 
intensive involving considerable investment in inputs. It is unclear 
if, or how, specialty crop producers will benefit from an agricultural 
offsets program. We recommend that any revenues generated by allowances 
allocated to U.S. Department of Agriculture (USDA) would be for 
transitional assistance to those operations not able to benefit from 
cap-and-trade for whatever reason, and are therefore bearing only the 
costs of GHG reduction in the U.S. Such funds could also be used for 
research and development of further low cost GHG reducing or mitigating 
practices in agriculture.
    At the same time, dairy cooperatives are examining the potential 
benefits their farmer owners might access under a straight cap-and-
trade system. These are just two examples that demonstrate the 
complexity of this issue, highlighting the fact that a one-sized-fits-
all approach poses difficulties just within the agricultural sector.
    Most importantly, the agricultural sector must not be subject to an 
emissions cap should legislation aimed at curbing U.S. greenhouse gas 
(GHG) emissions be enacted. U.S. agriculture's GHG emissions from 1990 
to 2005 have remained nearly constant, increasing by less than 0.5 
percent since 1990, with both year-to-year increases and decreases 
occurring in that period. Over this same period, U.S. fruit and 
vegetable production has increased by nine percent, feed grains and 
oilseeds by 35 percent, red meat and poultry production has increased 
40 percent, milk production has increased 20 percent, and egg 
production has increased about 33 percent, according to figures 
provided by the USDA. U.S. agriculture accounts for about 6.5 percent 
of all U.S. GHG emissions, according to the latest inventory published 
by U.S. Environmental Protection Agency (EPA). EPA also reports that 
agriculture can account for about 20 percent of the emission reductions 
or sequestration that occurs. It is far more sensible to allow 
agriculture to participate in the cap-and-trade program's voluntary 
offsets credit market.
Farming Carbon
    When you think about agriculture at its most elemental level, 
taking carbon dioxide from the air and turning it into food, fiber, 
feed and fuel is what every farmer in this country actually does--for 
example, we produce corn, cotton, rice, soybeans, or wheat; and raise 
hogs or dairy cows.
    Yet, with a growing interest in reducing climate changing carbon 
emissions, agricultural producers sit in a unique position to become 
active participants and beneficiaries in any future marketplace for 
carbon.
    Our membership believes Congress must provide sufficient tools for 
capped emitters to control the costs to society; this includes issuing 
of free allowances to capped emitters, availability of international 
offsets, and most importantly to agriculture a robust, unlimited, 
domestic agricultural offset program.
    An agricultural offsets program, with market-driven benefits that 
explicitly and directly reward innovation, would offer the best set of 
incentives for farmers. U.S. farms and ranches managed by crop, 
livestock and poultry producers can provide low-cost, real and 
verifiable carbon ``offsets'' that:

   Greatly lower the costs to society of a cap-and-trade system 
        while achieving real greenhouse gas emission reductions;

   Provide the offsets needed to allow changes in energy 
        production technologies and investments in capitol and 
        infrastructure to occur, while providing market liquidity and 
        low-cost emissions reductions to help the market function 
        properly; and

   Provide additional environmental benefits in the form of 
        cleaner water, air and better wildlife habitat, while enhancing 
        the fertility and productivity of the soil resource needed to 
        provide food, feed, fuel and fiber.

    Both the regulated community and agricultural sector need 
assurances that agricultural offsets will be available to lower costs 
of a climate change program. The regulated community needs to know that 
a sufficient quantity of offsets will be available for purchase so that 
they can comply with a mandatory cap. Therefore, we believe that the 
use of domestic offset allowances must not be artificially limited. It 
is unwise and market distorting to place an artificial cap on the 
amount of domestic offset allowances a covered entity can use to meet 
its yearly obligations. Our goal should be to remove as much GHG from 
the atmosphere as possible. Artificial caps will prevent legitimate 
carbon sequestration, livestock methane capture, and manure 
gasification projects from occurring.
    Additionally, the agricultural sector needs to know which project 
types Congress considers to be eligible as agricultural offsets in 
order to assess the full impact of cap-and-trade legislation on 
agriculture. Recognition and inclusion of the wide range of carbon 
mitigation or sequestration benefits that agriculture can provide is 
needed (ex: sequestration of carbon on agriculture lands, and reduction 
of emissions from livestock through dietary improvements and manure 
management).
    We also strongly contend that USDA must promulgate the rules and 
administer the agricultural offset program. USDA has the statutory 
authority provided in the 2008 Farm Bill, the institutional resources 
and the technical expertise necessary to create and administer an 
agricultural offset program that works for production agriculture. USDA 
has a track record of working with farmers as well as studying, 
modeling and measuring conservation and production practices that 
sequester carbon and that promote appropriate manure management and 
nutrient application on agricultural lands. USDA should be given 
adequate flexibility in implementing the offset program that allows 
them to account for new technologies and practices that emerge, which 
result in emission reductions from agricultural sources.
    Agriculture is always evolving. As technologies and practices 
improve, farmers are converting to alternative tillage practices such 
as no-till or ridge-till. They are reducing fertilizer application 
rates and enhancing crop uptake of fertilizer nutrients. Some livestock 
producers are able to use methane digesters and invest in covers for 
manure storage or treatment facilities while others are able to reduce 
enteric emissions with dietary modifications. Producers that have taken 
these steps should not be disadvantaged by being excluded from 
compensation for future offsets that occur as a result of these ongoing 
efforts.
    Similarly, existing offset commitments in pre-existing voluntary 
markets must be eligible for participation in the new cap-and-trade 
program, but to do so they must:

   Be able to meet the new standards and contractual 
        obligations;

   Require ongoing actions by the offset seller to ensure that 
        offsets will continue to occur; and

   Only be paid for the future offsets that occur as a result 
        of these ongoing actions, and not for offsets that occurred in 
        the past.

    Many practices undertaken to reduce greenhouse gas emissions will 
provide additional public benefits, such as clean water, wildlife 
habitat, and reduced soil erosion. Projects participating in a 
greenhouse gas offset market should not be excluded from also 
participating in other markets for environmental services that 
currently exist or may arise in the future. Allowing producers to 
``stack'' credits will maximize the economic viability of carbon 
sequestration and manure management projects, ensuring more projects 
are undertaken and synergies with other environmental priorities are 
developed. In addition, new climate programs should complement existing 
conservation programs within the farm bill.
    Finally, in terms of verifying that agricultural offsets are in 
fact being achieved, we believe farmer-owned cooperatives are uniquely 
positioned to serve as part of the pool of third party verifiers under 
a sample-based review system.
    Unfortunately, the legislation in question is either silent or 
falls considerable short on many of these fundamental issues.
Production Costs & Global Competitiveness
    No one should underestimate the sacrifices that will be called for 
from citizens and business across multiple sectors and regions of the 
U.S. economy, including the nation's rural areas, to achieve the real, 
meaningful GHG reductions called for by the President and certain 
leaders in Congress. Prices of electricity and petroleum products and 
other related key determinants of business and household expenses will 
go up, and for some more than others.
    Electricity and other energy costs will go up under any cap-and-
trade bill that sets allowances significantly lower than baseline 
levels, but the increases will be far more dramatic if those allowances 
are auctioned to emitters. Auctioning all carbon allowances at $20 per 
ton (as was assumed by OMB in the President's 2010 budget request), 
would increase electricity costs approximately 40 percent in Indiana, 
30 percent in Kentucky, 20-25 percent in Ohio and 15 percent in the 
Carolinas, according to recent studies. Producers and their 
cooperatives have far less opportunity than others in agriculture to 
recoup such increases in production costs through the sale of GHG 
offsets and would be disproportionately disadvantaged by allowances 
being auctioned off. For example, production costs would go up, and 
eventually such cost increases will lead to supply effects that will 
result in comparable retail price increases and potential loss of 
market competition, globally. Given that U.S. agriculture relies on 
foreign markets to purchase about \1/3\ of our production, the 
ramifications are staggering.
    A cap-and-trade system will have winners and losers, in agriculture 
as in other areas of the economy. The ability to generate offsets and 
earn credits notwithstanding, farmer cooperatives and their member-
owners are very concerned about the potential that a carbon reduction 
program will result in higher energy costs and higher costs for 
construction materials and other inputs. For example, either a cap-and-
trade system or a carbon tax likely would result in higher electrical 
costs for farmers served by rural electric cooperatives (which as a 
group generally are more dependent on coal). There also is a concern 
that a carbon reduction program may affect fertilizer manufacturing and 
result in higher fertilizer costs.
    Some of our cooperatives will see higher increases in energy costs 
relative to other agricultural businesses in other parts of the 
country. Not all our members will be able to benefit to the same degree 
from carbon offset trading opportunities. Even where there are good 
value offset trading opportunities, there will be significant lead time 
for those to be realized in some farmers' cases relative to others, and 
that lead time will result in its own uncertainties and economic 
hardships.
    We have serious reservations about embracing any type of climate 
change legislation without better information and analysis of its 
effects on the entire U.S. economy and, in particular, the agricultural 
sector. The currently available analyses of the aggregate economic 
effects of U.S. climate change legislative proposals, and the effects 
on both sectors of agriculture and individual producers, are far too 
indeterminate, unclear or uncertain for good policy to be made. 
Furthermore, any action by the U.S. to effectively reduce its GHG 
emissions in the aggregate, can only be sustained if they are 
undertaken by other nations around the world that are concurrently 
adopting equally significant reductions.
    As previously mentioned, farmer cooperatives market a wide range of 
commodities and value added products, some of which are produced under 
energy-intensive circumstances while others may be import-sensitive or 
rely on a strong export market. If the only recourse is to pass along 
increased costs to the consumer in the form of higher priced goods, we 
will lose our competitive edge in the global marketplace.
    Furthermore, those agricultural products with the least opportunity 
to participate in an offset market will have the highest sensitivity to 
competition from international competitors not subject to emissions 
reductions standards. For example, the biggest competition U.S. 
specialty crop producers face comes from Central and South America. 
Legislation should not give overseas producers an unfair competitive 
advantage due to the fact that they do not have to comply with 
emissions reduction goals.
    As currently drafted, H.R. 2454 does not provide adequate 
assurances that cost containment measures will be included for the 
agricultural sector putting us at a competitive disadvantage, globally.
Concluding Remarks
    As with any difficult issue, farmers, ranchers and the wider 
agricultural community still have a lot to learn about this subject. We 
would contend that Congress does too. Instead of rushing a bill through 
for the sake of political expedience, we encourage Congress to focus on 
all the important issues that remain outstanding, including an 
examination of the basic structure of what a GHG emissions reduction 
program would look like for all sectors of the economy.
    While outside the jurisdiction of this Committee, we feel it 
important to gain a better understanding of the tax implications of a 
cap-and-trade system. For example, there has been little discussion on 
how and when allowances will be taxed. What is the taxpayer's basis in 
offsets and allowances? What is the tax character of gains and losses 
recognized on sale or exchange of allowances? Specific to farmer 
cooperatives, will income from the sale of allowances or offsets be 
patronage-sourced? Without answers to questions like these, it is 
impossible for any farmer, rancher, cooperative or agribusiness to make 
an informed decision this legislation.
    Furthermore, we must reconcile U.S. standards with those overseas 
so that we remain competitive in the global marketplace. Congress must 
gain a better understanding of the potential impacts this would have on 
our food security and food prices. We need to understand how this 
legislation will affect the food chain, from farm to fork. Energy 
independence has been a rallying cry for a number of years. We pride 
ourselves in seeking less reliance on Middle Eastern oil. However, this 
debate seems to be ignoring the potential for greater reliance on 
foreign food. We cannot afford to allow our agriculture production to 
move overseas where it's cheaper to operate putting thousands of hard 
working farmers and ranchers out of business. If the only recourse is 
to pass along increased costs to the consumer in the form of higher 
priced goods, we will lose our competitive edge in the global 
marketplace. As a matter of food security, we must maintain a healthy 
agricultural industry in the United States.
    Finally, we feel it unwise and irresponsible to enact mandatory GHG 
measures without a more complete and thorough understanding by all the 
major affected U.S. parties as to what these changes would mean for 
their incomes, businesses, livelihoods and ways of life. We think it is 
also unwise to adopt such policies without establishing that U.S. 
agriculture's overseas competitors are going to bear comparable costs 
as a result of their own nations' efforts to reduce GHG emissions; U.S. 
agriculture's competitiveness in both domestic and export markets could 
be hurt significantly if this is not the case. In addition, any 
measures adopted to address these competitiveness concerns must also be 
WTO legal and not threaten possible retaliatory trade sanctions. 
Lastly, we are especially concerned about the cost implications of GHG 
legislation given the depths and extent of the nation's current 
economic crisis whose negative affects are all too immediate and from 
which we have yet to see a reprieve.
    Our nation's top priority should be to get our fiscal house in 
order. As we do, NCFC would advocate for a voluntary, pro-growth, 
technology-driven approach to expanding our energy resources while 
addressing climate change.
    Again, thank you for your thoughtful leadership on this important 
issue. NCFC looks forward to working with you to improve climate change 
legislation so that it recognizes the importance and unique nature of 
production agriculture and farmer cooperatives.
                                 ______
                                 
         Submitted Letter by National Meat Association, et al.
June 11, 2009
 Hon. Collin C. Peterson,             Hon. Frank D. Lucas,
Chairman,                            Ranking Minority Member,
Committee on Agriculture,            Committee on Agriculture,
Washington, D.C.;                    Washington, D.C.
    Dear Chairman Peterson and Ranking Member Lucas:

    Thank you for the continuing dialogue you have afforded our 
associations on the issue of climate change. Your continued outreach to 
the agricultural community remains our most important forum in which to 
participate in this monumental undertaking. We are writing to share our 
perspective on the potential implications of the legislation for the 
food supply chain and ultimately, American consumers. At this point, we 
frankly have more questions than answers regarding the impacts of this 
legislation.
    As you probably know, many food industry companies, for sound 
business reasons, have already undertaken efforts to improve production 
and energy efficiency in their plants and throughout the supply chain. 
Many of our member companies have participated in contractually binding 
CO2 emission reduction programs. In addition, several of our 
member companies operate in countries that are subject to Kyoto 
Protocol reduction requirements, and some have even participated in the 
Clean Development Mechanism (CDM) projects under the Kyoto Protocol. 
Thus, our associations are familiar with the proposed scope and intent 
of many of the requirements included in the legislation. However, the 
details and specific policy implications are less clear.
    Now that the Waxman-Markey bill has moved through the House Energy 
and Commerce Committee and the bill language is available, we finally 
have an opportunity to conduct a more thorough analysis of the 
legislation. At this point, however, because of the complexity 
involved, the vast majority of our member companies have not fully 
completed their assessment of the legislation. As we continue our 
analysis, we want to highlight for you some of the many and complex 
issues that appear to be the most significant for the food sector--
including producers, processors, and consumers. Though many of the 
details of the legislation have only recently been provided, our 
limited analysis safely concludes that the legislation would have a 
significant impact on the entire food supply chain.
    The direct cost of allowances for entities that emit more than 
25,000 tons of CO2 will be directly added to the operating 
cost of each facility. One can safely assume that firms would seek to 
cover added costs by passing them forward or backward in the supply 
chain. This will inevitably impact costs for consumers, returns for 
producers, or a mix of both. Without a reallocation of these costs, 
processing firms would not remain viable.
    Numerous studies have predicted prices for future allowances. The 
CBO score for the Waxman-Markey bill places the cost at $26 per ton in 
2019, the tenth year of a 10 year budget scoring window. But the CBO 
budget scoring window does not cover the life of the bill, which is 
scheduled to require emission reductions until 2050--well beyond CBO's 
analysis. We believe an analysis through 2050 is critical in order for 
our industry to understand the costs in the out years when allowance 
supply is reduced to less than \1/5\ the level at the beginning of the 
legislative mandate.
    The allocation formula in the Waxman-Markey bill exempts through 
2029 some of the most high intensity users of energy from needing to 
purchase a significant portion of their allowances. Meanwhile, food 
production facilities will have to purchase allowances. At the same 
time, they will be competing in energy markets with those that received 
a significant portion of their allowances for free. It is unclear how 
this imbalanced competition in the energy market will impact entities 
that must continue to pay full price for allowances. We are also 
focused on the downstream effect of this cost structure for the farm 
gate and at retail for consumers.
    Not only is it important to understand the direct cost of 
allowances, it is equally important to understand the added indirect 
impact of higher energy costs on the food production chain. These costs 
would impact not only those above the reduction threshold, but those 
below it as well. Free allowances to the energy producing sectors will 
only cover a portion of their CO2 emissions, so even though 
free allowances will not end until 2029, the impact of higher energy 
prices will begin to be felt immediately. The impact of higher energy 
costs on consumers, producers and processors is not yet well 
understood, but it will not be marginal.
    It is surmised that the legislation would create incentives for the 
use of more efficient methods of production, resulting in the use of 
less energy. But as the Committee understands, our industry relies 
heavily on the use of heat for the sanitation of facilities and the 
protection of consumers from foodborne pathogens. We can safely project 
that the current legislation would make food safety interventions more 
expensive. Despite the demand created by the legislation to reduce 
energy usage, this is not a place where our companies can responsibly 
make energy reductions.
    Agricultural offsets have been discussed as revenue opportunities 
for producers and as a means to help alleviate the cost of allowances 
for emitters. The legislation places several statutory requirements on 
the creation of offsets which may inhibit the creation of agricultural 
offsets. Additionally, the legislation places hurdles on the actual use 
of offsets by emitters. These provisions should be carefully evaluated 
to determine the degree to which agricultural offsets will be 
available, and the degree to which emitters could actually use offsets 
for compliance purposes. An ineffective offset program would not 
provide benefits to producers and would reduce opportunities for 
emitters to meet their compliance obligation. Understanding the impact 
of the statutory provisions on offsets is a critical piece of knowledge 
that is missing.
    Many observers and indeed proponents of this legislation concede it 
will come with costs. We fear that efforts to help certain sectors 
minimize burdens will significantly impact the cost structure of one of 
the most critical sectors of the national economy: that sector which 
provides the most basic human necessity--food.
    We believe the Agriculture Committee should carefully analyze the 
legislation to fully understand the concerns we have raised, and we 
applaud your efforts to review this pending legislation through the 
hearing process.
    During these difficult economic times, we believe it is unwise to 
insert additional economic uncertainties into an already fragile 
marketplace. Given this and the issues raised in this letter, in the 
absence of a more thorough examination of this monumental bill and its 
economic consequences on the food supply chain and American consumers, 
we respectfully ask that Members not support passage at this time.

National Meat Association;
American Meat Institute;
National Chicken Council;
National Turkey Federation;
National Grain and Feed Association.
                                 ______
                                 
         Submitted Statement by National Pork Producers Council
Introduction
    The National Pork Producers Council (NPPC) is an association of 43 
state pork producer organizations and serves as the voice in 
Washington, D.C., of America's 67,000 pork producers. The U.S. pork 
industry represents a significant value-added activity in the 
agriculture economy and the overall U.S. economy. In 2008, it marketed 
more than 110 million hogs, and those animals provided total gross 
receipts of $15 billion. Overall, an estimated $21 billion of personal 
income from sales of more than $97 billion and $34.5 billion of gross 
national product are supported by the U.S. hog industry. Iowa State 
University economists estimate that the U.S. pork industry is directly 
responsible for the creation of nearly 35,000 full-time equivalent jobs 
and helps generate an additional 515,000 indirect, mostly rural, jobs. 
The U.S. pork industry today provides about 20 billion pounds of safe, 
wholesome and nutritious meat protein to consumers worldwide.
Pork Producers' Commitment to the Environment
    The pork industry is proud of the reputation it and its members 
have earned for initiating innovative environmental improvement 
programs. NPPC and its producer members take an active role in advocacy 
at both the Federal and state levels for clean water environmental 
initiatives. Accordingly, the U.S. pork industry continues to treat as 
its top goal meeting worldwide consumer demand while simultaneously 
protecting water, air and other environmental resources that are in our 
care or potentially affected by our operations.
    In this regard, pork producers take a broad view of what it means 
to be environmentally responsible farmers and business people, and we 
have fully embraced the fact that our pork producing operations must 
protect and conserve the environment and the resources we use and 
affect. We take this responsibility with the utmost seriousness and 
commitment, and it was in this spirit that our producer members made a 
major commitment to environmental conservation. NPPC played a 
leadership role in the establishment of Air Consent Agreements 
(``ACA'') between the U.S. Environmental Protection Agency and 
approximately 2,700 swine operations. We are also a founding member of 
the Agricultural Air Research Council. NPPC has been instrumental in 
the establishment of the National Air Emissions Monitoring Study 
(``NAEMS''), and pork producers from across the country are providing 
the nearly $6 million in research funds that are being used by NAEMS to 
fund this air research, including tracking of greenhouse gas emissions, 
at six swine farms nationwide.
    To promote confidence in what our producers do and how they do it, 
NPPC is working with producers to affirm their obligation to safeguard 
natural resources in all of their practices. To this end, pork 
producers are committing themselves to:

   Managing manure as a valuable resource and using it in a 
        manner that safeguards air and water quality.

   Managing air quality from production facilities to minimize 
        the impact on neighbors and the community.

   Managing operations to protect the quality of natural 
        resources.

    Similar commitments are being made by pork producers in the 
critical areas of food safety, animal well-being, public health, 
employee care and all aspects of our community responsibilities.
    Finally, as an industry, pork producers have engaged in a voluntary 
effort to calculate their total carbon footprint, from farm to fork, 
and identify sources of climate emissions and ultimately opportunities 
for emissions reductions. The research, financed by pork producers and 
being conducted through the University of Arkansas Applied 
Sustainability Center together with an industry working group, is 
designed to help the industry better understand its role in the effort 
to address climate change.
Pork and Livestock Agriculture's GHG Performance
    While pork producers are engaged in their effort to voluntarily 
determine the complete GHG footprint of the pork sector, the 
considerable information already available about pork's and animal 
agriculture's GHG performance allows a sound, preliminary picture to be 
formed.
    Contrary to the preconceptions of many observers, the domestic 
animal agriculture industry is a considerable success with respect to 
its low and relatively constant GHG emissions and the dramatic trend 
toward lower emissions per unit of food. Some of the discrepancy 
between the conventional or perceived wisdom and the actual performance 
of U.S. animal agriculture stems from the misuse of the results from 
the analysis conducted in support of the U.N. Food and Agriculture 
Organization's 2006 report, ``Livestock's Long Shadow''.\1\ That report 
said livestock agriculture worldwide was responsible for 18 percent of 
the world's GHG emissions. But approximately half of the emissions 
attributed to livestock in that report resulted from worldwide 
deforestation efforts, an activity not taking place in the U.S. Another 
large portion of the FAO figure comes from enteric emissions from 
ruminant species, an emissions source that is not included in this 
proposed registry, nor is it included in European programs. In fact, as 
can be seen in the report, modern animal feeding operation systems in 
the U.S. are shown to represent only about five percent of the world's 
emissions, and four percent if you do not include the deforestation 
element (see Table 3.12, page 113). This latter figure is considerably 
more consistent with the figure cited by EPA in its recent GHG 
Inventory, where modern U.S. livestock agriculture is reported to be 
responsible for approximately 2.5 percent of U.S. GHG emissions, about 
half of which are from enteric fermentation (1.7 percent of total).\2\
---------------------------------------------------------------------------
    \1\ UN Food and Agriculture Organization (FAO), 2006. ``Livestock's 
Long Shadow; Environmental Issues and Options.'' FAO. Rome, Italy. See 
page 112, and table 3.12.
    \2\ Environmental Protection Agency (EPA), 2008. ``Inventory of 
U.S. Greenhouse Gas Emissions and Sinks: 1990-2006.'' EPA, Washington, 
DC. Calculated from statistics provided in tables ES-2 and 6-1.
---------------------------------------------------------------------------
    As these statistics show, modern U.S. livestock agriculture is a 
very small portion of U.S. emissions. Manure methane emissions from all 
livestock, as reported in the EPA Inventory, are only 0.6 percent of 
total U.S. emissions of all GHGs on a CO2 equivalent 
basis.\3\
---------------------------------------------------------------------------
    \3\ The other .2 percent of emissions associated with livestock 
production comes from nitrous oxide.
---------------------------------------------------------------------------
    Modern U.S. livestock agriculture is a tremendous example of how 
the world can produce the goods and services people need, in this case 
the very nutritious, safe food we eat, while producing less GHGs per 
calorie of food. In our view, it makes far greater public-policy sense 
to consider total food needs, given the size of a population, its 
income levels and preferences and needs for food products, and then 
consider how well a particular food production system meets these needs 
in total while also conforming to other societal objectives, such as 
food safety, affordability and a minimal environmental footprint, 
including fossil fuel use and GHG emissions.
    From this perspective, the critical question is how well will a 
particular food production system perform as a whole and in the context 
of the total amount of food that has been and will be needed to feed 
the U.S.'s and the world's growing population? The U.N. noted in its 
November 2008 report that there are ``limitations to emissions 
reductions in the agriculture sector particularly because of . . . 
providing food for a global population that is expected to continue to 
grow'' and that ``it would be reasonable to expect emissions reductions 
in terms of improvements in efficiency rather than absolute reductions 
in GHG emissions.'' \4\
---------------------------------------------------------------------------
    \4\ UNFCCC Technical Report #8, ``Challenges and opportunities for 
mitigation in the agricultural sector'', November 21, 2008. See pages 
7-8.
---------------------------------------------------------------------------
    Some recent statistics indicate that there is great cause for hope 
in this regard:

   Animal agriculture's GHG emissions from 1990 to 2005 have 
        remained nearly constant, increasing by only about 3.5 percent 
        since 1990, while over the same period total U.S. meat 
        production has increased 40 percent, milk production has 
        increased almost 16 percent and egg production has increased 
        about 33 percent.\5\ This means almost 30 percent less in total 
        livestock sector GHG emissions per pound of meat produced from 
        1990 to present.
---------------------------------------------------------------------------
    \5\ U.S. Department of Agriculture (USDA), 2007. ``U.S. Agriculture 
and Forestry Greenhouse Gas Inventory: 1990-2005.'' USDA. Washington, 
D.C. See Table 1-2, Page 5.

   Between 1948 to the present, while the manure generated by 
        U.S. meat producing animals has been reduced in total by 25 
        percent, the production of meat from the animal herd has 
        increased 700 percent.\6\
---------------------------------------------------------------------------
    \6\ Calculated from various USDA-NASS data sources.

    Not surprisingly, and given the success of the U.S. meat sector in 
improving its efficiency and reducing its footprint, the same U.N. 
report noted that modern agriculture is key to meeting the GHG 
challenge of reducing or ending the conversion of forestland through 
the ``intensification of agriculture . . . by producing more on land 
already in production.''
Pork Industry's Tough Economic Outlook
    Like many other segments of the U.S. economy, the pork industry has 
suffered financially over the past 20 months and continues to suffer 
tough economic times. Last year, U.S. pork producers lost an average of 
$22 on each hog marketed, and it has been estimated that the industry, 
as a whole, has lost 35 percent of its equity since September 2007. 
Until recently, the industry's one bright spot had been exports. 
Exports helped temper U.S. pork producers' losses in 2008, when the 
United States exported 2.05 million metric tons, or 4.4 billion pounds, 
of pork valued at nearly $5 billion. Last year was the 17th consecutive 
year of record pork exports.
    Unfortunately, much of this evaporated under the pressure created 
by the H1N1 flu outbreak. Before the flu outbreak, pork producers were 
losing money, but there was reason for some optimism. Exports were 
holding strong, and we were heading into the summer months, generally 
the strongest period for seasonal consumer demand. But the first day 
the flu outbreak received wide media coverage--April 24--pork producers 
were losing $10.91 per pig. After 2 weeks of reporting on the ``swine'' 
flu, pork prices fell dramatically, with producers losing an average of 
$20.60 per pig, or nearly $8.4 million a day. Pork prices dropped 
because of a dip in domestic demand as well as import bans on U.S. pork 
imposed by a number of U.S. trading partners, including Russia and 
China. Fortunately, Russia's ban now applies only to 13 states, most of 
which are not major pork producers, and at least a dozen countries that 
banned, or indicated they would ban, U.S. pork now have reversed 
themselves. But we are in a deep hole, and it will be a long while 
before we can climb out--and pork farms are going out of business as a 
result.
    It is against this grim economic backdrop and outlook that NPPC is 
considering the merits of and concerns with H.R. 2454, the American 
Clean Energy and Security Act of 2009.
Specific Observations on H.R. 2454

    1. Cap-and-trade is preferable to a carbon tax--Should Congress 
        decide to pass climate change legislation, after looking 
        closely at the challenges facing the domestic and world 
        economies and the need for controlling greenhouse gas 
        emissions, NPPC believes that a market-oriented cap-and-trade 
        system of the type that H.R. 2454 advances is far preferable to 
        either a simple command-and-control program or a carbon tax. A 
        cap-and-trade system has the possibility of achieving greater--
        and more sustainable--emission reductions at a greatly reduced 
        cost than a carbon tax on GHG emissions. This is because cap-
        and-trade provides covered entities the flexibility to choose 
        the lowest-cost abatement method available while guaranteeing 
        the required emissions reductions are made. Cap-and-trade also 
        turns these least-cost alternatives into financial 
        opportunities and will make all GHG capped emitters have a 
        vested interest in finding further low-cost and innovative ways 
        to reduce and offset emissions. This combination of flexibility 
        and positive incentives means a cap-and-trade program meets the 
        environmental goal at the lowest cost to the economy as a 
        whole.

    2. Not treating agriculture as a capped sector is the right 
        policy--H.R. 2454 has adopted the correct approach with respect 
        to not treating agriculture as a capped sector but rather as a 
        sector eligible for the offsets provisions in the bill. NPPC 
        believes that greater environmental benefits can be achieved by 
        not regulating agriculture under an emissions cap. With regard 
        to the agricultural sector as a whole, attempts to cap the two 
        million farms and ranches in this country would be costly and 
        burdensome and result in greater costs for society than the 
        benefits that would be derived from the resulting GHG emissions 
        reductions.

    3. Increased costs remain a serious concern for pork producers--
        Among our top concerns with any piece of climate change 
        legislation, given the economic conditions of our industry, are 
        the increased costs of electricity, diesel fuel, propane, 
        fertilizer, chemicals and building materials such as steel and 
        concrete that our operations will incur. While we do not yet 
        have good estimates of exactly how large these will be, we 
        anticipate increases in the 20 percent range or greater. We are 
        already losing money today for every pig sold, and any 
        additional costs will simply drive us deeper and more firmly 
        into the hole. To the extent that some of our producers can 
        reduce some of these losses with additional income from the 
        sale of carbon offset credits, that is a good thing. But we do 
        not believe that these revenues will outweigh the costs. And 
        many of our producers will have no opportunity to generate 
        credits. Most of our producers able to generate credits, they 
        will need to make a sizable capital investment, and such 
        capital is nearly impossible to come by today given the 
        underlying economic weakness in the industry. There is no 
        question that meeting the challenges laid out for the country 
        and our sector by climate change legislation will never be 
        easy, and our members do not take these challenges lightly, but 
        meeting the climate change challenges in the least economically 
        detrimental manner is critical to the survival of pork 
        producers.

    4. Maintaining international trade opportunities and a level 
        playing field remain top concerns for pork producers--On the 
        other side of these added costs, of course, are our concerns 
        about access to markets and a level playing field with our 
        competitors overseas. We are heavily dependent on the export of 
        pork to consumers worldwide for a large portion of our 
        revenues, and without these export opportunities, our chances 
        of sustaining our farms and industry simply do not exist. Cap-
        and-trade legislation concerns us in two regards in this area. 
        First, we are deeply concerned about having to bear the costs 
        of GHG emissions controls while our competitors overseas are 
        not. Loss of market share both domestically and in foreign 
        markets will result, and this is a major issue. If the U.S. is 
        to adopt such legislation, it is critical that the countries 
        where our competitors operate bear similar responsibilities. 
        Second, H.R. 2454 as passed out of Committee raises concerns 
        among many trade experts that some of the measures to transfer 
        income from capped emitters to affected industrial sectors will 
        result in trade disputes and outright cases being brought 
        before the WTO against U.S. companies. Aside from the obvious 
        loss of further momentum toward opening the world to greater 
        trade and its attendant benefits, trade disputes commonly end 
        up involving food and meat products. We are very concerned that 
        pork producers will be hurt by the collateral damage of such 
        trade disputes and further straining of the relationships 
        needed in general to expand trade opportunities. Great care 
        must be taken on these measures to avoid possible WTO disputes 
        and to eliminate them or minimize them to the fullest extent 
        possible. We would urge that, going forward, both USDA and EPA 
        work in close consultation with the United States Trade 
        Representative regarding the impacts on trade of any domestic 
        or international GHG action.

    5. The final bill must identify USDA as the lead agency on the 
        design and implementation of the agricultural offsets program--
        NPPC believes it is critical that the final bill explicitly 
        identify USDA as the lead agency for the agricultural offsets 
        program. USDA should promulgate the detailed rules and guidance 
        pertaining to the program, as well as oversee its day-to-day 
        implementation. USDA has the institutional resources as well as 
        the technical expertise necessary to carry out this function, 
        while EPA does not. Furthermore, USDA has a track record of 
        working with farmers on verification of agricultural practices 
        as well as studying, modeling and measuring carbon 
        sequestration and other GHG emissions reductions by the 
        agricultural sector. EPA, in consultation with the relevant 
        Cabinet agencies, can have responsibility for setting broad 
        offsets program objectives and standards and tracking 
        allowances and offsets in a GHG registry. USDA has the 
        statutory authority provided in the 2008 Farm Bill, the 
        institutional resources and the technical expertise necessary 
        to create and administer an agricultural offset program that 
        works for production agriculture. USDA should be given adequate 
        flexibility in implementing the offsets program to allow it to 
        account for new technologies and practices that result in 
        emissions reductions from agricultural sources.

    6. Early actors providing additional offsets must be allowed into 
        the program--Pork producers previously have initiated projects 
        and practices such as the use of a methane digester with the 
        flaring of gas or electricity generation that have led to GHG 
        reductions. Such systems are expensive to maintain and operate, 
        and it is not uncommon for their operation to cease as economic 
        pressures rise, as the USDA-NRCS reported in 2007 in its study 
        of the economics of methane digesters. Yet if the digesters 
        continue to be operated, methane is captured and destroyed, 
        providing additional GHG benefits. These producers and others 
        in comparable circumstances should not be disadvantaged by 
        being excluded from compensation for future offsets that occur 
        as a result of the future operation of their digesters or 
        similar projects. We believe it is both fair and appropriate to 
        push the allowed initiation date for such projects as far back 
        as possible, and we cannot support the 2006 date in H.R. 2454 
        as currently drafted. We appreciate the amendment adopted in 
        the markup of the bill that would give the EPA Administrator 
        discretion to allow earlier dates on a project-by-project 
        basis, but we find that measure both unnecessary and too 
        uncertain in its effect and therefore not good policy. We 
        suggest, instead, January 1, 1999, as a starting point for 
        eligible reduction projects.

    7. Verification of agricultural offsets must rely on the power of 
        strong research, statistical sampling and spot checks to keep 
        the cost of this important administrative cost down--The final 
        bill must allow and direct the program administrator to devise 
        protocols, methodologies, procedures, registry requirements, 
        verification requirements and any other relevant process issues 
        to be as operationally lean as possible and to reduce overhead 
        costs of compliance.

    8. Give farmers certainty whenever possible as to what types of 
        projects will most likely qualify for credits--The final bill 
        must include a list of the types of agricultural offset 
        activities that are known to qualify for the offsets program 
        immediately and must direct and allow the program administrator 
        to update and revise this list quickly as new types of sound 
        projects and practices become established and verifiable.

    9. Deal with the issues of the permanence and reversals of offsets 
        in the simplest manner possible by allowing the offset prices 
        paid to vary according to the degree of permanence--H.R. 2454 
        fails to define the term permanence in the context of offsets, 
        and it is critical that the final bill do so in a manner that 
        allows the program to be as operationally lean as possible and 
        to reduce overhead costs of compliance. Rather than select an 
        arbitrary time frame for offsets to be permanent, the price 
        paid for offsets should be allowed to vary according to the 
        permanence of the offsets, with top premiums being paid for 
        those that are literally permanent. The risks of unintentional 
        reversals and leakage must be fully managed at a program level, 
        not at a project level. (At the same time, offset providers 
        must be held accountable for any and all intentional reversals, 
        and such responsibilities should be spelled out in the 
        contract.) Biological sequestration offsets must be credited at 
        a discounted rate so that the difference between the value of 
        the full offset and a discounted offset is the source of funds 
        to manage all risks of reversal.

    America's pork producers have been and will continue to be good 
environmental stewards. Many of them have adopted practices that have 
lessened their environmental footprint and cut greenhouse gases. But 
they are very concerned about the added costs--particularly given the 
pork industry's current economic crisis--they will incur because of 
climate change legislation.
    NPPC shares those concerns and will work to ease the impact on U.S. 
pork producers of any climate change legislation. The organization will 
continue to monitor H.R. 2454, the American Clean Energy and Security 
Act of 2009, as it moves through the legislative process.
    [If you have questions or need additional information, contact Kirk 
Ferrell or Michael Formica at [Redacted].]
                                 ______
                                 
       Submitted Letter by American Fisheries Society, et al.\1\
June 11, 2009
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    \1\ Signatories: American Fisheries Society * American Sportfishing 
Association * Association of Fish and Wildlife Agencies * Boone and 
Crockett Club Congressional Sportsmen's Foundation * Ducks Unlimited * 
Houston Safari Club Land Trust Alliance * Mule Dear Foundation * 
National Shooting Sports Foundation * National Trappers Association * 
National Wild Turkey Federation North American Grouse Partnership * 
Pheasants Forever * Quail Forever * Safari Club International * 
Theodore Roosevelt Conservation Partnership * Whitetails Unlimited * 
Wildlife Management Institute.
 Hon. Collin C. Peterson,             Hon. Frank D. Lucas,
Chairman,                            Ranking Minority Member,
Committee on Agriculture,            Committee on Agriculture,
Washington, D.C.;                    Washington, D.C.
    Dear Chairman Peterson and Ranking Member Lucas:

    Our organizations represent millions of hunter and angler 
conservationists and outdoor enthusiasts, and we write you today to 
support your efforts to help shape the American Clean Energy and 
Security Act (H.R. 2454) to be responsive to the needs of foresters, 
farmers and ranchers whose private lands serve as vital habitat for 
fish and wildlife.
    Our goals are twofold: to seek legislation that provides incentives 
to landowners to keep their land intact while maintaining quality 
habitat conditions, and to achieve carbon emissions reductions in a 
manner that is cost-effective so that energy input costs to farmers, 
ranchers and forest producers remain stable. America's agricultural 
lands and private forests sequester much of our country's annual carbon 
emissions, and Federal entities estimate that landowners could double 
this capacity with appropriate incentives. In conjunction with 
dedicated funding for fish and wildlife habitat programs, sportsmen 
organizations see real opportunity to make significant gains.
    We believe that the U.S. Department of Agriculture (USDA) has the 
appropriate expertise and relationships with farmers, ranchers and 
forest producers to help develop guidelines and implement offset 
markets in these areas. We recognize that the Environmental Protection 
Agency will have authority to assure performance, quality control, and 
certification of Federal offsets, but this should be in support of--not 
in place of--USDA's leadership role in working on the ground with 
private landowners in developing and implementing offsets for 
agriculture and forestry.
    Improving forest and rangeland health, protecting grasslands and 
native prairie, and creating a positive dynamic among landowners, USDA 
and State Fish and Wildlife Agencies will lead to rapid progress in 
protecting fish, wildlife and its habitat. Thank you for considering 
our views.
                                 ______
                                 
                         Submitted Questions *
Questions Submitted By Hon. Stephanie Herseth Sandlin, a Representative 
        in Congress from South Dakota
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    * There was no response from the witnesses by the time this hearing 
went to press.
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Responses from Hon. Thomas ``Tom'' Vilsack, Secretary, U.S. Department 
        of Agriculture
    Question 1. I'd like to ask a few questions on USDA's input 
regarding EPA's speculative use of indirect land use in their proposed 
lifecycle greenhouse gas rule, which I oppose. Can you elaborate on the 
role USDA will play in the peer-review process for EPA's modeling of 
land use changes?

    Question 1a. Do you believe that USDA has available to it the 
resources necessary to initiate a research effort that fairly 
determines such indirect effects?

    Question 2. I've talked with small refiners who have an important 
role in South Dakota and across the Midwest and they have serious 
concerns about how the Energy and Commerce legislation will affect 
small refiners. As you know, many small refiners producing under 
205,000 barrels per day, are found in the Midwest. My understanding, 
based on discussions with CHS, is that three co-operative refineries 
provide over 50 percent of diesel for agriculture. If their costs 
increase or they are forced out of business, the inevitable cost 
increases will be very heavily borne by producers. Can you elaborate on 
what USDA is estimating the cost of this legislation will be on diesel 
refiners?

    Question 2a. Does USDA have suggestions for how the legislation 
could be improved to ensure that small refiners can continue to provide 
diesel to agriculture?
Response from Bob Stallman; Steve Ruddell; Earl Garber; Fred Yoder; 
        Roger Johnson; Ken Nobis; Hon. Glenn English; and Ford B. West
    Question 1. As you know, EPA recently released a report stating the 
economic benefits for producers under an agricultural offsets program 
may be less than originally anticipated in light of projections of 
lower than estimated carbon prices. Originally EPA estimated that 
carbon trading at $15/ton would result in a reduction of carbon 
emissions by nearly 700 million metric tons annually from farm and 
forestry practices, with 25 percent of those savings coming from 
keeping crop residue in the soil through reduced tillage. However, the 
recent estimate based on the ACES bill now states that the carbon 
credits from agriculture and forestry likely won't exceed 300 million 
tons until after 2040 and most of those offsets would come from 
planting and preserving forests, not through agriculture. What do you 
make of this recent analysis?

    Question 1a. Have you run figures to estimate whether the potential 
benefits of an agriculture and forestry offsets program would still be 
enough to offset the increased input and energy costs likely under this 
bill?
Response from Roger Johnson, President, National Farmers Union
    Question 1. One of the key priorities for establishment of an ag 
offsets program is the role and eligibility of early actors. I agree 
this is important. SD farmers and ranchers make up the second largest 
group of offsets projects under the Farmers Union Carbon Credit Program 
and have already seen many benefits from participation in this market. 
NFU and many of commodity groups testifying here with you today have 
asked that projects begun after January 1, 2001 be considered eligible 
for offsets credits. The current ACES legislation only makes projects 
established after January 1, 2009 eligible. If project eligibility is 
made retroactive to January 1, 2001, as you request, how many of the 
current offset projects do you estimate would qualify for credits 
versus using the January 1, 2009 deadline?
Response from Hon. Glenn English, CEO, National Rural Electric 
        Cooperative Association
    Question 1. According to an analysis provided to my office by 
NRECA, the more than 300,000 rural electric co-op customers in my state 
are at risk of unacceptable rate hikes under the Energy and Commerce 
bill's allocation of allowances. The allocations to South Dakota 
cooperatives as a percentage of their share of the cap will only be 
68%, according to NRECA's analysis, while utilities and even other 
coops on the West and East Coasts would receive more than 100 percent 
of what they need. What formula would you suggest for use in a bill and 
how would that correct the inequities in the current bill?

    Question 1a. Have you run the numbers under your proposal and can 
you share any such analysis with the Committee?
Questions Submitted By Hon. Timothy V. Johnson, a Representative in 
        Congress from Illinois
Response from Hon. Thomas ``Tom'' Vilsack, Secretary, U.S. Department 
        of Agriculture
    Question 1. Secretary Vilsack, multiple agriculture groups in my 
district, including some here today, have come out in opposition to 
this bill because it will raise their members' input costs and put them 
at a disadvantage with foreign competitors. What do you think could be 
done to address the concerns of rural America and make this bill 
palatable for the agricultural community? Would you or President Obama 
withhold support for this legislation if these agricultural concerns 
were not met?

    Question 2. Estimates on how much this bill will cost the average 
household range from $98 to $3,100 a year. With such disparate 
estimates, why are many in Congress and the Administration rushing this 
policy through without more thoroughly explaining these costs to the 
American people?

    Question 3. Secretary Vilsack, how can Congress mitigate the cost 
increases for those producers unable to participate in a potential 
agriculture offset program?

                                  
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